Omnicom Likely to Absorb Agency.com, Organic

Omnicom Group confirmed plans to bring interactive shops Agency.com and Organic back under its umbrella, amid controversy surrounding the units’ spin-off last year.

During a conference call Wednesday, Omnicom Chief Financial Officer Randall Weisenberger reiterated that the New York-based holding company intends to re-acquire control of New York-based Agency.com and San Francisco-based Organic from Seneca Investments.

Omnicom, in partnership with Greenwich, Conn.-based venture firm Pegasus Partners, established Seneca last year to hold Omnicom’s investments in a number of interactive agencies. Since then, Seneca has taken both Organic and Agency.com private.

But questions concerning the creation of Seneca arose when Wall Street Journal story Wednesday suggested that the move had been done to shield losses from the units from Omnicom’s bottom line.

Omnicom executives strenuously refuted the claim, and any allegations of unethical accounting, during the conference call on Wednesday. Instead, they reaffirmed their commitment to moving Organic and Agency.com — the two largest Seneca agencies — back into the main Omnicom group of companies.

Financial details weren’t available concerning how such an acquisition could take place. Weisenberger said that Seneca’s assets totaled in the range of $300 million to $370 million, in which Omnicom has a $280 million preferred equity share.

Weisenberger said Omnicom sought the firms in part because of Seneca’s success in leading the agencies to profitability, with Agency.com bringing in about $100 million in annual revenue, and Organic about $50 million. He added that the firms are on a run rate of $12 to $16 million of operating income.

“Their values were, in one point in time, incredibly, astronomically high relative to their size, and while it’s fallen back to earth, I’ve got to congratulate management for creating great companies within a small amount of time … We’d like to own them. We’d think they fit very well in the Omnicom Group of companies … We have an interest in acquiring 100 percent of those agencies.”

Continuing a trend of major direct marketing and advertising players’ interest in enhancing multi-channel capabilities, Weisenberger also added that Omnicom sought the firms because its traditional agencies lagged in creating robust online practices — and the entire organization could benefit from synergies in jointly servicing advertisers.

“In the early years, ’97,’ 98, ’99 we introduced [Organic and Agency.com] to a lot of clients and our agencies worked with them in developing those relationships,” he said. “Once they started chasing the IPO market … our agencies went out and started developing their own capabilities. We have not been as successful as Agency and Organic in developing those businesses.”

Weisenberger also said the current organization of the agencies made them now more favorable to full-blown integration.

“Some of the issues that we had with Organic and Agency is we never had control of them,” he said. “That was not necessarily how we would have run the businesses. I can’t blame the management teams there — they chased the IPO money, and chased the brass ring … What Seneca was able to do is acquire 100 percent of those companies and has been very successful in reconstituting their cost structures.”

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