Marketing Services Group Is Up for Sale

Direct marketing firm Marketing Services Group Inc. (MSGI) has hired Goldman, Sachs to help sell itself, after watching its stock dive over 90% in the course of the last year. But at least one analyst said the flailing firm could receive more than three times its current stock price in a sale. The stock of the New York-based, $60 million market cap firm rose 6.9% to $1.94 per share on January 8, the day of the announcement. MSGI shares closed at $2.50 on January 31. MSGI is looking to combine with a strategic buyer, such as an advertising agency or a media firm, the spokesman said. MSGI would like to continue its acquisitive ways – it’s made 12 acquisitions in the last three years – but with its current stock currency, it is inhibited from doing so, he added. And, at its current market value, down from a 52-week high of $29.50, MSGI has become a target for an undesirable takeover, the spokesman said. Therefore, MSGI has decided to be “preemptive about the whole thing,” he said. MSGI has a staggered board, and there recently has been some discussion of instituting a shareholder rights plan, added the spokesman. David Doft, an analyst at ING Barings, said that MSGI lost a lot of credibility with investors after folding its Internet strategy, which was part of the reason for the inflation of its market value. A sale is the likely outcome, said Doft, and the deal value should be about $200 million, or one times sales, but the firm faces a difficult climate to sell in, he said. That valuation would mean a price tag of $6.23 per share, more than double its current price. Still, Doft said that any of the advertising agency holding companies could be potential buyers, such as Omnicom Group Inc., Publicis Groupe SA, and WPP Group PLC. However, advertising industry watchers have recently been quoted as expecting a downturn in ad industry m&a this year, after a banner year for dealmaking in the sector. And those reported predictions say that European ad companies, in particular, will likely slow their m&a activities this year. Michael Shonstrom of Shonstrom Research Associates said that MSGI is only worth up to $3 per share, or $100 million, if the buyer were to manage it properly after the acquisition. But Shonstrom asked rhetorically, “What buyer in these economic conditions is going to pay for earnings on the come that he is going to produce?” Realistically, MSGI is probably worth one-third of annual sales, said Shonstrom. Other deals in this sector have been done around one times sales, he said. For the firm’s first quarter ended September 30, MSGI lost $5 million on revenue of $48 million, compared with a year-earlier $2.8 million loss on revenue of $27 million.