News Column

Merger Fever

October 2001

By Derek Reveron, HISPANIC BUSINESS® magazine

Hispanic ad agencies increasingly make tempting takeover targets for international conglomerates.

Hoping to cash in on the growing strength of Spanish-speaking consumers, global conglomerates continue to acquire ownership stakes in Hispanic agencies.

In one of the largest such deals, the U.S. division of Paris-based Publicis Group has purchased 49 percent of Miami-based Sanchez & Levitan and acquired the Dallas and Los Angeles offices of Miami-based Siboney.

The merger illustrates Publicis’ confidence in the Hispanic advertising market, says Robert Bloom, chairman and CEO of Publicis in the United States. “We’re confident that it will turn around. The Spanish-speaking population will become more important to our clients as it grows. That’s why we wanted to enter the market with a bang,” he says.

Publicis has combined the two agencies to form Miami-based Publicis Sanchez & Levitan, the sixth-largest Hispanic advertising firm in the nation. PSL has about 100 employees and billings of about $80 million, nearly double Sanchez & Levitan’s 2000 revenue. The new company’s clients include Nestlé, Coca-Cola, Denny’s, BellSouth, and the Florida Lottery.

Agency cofounders Aida Levitan and Fausto Sanchez will head the new company as co-chairman/CEO and co-chairman/president, respectively. Siboney, which is owned by True North Communications, will retain ownership of its Miami and New York offices.

In another acquisition earlier this year, DDB Worldwide Communications purchased a 49 percent stake in del Rivero Messianu, a Coral Gables, Florida, firm with billings of about $70 million. Also, Havas Advertising and its major network Euro RSCG Worldwide purchased a stake in Premier Maldonado & Associates, Puerto Rico’s leading agency, with offices in Miami and the Dominican Republic. Terms were not disclosed. As part of agreement, PM&A changed its name to Premier Euro RSCG.

These mergers are the latest in a series of partnerships forged between independent Hispanic agencies and general-market firms over the last decade or so. Young & Rubicam owns a stake in the Bravo Group of New York, for example, and Bcom3 Group has 49 percent of San Antonio–based Bromley Communications. Of the approximately 65 member firms of the Association of Hispanic Advertising Agencies, at least 21 are partially or wholly owned by a conglomerate, or have some other type of limited equity arrangement, says Horacio Gomes, president of AHAA. Expect to see more mergers in the future, he says.

The deals represent a growing effort by big agencies to acquire what they need to service Hispanics and other major ethnic groups. Publicis, for example, also owns 49 percent of the Burrell Communications Group, a Chicago agency that specializes in advertising for African-American consumers.

The most recent acquisition activity comes as U.S. Census figures confirm that advertisers can no longer afford to ignore the Spanish-speaking market. “The Census figures showed growth in the Hispanic market that even [Hispanic advertising executives] didn’t anticipate,” says Joe Zubizarreta, COO of Zubi Advertising in Coral Gables.

The U.S. Hispanic population exceeds 35 million and grew by 58 percent over the last decade – nearly five times the nation’s overall growth rate, according to the Census Bureau. In California, Anglos now account for less than half of the population, casting doubt on the very meaning of the word “minority.” Hispanic purchasing power now tops $492 billion (see “Hispanic Purchasing Power Takes Off,” June).

“The figures represented a wake-up call to Corporate America. We should see an increase in investment in the Hispanic market once the economy turns around,” says Mr. Gomes.

Hispanic advertising agencies receive only about 1 percent of all advertising dollars spent. Still, the market has come a long way from the days when advertising agencies all but ignored what were then comparatively small corporate ad budgets for Hispanic consumers. In each of the last two years, Procter & Gamble spent $46.2 million, topping HISPANIC BUSINESS magazine’s list of leading Hispanic-market advertisers (see Media Markets Report, December).

Advertising executives believe budgets for the Hispanic market can only grow. They cite three main reasons: the recent Census data, the growing prominence of Hispanic-oriented television networks, radio stations, and publications, and an inevitable improvement in the U.S. economy.

“I think that once we pull out of this recession or slowdown, there will be improvement in our market. Meanwhile, we are very much impacted by the economy, like any other agency,” says Jessica Pantanini, Bromley vice-president and media director. Bromley has laid off about half of the 26 people in its media group. Headquarters Advertising in San Francisco is down to about 25 employees after cutting back three positions, says Mr. Gomes, the agency’s CEO.

Hispanic agencies with general-market partners believe they are poised to reap higher billings when the advertising market recovers. “Doors opened to us as soon as we became part of Publicis. We were limited by being a Miami agency,” says Mr. Sanchez. After the merger, PSL acquired the accounts of two additional brands – Nescafé and Stouffers – from Nestlé, which now accounts for 25 to 30 percent of billings.

PSL’s offices in California and Texas give it a greatly expanded reach in the nation’s two largest Hispanic markets. Eventually, the agency will also service some of Publicis’ Latin American clients, says Mr. Bloom. He believes that PSL can deliver advertisements that are relevant to the language and culture of Hispanics in any market while remaining true to a brand’s general-market theme.

Advertising executives whose shops have merged believe that the remaining independent agencies will have to do likewise to remain competitive. They say that without a major partner, it will become increasingly difficult for independents to strike big deals with advertisers of well-known brands. Says Mr. Sanchez: “You have to have a big partner to grow in our industry.”

On the other hand, he adds, large firms badly want partners to help them tap the growing Hispanic market. His agency received several offers before closing the deal with Publicis, he says.

But some executives of independent agencies are wary of merging. Zubi Advertising, a major independent agency, continues to turn down offers, says Mr. Zubizarreta. “We have been courted by three big players, but I’m gun-shy because I see how it has affected some of my peers. I have yet to see proof that these mergers have brought tremendous growth to agencies that have been bought out.”

Indeed, Zubi Advertising is maintaining solid growth on its own. Billings are expected to reach $100 million this year, up from about $86 million in 2000. And the company added seven employees this year, bringing its total to 82.

Mr. Gomes also has received merger offers, and turned them down mostly for nonfinancial reasons, he says. “There are several factors besides money. Some people have told me that their company culture, decision-making, and creative process have changed due to the structure of multinational agencies. That reflected on my own decision,” says Mr. Gomes, whose agency had billings of $36 million in 2000.

Executives who have been involved in mergers claim they have maintained their company culture and creative freedom. Bromley Communications, which five years ago sold a 49 percent stake to what is now advertising conglomerate Bcom3 Group, is one of the nation’s largest Hispanic advertising firms, with billings of more than $178 million. “Our relationship has been at arm’s length from Bcom3,” says Ms. Pantanini. “We work with a lot of different agencies outside of the Bcom3 system. We have managed to maintain our independence while working with the corporation. We have the best of other worlds.”

For del Rivero Messianu, a merger was attractive because DDB Worldwide would enable the agency to handle Latin American accounts. “You will see more advertising synergy between U.S. Hispanics and Latin America,” says Louis Miguel Messianu, the agency’s creative director. “We can provide clients with economy of scale, by customizing themes for U.S. Hispanics for certain Latin American countries.”

Like most Hispanic and general-market agencies that merge, DDB and del Rivero had a history of partnering on advertising accounts. Joint clients included State Farm Insurance and Volkswagen. In 1996, DDB bought a small, undisclosed stake in del Rivero, but sold it back in 1998. The companies continued to handle some accounts together until the recent merger. “We are confident that Hispanics are a top priority for DDB, but we didn’t always feel that way,” says Mr. Messianu.

Source: HISPANIC BUSINESS magazine

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