The Independents

Walter Karl…Edith Roman…Mokrynski…Millard…Direct Media…Will there be a single independent list firm standing by the time Vin Gupta is done?

Good question. Gupta has said several times that the list business needs to be consolidated, and his firm, InfoGroup (formerly InfoUSA) has swallowed up several outfits.

But a number of strong players remain, and they feel they bear little resemblance to some of the acquired companies. They're solvent, they have succession plans and they value their independence.

And they don't see themselves as list companies, thank you very much.

Take ALC. Founded 30 years ago by Donn Rappaport, ALC has picked up quite a few companies, including Novus Data Marketing and the MKTG Services management arm, established the partnership that created Belardi/Ostroy, and repositioned itself as an all-purpose marketing services company.

Many sources agree that ALC is in the top one or two in the field in terms of size — it has 240 employees, 56 of whom have equity or options in the company, and offices in multiple locations.

Why this emphasis on diversified services? Because direct mail volume is shrinking, and companies can no longer thrive solely by peddling lists, Rappaport says. “Our focus is not on lists, but on acquisition, retention and lifetime value,” he continues. “We have all the capabilities, and if we don't own it, we can subcontract it.”

That's especially important for clients, given the distress many are in these days, he adds.

Has ALC been approached by potential buyers? Sure.

“I'm not interested because we have a vision that we're following,” CEO Rappaport says. “We're embarking on a strategy to redefine our footprint.”

Would he ever consider selling?

“Companies sell for a variety of reasons, one being that the owners want to cash out,” Rappaport says. “I don't qualify on that score. The second reason is that they're struggling and need money for growth. We've been able to grow using debt.”

What about succession, one of the factors that might have influenced some owners to sell?

“We have a terrific management team,” Rappaport points out. “Have I decided who's going to be my successor? There are bunch of people who could be, but I haven't designated one over the other.”

But he has tested their ability to think on their own. At a recent management retreat, staffers were asked to conduct this exercise: What ideas would they pursue if the upper management — Rappaport, his wife Susan Rice Rappaport, Fran Green and the other partners — disappeared?

The company is now considering one of the notions that emerged: To break down the lines between brokerage and management and have account relationship teams that would oversee everything. “The old-time list companies are not set up that way,” he observes.

Rappaport says he might accept an equity investor if he couldn't fund a major project through debt. But for now, he enjoys the freedom to take risks: “You call the shots, and if you make a mistake you've got to pay for it.”

SPECIALISTS MARKETING SERVICES

Another strong solo act is Specialists Marketing Services. It was started in 1987 by Lonnie Mandel in partnership with publicly traded LCS Industries.

“It was a great relationship,” Mandel says. “The industry was vibrant and doing well, and we were basically left alone to run the business and do our thing.”

But LCS sold to ClientLogic, a large private corporation, in 1999. Mandel repurchased his own equity in 2005 and opened as Specialists Marketing Services Inc. And then he started making his own acquisitions.

What's the benefit of being in a public company?

“You're in a larger organization that in some cases has a tremendous amount of financial backing or cash reserves,” Mandel says. “That gives you some breathing room.”

But there are drawbacks. “You always hear about shareholder value, and you can't always do the things you want,” he adds. “You can't run the business as an entrepreneurial enterprise, as I can now. I'm the sole owner, and I'm not worried about shareholder value.”

So what's Mandel done now that he's free?

For one thing, Specialists has purchased several firms — NRL, Transcontinental Direct and 21st Century Marketing — to expand its client base and service offerings. Like ALC, it considers itself a full-service marketing company — it helps clients with everything from multicultural marketing to interactive, and also serves as a consultant.

Unlike InfoGroup, Mandel integrates acquisitions under a single corporate brand. “Our goal is to march with a common vision as Specialists,” he says.

And succession? Mandel laughs. “I love what I do, and my plan is to be around for a long time,” he says. “But I have an outside board of directors, and we're working on what a [succession] plan would look like. There are many options — we could consider selling the business — but to the right company, or to the employees.”

MERITDIRECT

Yet another independent is MeritDirect, which focuses on assisting business-to-business marketers. But it had a difficult birth.

It started when Acxiom decided to sell Direct Media, which it had acquired in 1996, back to founder Dave Florence. Left out in the cold were Ralph Drybrough and Mark Joyce, who'd signed a letter of intent with Acxiom to acquire Direct Media's B-to-B unit, the one they had built up. (The letter of intent was torn up, according to Drybrough.)

The world soon had a new company, with Drybrough and Joyce as managing partners.

“We started doing orders in January 2000, and by the end of the year had taken over 80% of our old business, paying nothing for what we previously were willing to pay $12 million for,” Drybrough says.

Why did Direct Media clients follow the team?