Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

The British Invasion continues as OutCast is gobbled up by Next Fifteen

Posted by Tom Foremski - June 21, 2005

...will everyone in San Francisco PR eventually work for Tim Dyson?

San Francisco based OutCast Communications has been acquired by Next Fifteen, Europe's largest publicly traded PR company for an initial payment of about $6m and additional performance based payments that could reach $13m over the next five years.

From Next Fifteen:

Under the terms of the acquisition, Next Fifteen will pay initial consideration of £3.3 million ($6 million) for OutCast, which is to be funded out of existing cash and debt facilities and a vendor placing which raised £2.5 million. Further consideration will be paid over the next five years based on the performance of the company, with total consideration capped at £7.2 million ($13 million).

Earlier this year, at least one other company considered buying OutCast. Financial Dynamics, the large New York firm specializing in investor relations and now branching out into other sectors, explored a possible purchase.

Next Fifteen is now by far the largest employer in the San Francisco/Silicon Valley PR sector. It owns Bite PR and Text 100, two of the largest San Francisco PR companies. It also has a significant stake in 463 Communications, a PR firm targeting tech policy issues. The 463 Communications offices are shared with Bite.


Consolidation in PR mirrors the valley

The OutCast acquisition is a product of changing markets. The consolidation in the IT sectors has created a smaller number of vendors. And the remaining IT vendors are large and multinational. OutCast can make use of Next Fifteen's European and global reach.

In turn, OutCast founder's founders Margit Wennmachers and Caryn Marooney know how to build a fast growing PR organization, which will help Mr Dyson report a steady increase in revenues.

His challenge has been to grow business during a time when PR budgets remain very tight, there are fewer media outlets to target, and smaller numbers of large enterprise companies to pursue as clients.

New communications threats on the horizon?

In addition, media technologies such as blogging, represent a potential threat to traditional methods of corporate communication. While such "new communications" channels are still in their infancy, they represent an additional cost that will likely pressure PR budgets further, at least over the short term.

Large tech companies are beginning to specify that PR firms must have experience in using blogging technologies to augment traditional methods. And while there is much well justified skepticism towards blogging among Next Fifteen's PR companies, including OutCast, the fact that their clients recognize the power of blogging to reach potential customers, is something the PR firms cannot dismiss.

Smaller companies such as Voce Communications, in Silicon Valley, which recognized blogging early on and quickly integrated it into its products and services, represents a potential threat to larger, slower moving PR firms. The threat is that specialist PR firms could siphon away the more profitable and interesting communications contracts.


Next Fifteen gains aggressive duo

The gain for Next Fifteen is that it now has one of the most effective management teams in the PR industry. Ms Wennmachers and Ms Marooney set a blistering pace and their partnership has survived some of the most difficult times in the industry. Their expansion of OutCast is all the more impressive because it came during difficult personal times for both, that drew them away at various times to be with their families.

Yet OutCast continued to grow and surprised many west coast PR firms when it won the EMC account late last year.

"I was shocked when I heard that," said one senior PR executive at a rival firm. OutCast has worked for several years with VMware, now an EMC subsidiary, which may have provided some help.

The EMC win was not only a feather in OutCast's cap but also marked its transition from a boutique firm to a national company able to work with large global enterprise IT companies.

Next Fifteen also gets Marc Benioff

OutCast's most famous client is SalesForce.com, headed by the sometimes-flamboyant Marc Benioff, a master self-promoter. Mr Benioff led the company in a very successful IPO last year, which was part of a decent sized surge in stock market tech activity and Silicon Valley business.

IPOs such as Salesforce.com and RightNow Technologies, under the leadership of Greg Gianforte, also signaled a new software market emerging. This model is one that is based on software as a web based service rather than as a massive ERP or other enterprise software installation.

Now, Mr Benioff will be working with a company whose Next Fifteen sister company, Bite PR, is representing Siebel Systems, Salesforce.com's prime target.

A Marine boot camp

OutCast has earned a reputation as a tough place to work, a "Marine boot camp" as one former employee said. This is not a bad label to have in the tough PR market that the Bay area suffered from since the dotbomb detonated in late 2000.

The local PR and media sectors were devastated by the fallout from the tech stock market bust and markets groaning under a glut of IT equipment. Marketing and PR budgets were the first to be slashed at thousands of Silicon Valley companies.

This caused some firms to go bust or leave San Francisco completely. Next Fifteen snapped up Applied Communications, a large San Francisco PR company that was an early victim of the dotbomb.

Many US PR (and media) companies continue to struggle but there has been a resurgence in the Bay Area where there are many job vacancies among agencies.

The largest shortage is in finding people that have 5 to 8 or more years experience and like working at PR agencies. Most of those, prefer working within corporate communications teams where work levels are more consistent and less volatile. Or they can find work as freelance consultants, sometimes known as "mommy consultants" because some are able to combine work with child rearing duties.

From the Next Fifteen press release:


Under the deal, OutCast will continue to operate as a separate business under its own brand name, with its founders Caryn Marooney and Margit Wennmachers becoming co-Presidents of the business. As Presidents they will report directly to Next Fifteen's Chief Executive Officer, Tim Dyson.

Tim Dyson said: "Next Fifteen is keen to build a Group that comprises best-in-class consultancies. We have long been impressed with the way OutCast has approached this sector and have enjoyed competing with them over the years. OutCast has built a great team of consultants that have together built a great business. We look forward to working with them during the next stage in their development."

OutCast Communications was founded in San Francisco in 1997. In recent years it has experienced strong growth, with sales in 2004 increasing 28% over the previous year to $6.2 million. Operating profits in the same year were $1.6 million. The firm has also won a string of awards including PR Week's Boutique Agency of the Year award in 2001 and PR Week's award for Technology Campaign of the Year in both 2003 and 2005.

In conjunction with the acquisition, Next Fifteen has completed a vendor placing of 4,807,693 ordinary shares of 2.5 pence each at 52 pence per share, to raise £2.5 million.

About Outcast Communications
OutCast's mission is to provide unparalleled public relations services to the best and brightest technology companies within an environment where its group of talented, aggressive and connected employees can deliver the highest level of customer service and unprecedented results. OutCast has offices in San Francisco, California, and New York City, and can be found online at www.outcastpr.com.

About Next Fifteen
Next Fifteen Communications Group is a holding company for a number of world leading PR and marketing services firms. The majority of clients are in the technology industry with twelve of the world's top twenty technology businesses being clients of the Group; these include IBM, Apple, Microsoft, Sun Microsystems and Cisco. The Group strategy has also evolved to pursue non-technology clients and the Group already works with such brands as Royal Mail, More Th>n (Royal and Sun Alliance Group), Olympus, Total and the Department for Education and Skills.

The Group is made up of four independently branded subsidiaries that operate as autonomous businesses thus enabling them to service competing client businesses. The Group has three broad technology PR subsidiaries: Text 100, Bite Communications and Inferno. The fourth brand, AUGUST.ONE, provides both B2B and Consumer services across a number of vertical market sectors. More information can be found at: www.nextfifteen.com.


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