On the heels of last week’s announcement by advertising giant Omnicom Group that it would restructure its relationship with interactive agency Organic, the New York-based Omnicom is taking new steps aimed at shoring up its troubled i-shops.
On Tuesday, the company said it has entered into what it describes as “an agreement in principle” with venture capitalists Pegasus Partners, to create a new holding company out of its interactive agency portfolio.
As part of the arrangement, Omnicom will contribute “several” of the existing investment positions held by its Communicade unit, which includes interests in publicly traded interactive agencies Agency.com, Razorfish and Organic. It did not specify which positions it is planning to “contribute,” or whether this constitutes a sell-off.
If so, it’s likely that the Omnicom positions, or a portion of them, will be purchased through Pegasus’ second, approximately $560 million leveraged buyout fund.
Through Communicade, Omnicom owns a 40 percent share in Alley-based Agency.com, a 17 percent stake in San Francisco-based Organic, and a “significant minority” of New York-based Razorfish.
The Communicade program originally was intended to connect its affiliated interactive firms with Omnicom’s ad agencies — which include BBDO Worldwide, TBWA Worldwide, and DDB Worldwide — and their clients. Indeed, Organic and BBDO Worldwide, for instance, share several clients, including General Electric, Daimler-Chrysler and British Telecommunications.
However, the market has changed significantly since Communicade’s formation in 1996. Like most of the space, Razorfish, Agency.com, and Organic have suffered from sagging revenues brought about in part by the loss of dot-com clients. The three firms’ stock prices are all 95 to 99 percent off of their 52-week highs, with shares of RAZF and OGNC trading below the $1 mark. Additionally, Organic has been warned by Nasdaq officials that it’s under consideration to be delisted because of its low bid price.
Few other details were made public about Omnicom’s agreement with Pegasus Partners, though it’s clear that the new holding company would serve to bring Omnicom’s competing interactive agencies together in some capacity, while potentially reducing Omnicom’s exposure in the battered interactive industry.
“Our objective in forming the company is to maximize consolidation and other strategic opportunities among companies in the currently depressed e-services consulting and professional services marketplace,” said the companies in a joint statement. “We will work with these companies to leverage their client relationships and infrastructure to create stronger, more substantial e-services consulting networks.”
And while rumors have been flying for some time about mergers between several of the largest players in the flagging interactive space, the establishment of “consulting networks” would seem to make this more of a possibility.
Pending approvals and other, unspecified conditions, Omnicom said it expects to form the new holding company later this month.
Spokespeople from Omnicom, Razorfish, Agency.com and Organic failed to return calls for comment by press time.
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