ValueAct Boss Prepares for New Acxiom

by Chip Taulbee  on Monday, Nov. 7, 2005 12:00 am  

Even Jeffrey Ubben, managing partner of ValueAct Capital Partners, admits that right now the likelihood his company will take over Acxiom Corp. is low.

"The prospects of us getting this company are still quite low, the way the board is acting," Ubben recently told Arkansas Business.

But that does not mean ValueAct, which has since July offered to buy all remaining shares of Acxiom it does not own, will not be able to effect a management change at the Little Rock information management services company.

ValueAct, Acxiom's largest shareholder, will battle for three spots on the company's board of directors next August and, if successful, plans to use that power to clean house in some of Acxiom's corner offices.

With sights set not only on board spots and Acxiom's most senior executives but other upper-level managers as well, ValueAct is already lining up new bosses for a new Acxiom.

Last month ValueAct trotted out three data industry heavy hitters to run for seats on Acxiom's board of directors.

The board terms of Company Leader Charles Morgan, past Hendrix College President Ann Die Hasselmo and former U.S. Postmaster General William Henderson all expire next year.

Mike Lawrie, most recently CEO of Siebel Systems and a former IBM executive, and Mike Wood, a former chief financial officer for Worldspan Technologies and general manager for Choicepoint Inc., will run for two of the board positions. ValueAct is compensating each of them with options to buy 100,000 shares of Acxiom stock for about $18.78 a share. Acxiom stock closed Thursday at $21.12 a share.

Lou Andreozzi, who until July was president and CEO of LexisNexis' North American legal market business, will also run for a seat on the board. ValueAct has given Andreozzi the option to purchase 160,000 shares at the same discount Lawrie and Wood are getting. Plus, ValueAct is paying him $50,000 a month to be groomed for Morgan's job.

Andreozzi, no stranger to the data industry, has spent the past couple of months learning Acxiom's business and trying to figure out ways to make it better. He recently took the time to share his vision of a new Acxiom with Arkansas Business.


In his New Providence, N.J., office, Andreozzi has cataloged the history of Acxiom in eight 4-inch binders. Filled with every analyst report, every proxy statement, every newspaper article or any other snippet of Acxiom information he could find, the binders are Andreozzi's textbooks for his crash course on the company.

"I went through every analyst presentation, and it's almost like it's very hard to understand what Acxiom does by the way they communicate it," Andreozzi said. "And I gotta tell you, it ain't that complicated when you get down to it."

Andreozzi's four-part plan for Acxiom is a mix of business the company already has and business Acxiom has recently said it wants to grow.

The first two parts: Acxiom's data, which includes Acxiom's treasure trove of information about virtually every adult in the country and many more abroad, and customer data integration, which are services that integrate this data for other businesses.

These are Acxiom's core segments and generate most of Acxiom's revenue.

The other two parts of Andreozzi's plan for Acxiom are analytic services, or data that helps a client company track business trends, and industry-specific applications.

While Andreozzi and Ubben admit Acxiom already offers analytics, Ubben said they were not packaged well or given enough attention, considering the high profit margins they bring.

Eric Schmitt, a principal analyst at Forrester research, could not cite a figure but said there was significant growth in the analytical services area.

"Buyers are looking for more value-added services that really depend on soft skills, on people," Schmitt said. "So if you are in the business of supplying these services and you've enjoyed profit margins on the sale of data or data processing services, the general direction that the market is going is going to be putting pressure on you."

An Acxiom spokesman said the company chose not to comment on ValueAct's plans for the company, but in an earnings conference call on Oct. 19, Morgan indicated his company was responding to the market.

"(Clients) tell me, 'Great computing is great, but show us how to use it to create value for our company,' and that's exactly what we're going to do," Morgan said. "As a response, we have continued to put more associates into fee-based consulting roles to meet the demand of delivering this business value and thought leadership to each client of Acxiom."

But Ubben and Andreozzi dismiss Morgan's pledge as lip service, just as they dismiss another pledge made during that same conference call by Chief Operations Leader Lee Hodges, who said the company would offer more pre-designed, industry-specific products.

Andreozzi said, "If you go through their past annual reports, it says this a dozen times in the last dozen years."

Acxiom's solid infrastructure should allow analytics and industry-specific offerings to take off, Ubben said.

"One of the reasons we like this company is that they are the gold standard in customer data integration," Ubben said. "And this technology that they have and the scale they have create a stickiness with their customer base that these niche vertical players don't have because the niche vertical players can't provide the infrastructure."

But Ubben and Andreozzi said that these other niche players are able to earn higher margins on value-added products like analytics and industry-specific applications, while Acxiom focuses on lower-margin businesses.

Acxiom's profit margins (net income divided by revenue) have been around 6 percent the past two years and even lower the few years before. Andreozzi thinks that figure should be closer to 20 percent.

He said the business areas he wants to grow, analytics and marketing services, which would include industry-specific applications, are largely fixed-cost businesses. "Incremental dollars would fall right to the bottom line," he said.

One aspect of the business that remained conspicuously absent from Andreozzi's four-part plan was Acxiom's IT outsourcing business, a segment that brought in $86 million in revenue last quarter but at an untold cost.

Acxiom will not disclose the profit margin on its IT outsourcing business, but Andreozzi believes the company is using the segment as a loss leader, or a service offered at a large discount and even a profit loss in an effort to attract future business.

Andreozzi would not assure the elimination or divesting of Acxiom's IT outsourcing business but said he would not continue offering IT outsourcing at the same low-to-negative margins that he and many analysts suspect the company currently charges.

Acxiom, for its part, has continued to indicate a commitment to its IT outsourcing, and in September boasted of a new, multimillion-dollar IT outsourcing contract with NDCHealth Corp. of Atlanta.


If investors clamor for details on how ValueAct would run Acxiom, its employees must want to know how their jobs could be affected should ValueAct take over Acxiom or turn over its management.

Perhaps most importantly, Ubben and Andreozzi said there is no reason the company would not remain headquartered in Arkansas. Beyond that, they both said they did not have enough information about Acxiom to know exactly how they would change the company's work force.

Andreozzi, who oversaw a work force at LexisNexis similar in size to that of Acxiom's, alluded to more jobs for the Acxiom businesses he wants to grow.

"I certainly would ensure that we have the people in place to do the marketing services and the analytics, which will require probably more hires in those areas," Andreozzi said. "My assumption is that definitely in these high-growth areas that we're going to need more people."

As for the IT outsourcing business, Andreozzi and Ubben said they were unsure how de-emphasizing that segment would affect its employment.

Oftentimes in these IT outsourcing deals Acxiom picks up employees from the company whose databases it is running. Ubben said, "Clearly the [employee] growth that's accrued in those sorts of deals would stop."

A spokesman for Acxiom was unsure how many employees there are in the company's IT outsourcing segment.

Though ValueAct changes still remain far from certain, Ubben and Andreozzi are lining up managers for their new Acxiom, many of them former Acxiom employees.

"There's a whole cadre of managers that look at this thing as a sleeping giant that have been chased off by Charles [Morgan]," Ubben said. "But they will come back if you can get somebody that figures out how to run this thing for a profit."

More on ValueAct and Acxiom
• Click here for Arkansas Business' complete coverage.



Please read our comments policy before commenting.