TimeZoneOne actively seeking acquisition in US, CEO says
March 8th, 2008 www.mergermarket.com
TimeZoneOne, a Chicago, Illinois-based advertising agency with offices in New Zealand, is seeking a US acquisition, said CEO Richard Tattershaw.
The company has interviewed M&A experts including the law firm Baker & Mackenzie and the investment bank Houlihan Smith, and hiring someone is “getting relatively imperative for us,” said Tattershaw. Its current law firm is Funkhouser Vegosen Liebman & Dunn.
TimeZoneOne is looking for an agency “with a portfolio of good brands” with revenues in the USD 1m to 5m range and would expect to pay a multiple of three to five times revenue, said Tattershaw. It would like to complete the acquisition in the next six months, he added.
Robert Brandt, president and sole owner of Burr Ridge, Illinois-based marketing firm Robert Brandt & Associates, said he could foresee TimeZoneOne approaching his company if it wanted to have a more significant presence in Chicago. The firm has received offers in the past from larger agencies, “not the top 10 players,” Brandt said, and would consider additional sales opportunities. The company generates annual revenues of roughly USD 5m, he said, and would probably get offered no less than six to seven times its EBITDA; a strategic acquisition is more likely than a private equity one, since a company in the former sphere would pay more, he added.
Robert Brandt’s clients include Alcoa and Lord Bissell & Brook. It specializes in interactive online marketing, designing ads with the use of Flash Player, Brandt said, and its executives have worked at top advertising agencies, such as Leo Burnett, in the past.
Boomm Marketing, a Westchester, Illinois-based agency with 20 employees and USD 5m in revenues, would consider buyout offers if they made strategic sense, but is not actively for sale, said President Gary Mattes. The company would be wary of an international creative base that might not be in tune with US culture and attitudes essential to a good marketing campaign, he added.
Tattershaw declined to comment on specific targets but said that there are many “old world” agencies in Chicago, while TimeZoneOne is a “new world” agency.
TimeZoneOne has had talks with one agency with revenues of USD 5m, and is talking with a number of others. The company is looking for an arrangement in which business development and account and project management would be based in the US, while most of the creative work, such as graphic design and copywriting, would be based in New Zealand.
The acquisition would be funded with a combination of “upfront” cash as well as the company’s cash flow, which would be improved by the increased profit that Tattershaw anticipates for the target when it adopts TimeZoneOne’s business model. This would be enough to fund an earn-out over time, he said. In addition, the company has a line of credit up to USD 2m with New Zealand bank West Pac.
The company’s international division of labor makes the company more profitable than most, he said. An EBIT of 20% is considered respectable for most advertising agencies, while TimeZoneOne achieves an EBIT of 40%, he explained. If TimeZoneOne acquired an agency achieving “the usual modest profit,” the combination could help it increase its profit margin. This would likely result in a reduction of US-based creative staff, he said, but there would be plenty of opportunities for employees to relocate to New Zealand. The company keeps 80% of its creative capacity in full-time employees, relying on freelancers for the remaining 20%, said Tattershaw.
The company’s long term goals include increasing in size and client base in order to become attractive to larger agencies like WPP and Omnicom in the next three to five years, he said.
The company was founded in 1995 and currently has 30 employees. It is owned by its three partners, Tattershaw, head of new business Richard McDonald, and CFO Andrew Carruthers. Its 2007 revenues were USD 4.5m.
by Hana Askren and Sam Weisberg www.mergermarket.com
