• by September 4, 2001

Reuters - Now that British media buying firm Tempus Group Plc has two suitors eager to take its hand, U.S.-based advertising companies may find that the gene pool for handsome prospective partners is shrinking.

Tempus is being courted by Britain's WPP Group Plc, which serves blue-chip clients such as computer giant International Business Machines Corp. and France's Havas Advertising , with a roster that includes chip leader Intel Corp.

But after an acquisition of Tempus, there would be few independent agencies available for match-making.

In an industry where size matters, that could mean big U.S.-based ad firms like Omnicom Group Inc. -- whose BBDO agency handles automaker DaimlerChrysler AG's ads-or industry leader Interpublic Group of Cos. Inc. -- which created the "Life Tastes Good" campaign for Coca-Cola Co. -- could start prowling around for acquisitions, ad execs say.

"The prime targets are getting fewer and fewer," said John Lister, chairman of Lister Butler Inc., an independent New York-based brand consultant. "Companies that are interested in expanding and building up their total value are going to be looking in great detail at what's left."

In the last couple of years, the big ad holding companies have been swallowing up their smaller competitors, creating the so-called big three-Interpublic, WPP and Omnicom, which collectively hold 40 percent of the $40 billion ad market.

"Big is better" has been the collective buzz word with the ad companies, which say they can more easily serve their clients with size and scale.

Big multinational clients like the combined ad groups because they can use one company to arrange all their advertising and marketing needs, which is a more economical option.

For example, Interpublic recently leapfrogged to the top of the league through its takeover of Chicago-based advertising group True North Communications Inc.

Ad watchers say the prize possessions left for the picking are media buyers like Tempus. The large holding companies know they have to build up their muscle in that area.

"Havas is in a position where they have a small presence in that arena and they need to beef it up to compete along the road," said David Doft, analyst at ABN AMRO. "Everyone is looking to increase their presence there because it's such an important issue.

"This puts the other independent media buying organizations into play," Doft said.

Since the battle for Tempus flared up, there has been growing speculation that British ad group Aegis Group Plc, owner of media buyer Carat, could be a consolation prize for the loser, or of interest to another predator.

"That would be an attractive acquisition target, especially for a U.S.-based company," Doft said, noting that Aegis would give an American company an additional boost in Europe.

Other mid-sized companies that could become takeover targets include U.S. ad firm Gray Global Group Inc., Britain's Cordiant Communications Group Plc and Bcom3 Group Inc., analysts say.

"Gray is a very attractive opportunity to many of these companies," said Troy Mastin of William Blair & Co. "It's regarded as being a well-rounded, very solid company across the board."

Speculation that Bcom3 Group, whose agencies include Leo Burnett Worldwide, might be an appealing buy has grown since the company pulled out of its initial public offering plan earlier this year due to weak market conditions.

"The clock is ticking on them," Mastin said. "It will be interesting to watch them. They might be an acquisition target if the market doesn't get better by the end of the year."

Huge Japanese ad firm Dentsu Inc. holds a 20 percent in Bcom3, and analysts predict the two could solidify their relationship. In July, Bcom3 and Dentsu merged their subsidiaries in Australia.

But U.S.-based ad experts do not expect any of the big U.S-based ad groups to make any bids too soon. Interpublic has signaled that it wants to concentrate on integrating True North into its operations, while Omnicom has made clear that acquisitions are not its priority this year.

"IPG, they have got their hands full with the restructuring of True North Communications," said Alexia Quadrani, analyst at Bear Stearns. "I don't think Omnicom would buy something for the sake of it. It would have to be something at the right price."

Also, with the advertising market in such a slump, execs say many companies just might not want to risk making any big investments at the moment.

"It's an adventure that nobody is willing to stomach at the moment," Lister said.