Irvine's PIA to Merge With SPAR Group

By LESLIE EARNEST

March 2, 1999 12 AM PT

TIMES STAFF WRITER

PIA Merchandising Services Inc. said Monday it has struck a deal with a New York competitor to form one of the largest marketing and retail merchandising support operations in the nation.

Irvine-based PIA, which performs tasks such as making sure clients’ products are properly displayed on store shelves, will merge with SPAR Group, a privately held collection of smaller companies that serves the same customer base.

Under the agreement, PIA will issue 12.3 million shares of stock to SPAR shareholders, giving SPAR a 69% stake in the combined company. Based on the price of PIA’s shares, which closed unchanged Monday at $3.88, the stock would be valued at $48 million.

The new enterprise, SPAR Group Inc., would be headquartered in Tarrytown, N.Y. SPAR’s top executive, Robert G. Brown, would become chief executive. PIA Chief Executive Terry R. Peets will be vice chairman.

PIA’s Irvine office, which has 80 employees, is expected to remain open, said Cathy Wood, PIA’s chief financial officer.

“There is a transition team we’re putting together to decide what kind of changes, if any, need to be made based on the integration of the companies,” she said.

The merger is the latest example of ongoing consolidation in the merchandise service industry, which has grown over the last decade as more consumer product manufacturers have opted to hire outside companies to ensure that their products are being properly handled.

Companies such as PIA make sure that shelves are stocked, that promotions are displayed correctly and that the merchandise is rotated so that it doesn’t remain on the shelf past the product’s expiration date.

SPAR offers other services as well. Its companies conduct in-store promotions, create sales incentive programs and conduct consumer product research.

The merger will benefit both companies, Wood said.

PIA, an industry pioneer, will become part of a larger marketing services organization while dramatically improving its technological capabilities. SPAR, which started as a technology company, has a sophisticated Internet-based system in place that allows clients to monitor the merchandising of their products on a daily basis, she said.

At the same time, the merger gives SPAR a national presence and access to public markets.

PIA has been struggling since the end of 1996 and has lost money in six of the last seven quarters reported.

Trying to right itself, the company has scaled back its operations, laying off workers, reducing administrative costs and closing some offices. But it was “not enough to create an exciting company bottom line and increase shareholder value,” Wood said Monday.

PIA has not operated as efficiently as it will be able to once linked with SPAR, she said.

“The things we did have not reduced our costs to the levels that the integration with SPAR will allow us to do because of their technology,” she said.

The two companies have talked over the last two or three years about the possibility of a merger, Wood said, and the discussions intensified over the last four or five months.

The deal was unanimously approved by PIA’s seven-member board of directors on Sunday. PIA’s employees were advised of the planned merger on Monday, she said.

The proposal, which still requires PIA shareholder approval, is expected to be complete by June.

PIA has roots dating to 1943. Initially a subsidiary of Pacific Outdoor Advertising, the company was first called Pacific Indoor Advertising. While handling clients’ advertising in stores, it began to monitor the placement of its customers’ products. Over time, it shifted into the merchandising service business.

PIA went through several ownership changes over the years and eventually was taken public in 1996.

Currently, PIA, in addition to its Irvine operation, has as many as 3,000 field employees working out of about 16 offices across the nation. SPAR has about 160 administrative employees in about seven offices, mostly on the East Coast, and about 3,000 workers in the field.

The combined company will provide marketing and sales services to more than 17,000 grocery stores, 6,200 drug stores and 8,800 mass merchandiser stores, PIA said. The new company will have sales of about $197 million, the company said.

PIA expects to report revenue of $122 million for 1998, while SPAR Group’s revenue last year was $75 million.

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PIA Gets a Partner

Irvine-based PIA Merchandising Services Inc. agreed to merge with the SPAR Group, a New York competitor, in a stock deal. PIA has struggled financially in the last couple of years. Its stock, which surged after the company went public early in 1996, has been below $5 in recent months. Sales and earnings in millions:

Sales:

1996, 2nd Quarter: $26.86

1998, 3rd Quarter: $29.84

Earnings:

1996, 2nd Quarter: $0.21

1998, 3rd Quarter: $-0.37

Monthly Closing Prices

1996

April: $26.25

Monday’s close: $3.88

The two companies at a glance:

PIA Merchandising Inc.