Live From the DMI Co-op: ALC Talks Move Forward

Though talks remain in the early stages, Acxiom Corp. is closer to nailing down an agreement with American List Counsel Inc. for a merger between Acxiom subsidiary Direct Media Inc. and ALC. The companies have signed a non-binding letter of intent.

Due diligence is being conducted, and the firms have discussed purchase price and financing arrangements, according to Acxiom group leader Steve Brighton.

“We are not trying to sell DMI to bail out,” Brighton told reporters yesterday during Acxiom/Direct Media’s Consumer Co-op conference at the Doral Arrowood in Rye Brook, NY. “We are trying to place the sales staff in a more positive selling environment.”

Acxiom intends to do data processing for DMI and ALC if the merger goes through, he added.

However, Brighton acknowledged that a culture clash resulted from Acxiom’s purchase of DMI three years ago. DMI, a privately held company, focused on cash receipts while publicly traded Acxiom was geared toward accrued revenue.

The need for growth was urgent: Analysts of growth stocks such as Acxiom’s expect a 25% improvement in each quarter. And Direct Media needed some structure imposed on it; when he arrived, Brighton said, half of the staff felt they reported to human resources and the other half seemed to think they reported to nobody.

In addition, revenue was flat and expenses were increasing by 40% a year. After DMI lost $4 million in the first two months of 1998, it eliminated 35 positions and chose not to fill 15 open ones, mostly jobs that had been rendered unnecessary by operating efficiencies, according to Brighton.

Now on the heels of a $7 million investment in internal automation, annual revenue growth is 12% and expenses are being held at 8% of growth.

However, there are other reasons for getting out. For one, Acxiom has since gotten a grasp on the similarities and the differences between the two companies. Also, with the list business being a mature industry, increasing market share is easier than creating new customers.

Brighton also revealed these facts about Acxiom/Direct Media:

* DMI is now processing between $500 million and $600 million in cash flow before commissions.

* Acxiom paid $25 per share for 1 million shares of DMI stock in 1996. However, the stock subsequently split two for one, so the shares attained a value of $50 million.

* When ALC chairman Donn Rappaport approached Acxiom, it was the second time he had bid for DMI, the first being before Acxiom acquired it three years ago.

* The SmartBase co-op will be shut down in three years, or sooner if clients indicate they will stop participating in it. “They are still eager about participating in it,” Brighton said.

* There is no language in the letter of intent prohibiting the resulting entity from continuing SmartBase, or creating another co-op.