Allen & Gerritsen Makes a Buy

Allen & Gerritsen helped itself in several ways through its decision last week to acquire GSO/ Davis, industry analysts said.

Along with adding seasoned talent and some sizable accounts once the deal is completed in coming weeks, A&G will cement its position as New England’s largest independent ad agency, making it a more attractive acquisition target, analysts said.

“It’s not a question of if they’re going to sell Allen & Gerritsen,” said Skip Pile, chairman of Boston consulting company Pile and Co. “The question is, when?”

Agency president Andrew Graff said selling is “not the goal,” at least for now. He stressed that the bulked-up agency, which will claim $160 million in billings and 120 employees, will be more competitive and therefore better configured for organic growth.

A&G management believes the shop’s enhanced size and independence make it “a great alternative” to publicly held rivals, Graff said. “We can do what we have always done … [focus] on the client’s success without the internal pressure” of answering to outside shareholders, he said.

“Long term, I don’t think the midsize model can work. It’s something of a no-man’s land,” said marketing consultant Chris Colbert, a former president of Boston agency Holland Mark. That shop became the region’s largest independent, with upward of $200 million in billings, following its 1999 buyout of In galls. But unable to grow beyond its regional base and battered by the slowing economy and client losses, Holland Mark closed last year.

Though A&G may soon be able to attract larger clients, the shop will still be too small to vie with the region’s largest players, let alone against national competition, analysts said.

To grow organically over the long haul, “they are now essentially committed to unseating one of the big three,” said Colbert, referring to Arnold; Hill, Holliday, Connors, Cosmopulos; and Mullen, all owned by publicly traded companies. Fourth-ranked A&G would need a boost akin to Arnold’s winning Volkswagen in 1995 to break through, Colbert said.

Furthermore, management may have a limited time in which to sell, if indeed a deal can be found. “Intelligent buyers will want to see if they can retain their assets” in terms of clients and personnel added from GSO/ Davis, Colbert said. “The ugly reality is, these assets can be fleeting.”

Terms were not disclosed, though analysts said a shop the size of GSO/Davis (with revenue of about $7 million) would likely fetch $6-10 million. Retaining the A&G name post-acquisition, the shop will clearly lead Portland, Maine-based Via ($110 million in billings) among New England independents.

Graff and chairman and CEO Paul Allen will retain their positions post-acquisition. Terry O’Leary, president and CEO of GSO/Davis, will mainly focus on new business once the shops are combined.

Based in Watertown, Mass., A&G already works for clients such as State Street Corp., TJX’s HomeGoods and Kronos. The shop will add Spalding Sports Worldwide and sister grocery chains Shaw’s and Star Market from GSO/Davis, Boston.