Observer AB

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Observer AB

Linnégatan 87
S-114 88 Stockholm
Sweden
Telephone: (+46) 8-507-410-00
Fax: (+46) 8-507-417-17
Web site: http://www.observergroup.com

Public Company
Incorporated: 2000
Employees: 2,506
Sales: SKr 1.69 billion ($194.36 million) (2002)
Stock Exchanges: Stockholm
Ticker Symbol: OBS
NAIC: 541820 Public Relations Agencies; 541910 Marketing Research and Public Opinion Polling

Observer AB is the aptly named parent of a group of companies that focus on monitoring media in various countries for the purpose of evaluating and reporting on the success of a client corporation’s or organization’s media relations program. Through a series of international acquisitions, Observer AB grew from the dominant media monitoring organization in the Nordic region of Europe to become the world’s leading media monitoring and intelligence organization. In addition, its Way-maker division provides services that help public relations and investor relations professionals develop, conduct, and evaluate communications campaigns with their constituent audiences.

Origins as a Division of Sifo Group: 1998–2000

Based in Stockholm, Sweden, Observer AB began as the Observer Media Intelligence division of the Sifo Group AB. In the late 1990s, Sifo Group had three divisions: Observer Media Intelligence, Sifo Research and Consulting, and SMG Consulting. Sifo Research and Consulting provided market research and consulting services. SMG Consulting focused on management and strategic consulting. Observer Media Intelligence’s principal business involved media and market monitoring.

Sifo Group AB became a publicly traded stock company on the Stockholm Stock Exchange in September 1998. Previously, Sifo Group was part of Scribona Group. When Sifo Group went public, its shares were distributed to Scribona’s shareholders. At the beginning of 1999, the company had about 1,100 employees in Sweden, Norway, Denmark, Finland, Germany, and the Baltic states of Estonia, Lithuania, and Latvia. Sifo’s annual sales for 1997 were SKr 723 million.

In 1998, Sifo Group expanded Sifo Research and Consulting through joint ventures and acquisitions. Sifo Research and Consulting had about 290 employees and was active in five areas: management of intangible assets, brand management, market development, media, and opinion and society. In September 1998, Sifo Research and Consulting and Telia Infomedia Response set up a joint venture called Defacto Inc., whose principal business was to provide reasonably priced customer surveys to small and medium-size companies. In October 1998, Sifo Group acquired Sverige Media from Infratest Burke AB. Sverige had an annual turnover of about SKr 10 million and specialized in media planning in Sweden. Following the acquisition, Sverige Media became part of Sifo Research and Consulting.

Sifo Group also made acquisitions on behalf of Observer Media Intelligence in 1998. In February of that year, the company acquired Word Report in Baden-Baden, Germany. Word Report was active in television monitoring and had about SKr 30 million in annual turnover. The acquisition complemented Observer Media Intelligence’s existing operations in Germany, which were renamed Observer RTV Medienauswertungen. Observer Media Intelligence first established operations in Germany in 1997 with the acquisition of a traditional media monitoring business. In November, Sifo Group acquired Observer Eesti, a small media monitoring company with operations in Estonia, Latvia, and Lithuania. Its annual turnover was about SKr 2 million, and it had about ten employees. The acquisition represented a geographical expansion for Observer Media Intelligence.

For 1998, Sifo Group reported operating revenue of SKr 894.4 million, an increase of 24 percent over 1997. Observer Media Intelligence accounted for SKr 493.1 million, a 41 percent increase over the previous year. Internal growth in Observer Media Intelligence accounted for 18 percent of the growth and acquisitions for the rest. Sifo Research and Consulting had operating revenue of SKr 386.7 million, reflecting 10 percent growth in Sweden and a 6 percent decline in Norway. SMG Consulting had operating revenue of SKr 43 million, a 12 percent increase over 1997.

