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. Last Updated: 07/27/2016

Alcohol, Ad Hikes Hit Marketing Firm

IMSGreg Thain
Since coming to Moscow in 1993, Greg Thain has learned how volatile emerging markets can be: Some days you snap up five firms in five countries. Some days your stock plummets.

On Thursday, the stock value of Thain's IMS Group dropped nearly 25 percent, leaving the company valued at $65 million.

"This is not a boring envelope-making business in Stuttgart," Thain said Thursday, shrugging off the announcement earlier in the day that IMS's share price had fallen to 118 pence from 155 pence. The marketing and sales company listed on the London AIM exchange in December, raising $15.2 million.

To defend against market swings like this, Thain, the company's CEO, says IMS must go global -- and fast.

The Moscow-based company has already embarked on an international buying spree. From March to July, it bought three firms in emerging markets outside Russia -- in Hungary, Turkey and India. IMS also bought companies in Russia and Britain.

But this is just the beginning of Thain's Napoleonic vision. "We've got five more countries we expect to buy in this year," Thain said, as he juggled cell phone calls and an apple crumble during a recent interview at a Moscow cafe.

Targets include most of Eastern Europe -- the Czech Republic, Slovakia and the Baltics. "Asia will be 18 months to 2 years away," Thain added. "We're looking at Korea, Thailand, Indonesia." China is not on his list.

Going global is the only way to survive, agreed Helene Lloyd, director of Moscow-based TMI marketing and public relations firm. "Your clients tend to prefer to have one company manage all of Europe," she said.

IMS clients include Diageo, a U.S.-based drink retailer that sells Smirnoff, Johnnie Walker, Cuervo and other labels; and SV, a Russian vodka maker with the SV and Medoff brands.

Pursuing a global strategy is also important for safeguarding against the volatility of emerging markets, said Tatyana Kapustina, an Aton brokerage analyst.

Evidence of that was never clearer than it was on Thursday, when IMS's heavy investment in Russia made it clear how vulnerable a company can be to the whims of regulators and politicians in any one country.

Indeed, Thain attributed the sell-off to the Russian government's tightening of the regulation of the alcohol market and an increase in television advertising rates across the country.

Still, Kapustina remains bullish on IMS. The company's global strategy will attract new clients, she said, noting that each time IMS acquires a new company, it also picks up the company's clients.

Plus, Thain pointed out, the company's strategy of investing in emerging markets before other companies means IMS saves money. The firm's average acquisition runs $3 million. This year, it has spent nearly $20 million.

Thain added that lessons learned in Russia put IMS in a good position to invest in other emerging markets. He pointed to the consumer spending boom fueling Russia's retail market; the market has grown by 12 percent yearly for the past five years, totaling $245 billion in 2005, according to UralSib estimates.

"We can move experience from Russia to India to Turkey, because they are all at the same point in the cycle," he said.

Ekaterina Panteliushina, investor relations director at Delta Partners in Moscow, said marketing firms' long-term prospects depend on client loyalty, among other factors.

"A risk with such firms is how their client inflow weighs against their client outflow and how clients' commitment to a firm may change in three to five years," Panteliushina said.

Last year, IMS grossed $44 million. That figure was forecast to jump to $120 million this year by the London-based Canaccord brokerage, and was expected to rise to $180 million in 2007. While those figures will likely be readjusted in light of Thursday's drop, analysts remain optimistic about the company's fortunes.

"In emerging markets, you know that the BRIC theory should be right," Thain said, referring to the theory that says Brazil, Russia, India and China will drive future economic growth. "You have to be quite entrepreneurial. Things take a long time."