• by Joe Mandese , March 15, 2004

The big have been getting bigger as the media buying business continues to consolidate. And now, it seems, the small want to get bigger too. U.S. and worldwide media buying, which is now dominated by four big players - Interpublic, Omnicom, Publicis and WPP - could see a new round of consolidation, or at least affiliation as smaller players align to create scale and operating efficiency to compete with the big boys. The first to realign may be Havas' MPG unit, which has received an offer from a rival seeking to acquire a minority stake, according to a report in today's Wall Street Journal.

The paper, citing an unnamed source, said a mystery suitor has offered to acquire as much as 49 percent of MPG. While the source did not name an explicit suitor, the paper speculated smaller media buying organizations like Grey Global's MediaCom Worldwide, or Aegis Group's Carat, might be logical investor's that would want to affiliate with MPG to strengthen their global media networks. It also noted that WPP, which owns MindShare and Mediaedge:cia, already operates joint ventures with MPG in Asia.

While the proposal didn't come with an explicit financial offer, the paper said another sources valued a 49 percent stake in MPG at $150 million.

The news comes as MPG parent Havas is undergoing its own reorganization, including a plan to accelerate MPG's market position, making it one of the top five media buying groups in the world. According to RECMA estimates published by Advertising Age, MPG ranked 10th among the global media agencies in 2002, with billings of $8.55 billion, behind 9th place MediaCom's $12.35 billion.

Meanwhile, the notion of a $300 million market valuation for MPG suggests some slippage in the underlying market value of media agencies may have occurred.

The last significant media agency deal, the 2003 sale of WPP's 25 percent stake in Zenith Optimedia to Publicis for $478 million, amounted to a 2.96 percent percentage of 2002 media billings. Based on its 2002 billings, the $150 million offer for a 49 percent stake in MPG would amount to 1.75 percent of reported billings, or 41 percent less than the value Publicis and WPP placed on a 25 percent stake in Zenith Optimedia.

Market analysts have said billings multiples are not necessarily indicative of media agency market values and that a better indicator is pre-tax profits. Even so, the sale of the Zenith Optimedia stake is somewhat analogous to an acquisition of a minority stake in MPG, in that neither deal would carry a so-called "take-out" value, a premium associated with acquiring a company outright.