Sifo Group continued to expand both Sifo Research and Consulting and Observer Media Intelligence in 1999 through acquisitions and joint ventures. In January 1999, Sifo Group and Guide Konsult AB, one of Sweden’s largest independent consulting firms, formed a new company to provide information technology (IT) solutions along with information and consulting services. In mid-1999, Sifo Group acquired Navigare Medical Marketing Research AB, a company that specialized in market studies in the medical field and also provided consulting services for pharmaceutical marketing. Its sales agents and project managers were highly trained in medical and pharmaceutical fields. In 1998, the company had sales of more than SKr 25 million. Following the acquisition, Navigare became part of Sifo Research and Consulting.

Sifo Group made two acquisitions on behalf of Observer Media Intelligence in 1999. The first took place in February 1999 and involved the acquisition of Pressfax OY, Finland’s leading fax distributor and supplier of media data. The acquisition added three employees and annual sales of SKr 2.5 million. Pressfax became part of Observer Media Intelligence’s BIT (Bòrslistans Informationstjänst) operations, which distributed financial information for public companies in Sweden. Pressfax was BIT’s first international acquisition.

Sifo Group’s second acquisition in 1999 for Observer Media Intelligence came at the end of the year and involved a much larger company. In December 1999, Sifo Group acquired Romeike Group, a media and market monitoring company based in London. According to the Sifo Group, Romeike Group was the world’s largest media and market monitoring company in the world and at least three times larger than its nearest competitor in the United Kingdom. The company had about 500 employees and annual revenues of approximately SKr 350 million. Sifo Group acquired all of the shares of Romeike Group, financing the acquisition through a combination of short- and long-term debt financing, the issuance of new shares, and a rights offering to existing shareholders. The acquisition was supported by Sifo Group’s principal shareholder, Investment AB Bure, which owned 50.1 percent of Sifo Group’s shares and controlled 64.1 percent of the voting stock.

The acquisition of Romeike Group was a further step in Sifo Group’s overall strategy of growth and internationalization. Following the acquisition, Sifo Group estimated that more than 70 percent of Observer Media Intelligence’s revenue—and more than half of Sifo Group’s revenue—would come from outside of Sweden. The company noted that even before the acquisition of Romeike Group, Observer Media Intelligence was Europe’s leader in media and market monitoring and at least twice the size of its nearest competitors in all of its markets, including Sweden, Norway, Denmark, Finland, the Baltic states, and Germany.

Toward the end of 1999, Observer Media Intelligence obtained the exclusive rights to distribute English-language news about Nordic companies over Business Wire. As a result of the agreement, all English information distributed by BIT would also be posted through Business Wire to some 700,000 financial professionals, 850 online services, and various databases and Web sites around the world. In another transaction, Sifo Group expanded Observer Media Intelligence’s presence in Germany by increasing its ownership of Argus Media from 50 percent to 86 percent, effective January 1, 2000. Argus Media was then merged into Germany’s Observer RTV Medienauswertungen, giving it a market share of just over 40 percent.

For 1999, Sifo Group’s operating revenue increased by 23 percent to Skr 1.09 billion, with operating revenue for comparable units rising by 11 percent. Observer Media Intelligence accounted for SKr 676.5 million in operating revenue, an increase of 37 percent that included 22 percent of internal growth. Sifo Research and Consulting had operating revenue of SKr 411.4 million, while SMG Consulting contributed operating revenue of SKr 42.7 million.

Sifo Group Becomes Observer AB in 2000

Toward the end of March 2000 Sifo Group agreed to sell Sifo Research and Consulting, along with the Sifo brand name, to Research International, a leading custom market research firm. Sifo Group received SKr 600 million for Sifo Research and Consulting and its brand name. The divestiture left Sifo Group with about 1,450 employees. At the same time Sifo Group announced it would focus its core business on media and market monitoring and undertake to change its name. Its other consulting division, SMG Consulting, was subsequently divested in March 2001.

