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Tuesday, Aug 9, 2022
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Old School Texas Firm Buys Online Marketer

The world of marketing has been revolutionized over the past few years as old-school advertising loses share to all-encompassing big data, which streamlines the marketer’s job. And that helps explain the $2.3 billion purchase of Conversant Inc., a Westlake Village online advertising firm, this month by Alliance Data Systems Corp. of Plano, Texas. Conversant will beef up the data-driven Epsilon marketing unit at Alliance, which is stronger in more traditional direct marketing, such as emails and catalogs. “Online just continues to become so complicated. For Alliance, it becomes imperative that you acquire someone that has the pieces that can help you grow faster,” said Sameet Sinha, an analyst that covers Conversant for boutique investment bank B. Riley & Co. in Los Angeles. “It gives you scale and scope, potentially being able to offer more products to your customers.” Alliance Data and Conversant, known as ValueClick until early this year, both compete for their share of the $400 billion annual marketing spend in North America, which is divided between about $150 billion in general advertising; $150 billion in direct marketing such as mail and catalogs; and $100 billion in digital marketing – a category expected to continue to steal share from general advertising. Alliance Data Chief Executive Ed Heffernan told analysts he had been watching ValueClick for years, but that his interest got serious when the firm purchased display ad-optimization company Dotomi in 2011 for $295 million. Conversant Chief Executive John Giuliani was chief executive of Dotomi and joined ValueClick as part of the merger. He assumed his current post in December 2012. “At that point our interest went up dramatically,” said Heffernan in the conference call this month. “I think we’re in pretty good shape on the digital side, but to be quite frank, we are subscale especially when it comes to the huge market of data-driven targeted display, video and mobile. We could certainly use some more size.” Conversant has two major business units: one focused on affiliate marketing and the other media. The affiliate marketing side was a pioneer of the pay-per-click model of Web ads, in which an advertiser only pays when a site visitor clicks on the ad. The company does much of that business through its CJ Affiliate subsidiary, formerly known as Commission Junction. The company’s media segment, which accounts for about 70 percent of its revenue, accumulates large numbers of websites through which its client companies can advertise. It has been doing well financially in recent quarters. Last month, it reported net income of $17.7 million (26 cents a share) in the second quarter ended June 30, compared with $11.9 million (15 cents) in the same period a year earlier. Revenue increased 7 percent to $137 million. Alliance was formed in 1996 by the merger of the credit card processing unit of J.C. Penney Co. and the credit card bank operation of fashion retailer The Limited. Alliance’s business is split between three units: private label credit cards, a Canadian airline miles reward program and Epsilon. “They’re building themselves as a one-stop shop for all your advertising needs,” said Sinha from B. Riley. “The opportunity is there. They just have to make sure the cultures match and that everything works well.” Gaston Ceron, an analyst that covers Alliance for Morningstar Inc. in Chicago, said the two companies getting together makes strategic sense. “Epsilon uses a lot of data and analytics to understand their customers. And that’s the common DNA between Conversant and Alliance,” he said. “These are two companies that are to various degrees specializing in data to drive marketing position. The end result is a smoother, more tightly integrated company.” During the conference call, no mention was made as to whether Conversant will retain its headquarters in Westlake Village, though the firm is leased in the building through May 2016, according to real estate data firm CoStar Group Inc. Conversant has 16 offices, including locally in Los Angeles and Santa Barbara, as well as international affiliates in Hong Kong and Madrid. The company employs nearly 1,300, according to Thomson Financial.   Conversant shareholders will be paid $35 per share under the deal, which represented a 31 percent premium over the closing price the day before the deal was announced, though the stock has shot up since. Alliance will divide the payment between $18.20 of the sum in stock and $16.80 in cash, though stockholders will be afforded the option to choose more cash or more stock. Conversant has been a busy company in the last year, as it has continued to shift its focus to media, which Giuliani, the company’s chief executive, said will fuel much of its long-term growth. “The growth in our business is on the media side,” he said. “It’s about sending the right message to the right person at the right time.” Alliance is funding the cash portion of the deal through increased debt. Conversant shareholders will own about 7 percent of the company after the merger is complete, which is expected by year end, pending shareholder and regulatory approval.

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