A view of Cossette Inc. offices in Quebec City, Nov. 10, 2009.MATHIEU BELANGER/Reuters
As Prime Minister Stephen Harper was leaving China in November, saying that strengthening commercial ties to the country is a priority for Canada, the head of a legendary Canadian advertising firm was on his way to Beijing. By the time his visit to the offices of BlueFocus Communications Group was over, chief executive Brett Marchand would send a message to his executive team at Quebec City-based Vision7 International, saying, "I think we just found our partner."
Following a seven-month process of reviewing potential suitors, the Canadian company reached a deal on the weekend to sell an 85-per-cent stake in its North American assets – including the well-known ad agency Cossette and public relations firm Citizen Relations – to BlueFocus for $210-million (U.S.).
For Vision7, the new ownership is an opportunity to get aggressive about U.S. expansion, and to invest in adapting to the industry's ever increasing focus on digital advertising.
"North America, particularly Citizen and Cossette, are poised for growth," Mr. Marchand said in an interview. "Especially the type of growth we're talking about, requires investment … especially in three areas: the U.S., particularly for Cossette; internationally for Citizen – because we're really only in three countries [the U.S., U.K., and Canada] with Citizen and that brand is ready to explode internationally; and the third is new revenue streams around e-commerce, mobile, and data. That's not growth that we have been tapping into in a serious way."
As trade relations improve between Canada and China, the deal gives Vision7 instant access to a market that Canadian companies view as "the new frontier," Mr. Marchand said. It also creates a footprint in Canada for BlueFocus clients looking to do business here.
"BlueFocus is the dominant PR player in the Chinese market. Asia is very difficult, to find that kind of stature and those kind of resources," Mr. Marchand said.
And as advertising dollars shift more and more into spending on digital media, Vision7 plans to invest more heavily in technology. Its media spending on behalf of clients was 5-per-cent digital in 2009; today it is 35 per cent and growing.
"I have basically told the organization that we have to assume that in five years, our business will go to 70-per-cent digital/mobile – and that by 10 years, there will be no spending in traditional media. Zero," Mr. Marchand said. "Now, I don't think that's really the truth, by the way. There will be some. But it's way healthier to think that way. Assume it's going to fall off a cliff in 10 years and get ready for it."
The deal comes after the company's American backers announced they were looking to move on. Vision7 went private in 2009 with the backing of Connecticut-based private equity firm Mill Road Capital LP. Mill Road confirmed in July that it had "decided to explore strategic alternatives" for the assets. In November, The Globe reported that BlueFocus was in talks to acquire the company.
BlueFocus has set aside $300-million for acquisitions in Western countries, in a bid to become a global advertising player. The company currently has more than 3,500 employees around the world and a $4.6-billion market capitalization. For the first half of this year, BlueFocus reported revenue of 2.6-billion yuan ($491.9-million) and a profit of 301.7 million yuan.
Last year, BlueFocus bought London-based social media agency We Are Social, and acquired a 20-per-cent stake in London-based PR firm Huntsworth. This summer, the company acquired a majority stake in San Francisco-based industrial design company Fuseproject.
"Having Vision7 join the BlueFocus family will help us gain better access to the North American market and emphasizes our 'To Be Global' strategy," Oscar Zhao, chief executive of BlueFocus, said in a statement.
BlueFocus works with multinational clients in China, including Procter & Gamble Co., General Motors Co., L'Oreal and Pepsico.
Mill Road first took a stake in Vision7 in 2009, following a nasty fight over then publicly traded Cossette Inc. Claude Lessard won the battle for control against his then-partner, François Duffar, taking the company private and creating Vision7.
The company comprises Cossette, as well as other marketing services, including media planning and buying firms, Cossette Media and Jungle Media, public relations and a social media and experiential-marketing division called EDC, with agencies in the U.S., Canada and Britain.
Mill Road is now turning a profit on the investment it made in 2009, when it paid $147.8-million (Canadian) for Vision7. The North American assets, which accounted for roughly two-thirds of the company in 2009, will bring in $210-million (U.S.). Mill Road will hold on to a handful of agencies in Britain, while Elvis, Identica and Dare will be spun off. The only U.K. business that goes to BlueFocus is the international portion of the Citizen Relations network.
"The U.K. hasn't performed as well as North America. So they [Mill Road] are just not ready to sell those assets yet," Mr. Marchand said in an interview.
Cossette has had a particularly strong year, despite the decision to resign its third-largest account, Bank of Montreal, last September. The bank had signalled a need for a stronger presence in the United States than Cossette could provide at the time.
In April, Cossette opened an office in Chicago after winning the advertising business for McDonald's Owner/Operators of Chicagoland and Northwest Indiana Co-op. (McDonald's Canada is a long-standing client.)
And the company has had a string of other account wins, including the Canadian Olympic Committee, Koodo, the Société des alcools du Québec (SAQ) and media services for National Bank of Canada and Whirlpool Canada.
There were "several" companies kicking the tires at Vision7 before they landed on a deal, Mr. Marchand said.
Before the sale, Mill Road held 60 per cent of Vision7, with the rest held by senior management, some Cossette founders, and others who had since left the company but continued to hold shares. Under BlueFocus, the current management team will up their stake from roughly 8 per cent to 15 per cent, while Mill Road, the founders and others will sell their stake.
Mr. Lessard handed day-to-day operations of the company to Mr. Marchand in February, 2010, but remained active in the company as chairman and CEO. Earlier this year, he signalled that he would further step away from operations, and Mr. Marchand officially took over as Vision7 CEO. Mr. Lessard was "intricately involved" in the sales process, according to Mr. Marchand. He will now continue as "non-executive chair" in the company, in an advisory role.
Fellow founding partner Pierre Delagrave has been in charge of the company's innovation group, and will continue to have a role in the company, Mr. Marchand said.
The deal also gives the Canadian company new owners who have signalled a willingness to invest heavily in keeping up with a changing advertising industry.
"You've seen what's happened to the print business. That kind of escalation of change is now going to come to TV and a lot of other traditional media," Mr. Marchand said. "Mobile is going to just absolutely blow up, as far as its share of advertising dollars. We have been getting ready for that. ... That is going to mean a whole different mindset about how you plan, buy [media], and use data in the future."
Editor's note: An earlier version of this story said Mill Road paid $115-million for Vision7 in 2009. In fact it paid $147.8-million. This version has been corrected.