Company Perspectives:

Observer is an attractive partner for international companies and organizations. The Observer Media Intelligence division has operations in the U.S.A., U.K., Canada, Sweden, Germany, Norway, Finland, Denmark, Portugal, Ireland, Estonia, Lithuania, and Latvia. Observer’s services consist of comprehensive monitoring of press, news agencies, radio and TV, databases, and the Internet, as well as editorial and analytical services. The company currently monitors more than 45,000 channels of communication, such as newspapers and magazines, Web publications, broadcast, news services, press releases, Web sites, data bases, and other open sources. The mission of the Communications Tools division, Waymaker, is to offer solutions for the efficient, value enhancing communication with strategically important target groups. Essentially, this means helping clients to create and maintain relations with desired target groups such as journalists, analysts, and shareholders. The division offers services for the entire communication process, from selecting target groups to evaluating communication efforts.

Earlier in 2000, Sifo bolstered its presence in Internet measurement through an agreement with the U.S. monitoring company Media Metrix. Since 1997, Sifo had held the Nordic region’s license for Media Metrix’s RelevantKnowledge measurement method, which provided demographic data on a Web site’s visitors. As part of the new agreement, Sifo transferred its ownership of its subsidiary Sifo Interactive Media, which had been part of Sifo Research and Consulting, to Media Metrix. In turn, Sifo became part owner of Media Metrix’s European subsidiary, MMXI Europe. The sale of Sifo Research and Consulting included Sifo’s interest in MMXI Europe.

Following the sale of Sifo Research and Consulting and the Sifo brand, Sifo Group changed its name to Observer AB effective June 6, 2000. The name change reflected the company’s focus on its core business of media and market monitoring. Observer AB’s strategy was to expand internationally through acquisitions while achieving internal growth of 10 to 15 percent annually. Immediately after becoming Observer AB in June, the company acquired the Norwegian media and monitoring company Imedia AS from its co-owners, Schibsted and Telenor. The acquisition added about 55 employees and was integrated with Observer Norway. Later in the year, the company divested a non-core business in the United Kingdom when it sold Hollis Directories to the British publisher Wilmington Group. Observer AB’s media and market monitoring operations were organized under the company’s Media Intelligence Division.

In September 2000, Observer AB formed a new Communications Division. The new division targeted clients in public relations and investor relations and provided them with a database of information on media and financial contacts as well as various types of electronic distribution solutions for their press releases, annual reports, and other communications. The Communications Division operated in the United Kingdom under the name Media Information and in Sweden, Finland, and Denmark as BIT. Later in the year, the Communications Division established international cooperation agreements with Bacon’s Information, Inc. in the United States and Media Monitors in Australia, giving its clients distribution in the United States, Canada, Australia, and New Zealand.

For 2000, Observer AB reported operating revenue of SKr 1.13 billion. The Media Intelligence Division accounted for SKr 875.1 million, while Communications brought in SKr 210.8 million. Internal growth overall was approximately 20 percent.

Acquisitions and Financial Strategies: 2001 and Beyond

At the beginning of 2001, Observer AB introduced a stock option plan for all of its employees. Under the new incentive program, all employees with at least two years at the company were eligible to receive free stock options, which could then be exercised to purchase Observer shares. Management noted that the option program complemented existing incentive programs and was essential for the company to retain and recruit the right employees.

Observer AB embarked on an aggressive acquisitions program beginning in the first quarter of 2001 and continuing for the rest of the year. In March, it acquired Memorandum SA in Portugal and News Extracts in Ireland. Memorandum was Portugal’s leading media and market monitoring company, with a network in southern Europe, including Spanish companies, as well as in Latin America. The acquisition represented Observer AB’s first entry into those markets. For 2000 Memorandum had sales of about SKr 20 million and some 80 employees. News Extracts, founded in 1955, was Ireland’s first press cutting and broadcast monitoring service. It was Ireland’s leading media monitoring company and had operations in Dublin and Belfast, Northern Ireland. During the first quarter of 2001, Observer AB also established new operations in Germany for its Communications Division and divested SMG Consulting. The company also moved its headquarters from Sollentuna to Stockholm.

