• by Paul Gough , September 9, 2003

The Aegis Group, the parent of Carat, which only recently spun off a second media network, Tuesday morning hinted it may be in the market to acquire yet another. During a conference call to brief investors on its first half 2003 earnings, Aegis CEO Douglas Flynn implied the media buying holding company might be in the market to acquire the media operations of rival agency conglomerate.

However, he indicated such a deal is not imminent. "But don't hold your breath," he said. The disclosure comes just after Publicis acquired Cordiant's minority stake in Zenith Optimedia Group, after an intense bidding war with WPP Group, the first free market place of agency media buying assets in recent memory.

It also follows Aegis' creation of a second media network, Vizeum, which was launched to enable the company to take on more and potentially conflicting media buying assignments. To date, Vizeum operates outside the U.S., but Aegis management hinted the media network brand might be imported to these shores.

As for Aegis' earnings, the company reported healthy first half results, but issued a subdued forecast for the rest of the year and into 2004.

In the media-buying world, Aegis' results are singular in that they are the only pure play media services company among the large, multinational agency holding companies. The others include creative and other marketing services.

Aegis' revenues rose 7.8% to $468.5 million worldwide in the first half. Organic revenue growth, which large media companies use to distinguish between continuing strength and growth from acquisitions, rose 2.7%. The company gets about 71% of its revenues in media planning and buying, about 6% each from outdoor and interactive/CRM.

While Carat's U.S. business wasn't broken out in the data, Aegis said the company gained $238 million in net annualized new billings in the United States and Latin America compared to $679 million in the first half of 2002. Aegis CEO Douglas Flynn said Tuesday that few large accounts were up for grabs in 2003, although pitch activity seems to be picking up near the end of the year and the beginning of next.

"We think we've seen the bottom of the squeeze caused by the recession and we've seen the margin creep up a little bit again," said Jeremy Hicks, Aegis' chief financial officer.

Flynn said Aegis was sticking with its earlier projections of 3% growth in North American ad spending for 2003 and a 4.3% growth rate in 2004. Flynn said that the summer Olympics would be worth about 0.7% of global ad spend in 2004, with the presidential elections worth about 0.4% of U.S. ad spend. He didn't hold out much hope for a big European football tournament's ability to drive ad spending.

While Aegis considers the U.S. ad market to be in recovery, it said that beyond the strong TV upfront, magazines and newspapers continue to suffer. Europe's ad market continues to disappoint, the company said, and the impact of SARS softened the second quarter although growth has returned since then.

Consumer packaged goods are recovering, health care spending is slowing because of industry consolidation and the tech sector has continued to be weak. Automotive is also weakening in the United States and Europe, Flynn said.

"We do see a pretty slow climb out of where we are. I certainly wouldn't want to be any more bullish on 2004 than we are being," said Flynn. Aegis said in the United States, corporate spending continues to grow modestly. At the same time, Aegis - like other media planning and buying agencies - is seeing increased pressures to control and cut costs. Flynn said corporate procurement departments have grown more involved in negotiating media account reviews.

"With a whole marketing spend downturn, [it] occurred not so much because consumers had gone on strike but corporate was trying to get P&L in shape," he said.