In May 2001, Observer AB acquired the News Online group and integrated the properties with the company’s BIT operations in Scandinavia. The acquired News Online companies included Svenska Media, InformationsProjekt I Bara, and Info Media, which had operations in Norway and Sweden. Together, the News Online companies had sales of about SKr 22 million in 2000 and about 30 employees.

The series of acquisitions within the Communications Division resulted in a proliferation of brand names in different countries. Consequently, Observer AB decided to establish Waymaker as the single new brand for the Communications Division, which had operations in the United Kingdom, Norway, Germany, Sweden, Finland, and Denmark. Waymaker became the common brand for communications solutions for IR and PR professionals in all countries where it operated.

Observer AB made its entry into the North American market in August 2001 with the purchase of Bowdens Media Monitoring Ltd. of Toronto, Canada. Established in 1955, Bowdens was the oldest and largest media monitoring company in Canada. Bowdens had operations in seven Canadian cities, annual sales of SKr 125 million in 2000, and nearly 270 employees. At approximately the same time as it acquired Bowdens, Observer AB acquired Mediascan/CaisseChartier, a leading media monitoring service based in Montreal, Quebec. The company had annual sales of about SKr 40 million.

Before the end of 2001, Observer AB entered the United States market for media monitoring with the purchase of Bacon’s Information, Inc. for $90 million. Observer AB acquired Bacon’s from Primedia, Inc., which had acquired Bacon’s in 1995 when Primedia was known as K-III Communications. Bacon’s provided public relations professionals with a wide range of services, including media directories, a clipping service, a press release distribution service, and a media contacts list service.

Key Dates:

1998:: Sifo Group, formerly part of Scribona Group, becomes a publicly traded stock company on the Stockholm Stock Exchange.
1999:: The Observer Media Intelligence division of Sifo Group acquires Romeike Group in the United Kingdom.
2000:: Sifo Group sells its research and consulting division as well as the Sifo brand and changes its name to Observer AB.
2001:: Observer AB embarks on an aggressive acquisitions policy.

Having completed six acquisitions in four new markets in 2001, Observer AB consolidated its position as the market leader in media and market monitoring. For 2001, the company reported operating revenue of SKr 1.39 billion, a 20 percent increase over 2000. Observer AB made no further acquisitions in 2002. It was focused on improving its operating margins and integrating its North American acquisitions. The company also strengthened its financial position by obtaining a $175 million multi-currency revolving credit facility from a syndicate of banks that included Nordea, SEB, Svenska Handelsbanken, Nykredit Bank, Bank of Nova Scotia, and HVB Bank Ireland.

While Observer AB admitted that recent acquisitions burdened its financial results for 2002, the company reported a 52 percent increase in operating profit before goodwill amortization for the first half of the year. For 2002, Observer AB’s operating revenue rose to SKr 1.7 billion, a 25 percent increase over 2001. However, economic conditions forced the company to take action to cut costs, and it instituted an efficiency program to reduce costs by SKr 45 million. With no signs of increased demand, the company was focused on improving its operating margin. While there were no plans for immediate acquisitions, the company planned to raise funds for possible acquisitions through an issue of new shares and thus improve its debt-to-equity ratio, which stood at 94 percent in 2002.

Principal Divisions

Communications Tools; Media Intelligence.

Principal Subsidiaries

Bowdens Media Monitoring Ltd. (Canada); Observer Danmark A/S; Observer Eesti Oü (Estonia); Oy Observer Finland Ab; Waymaker Oy (Finland); Observer Argus Media GmbH (Germany); Waymaker GmbH (Germany); News Extracts Ltd. (Ireland); Observer Latvija SIA (Latvia); UAB Observer (Lithuania); Observer Norge AS (Norway); Memorandum (Portugal); Observer Sverige AB (Sweden); Waymaker AB (Sweden); Romeike Ltd. (United Kingdom); Romeike International (United Kingdom); Waymaker Ltd. (United Kingdom); Bacon’s Information, Inc. (United States).