Adweek published content on private equity firms showing interest in Adland, foreseeing a “coming wave of PE buying and investing in creative agencies.”
Well, sure, the White holding companies are no longer interested in purchasing more White advertising agencies, as each conglomerate is overfilled with commoditized people, practices, and properties. So, it falls on other entities to provide financial support to sustain shops.
The piece is titled with a question: “Your Agency Just Sold To Private Equity. Now What?”
The Answer: Probably the same thing that would happen if your agency just sold to a holding company—there will be an initial phase to weed out redundancies and optimize profitability, followed by the departure of legacy leaders. That is, people will be released or relieved, and the business will be streamlined or strangled.
It’s a sharp kick to the privates.
Oh, and DEIBA+ will be prioritized far after redundancies, revenue, reductions, reengineering, rejuvenating racism, and rent.
Your Agency Just Sold To Private Equity. Now What?
As PE dealmaking in the agency world heats up, experts share what to expect after an acquisition.
By Alison Weissbrot & Brittaney Kiefer & Rebecca Stewart
Interpublic Group (IPG)’s sale last week of R/GA to private equity (PE) firm Truelink Capital signals a coming wave of PE buying and investing in creative agencies, industry leaders tell ADWEEK.
R/GA is not the only agency that has recently sold to PE: last year, Svoboda Capital Partners invested in creative agency Highdive; Keystone Capital invested in Barkley, which then merged with OKRP; and independent media agency Brainlabs nabbed funding from Falfurrias Capital Partners (FCP).
Other PE deals in the ad arena include FCP’s investment in digital shop Said Differently; Shamrock Capital’s (which also owns ADWEEK) stake in experiential consultancy DE-YAN; and Growth Capital Partners minority investment in U.K. social agency Coolr.
As private equity dealmaking in the ad industry heats up, ADWEEK spoke to experts about what agency leaders can expect under PE ownership.
PE buyers are getting more sophisticated
While PE firms have invested in agencies over the past 10 to 15 years, their targets have mostly been performance marketing firms, said Michael Seidler, CEO of M&A advisory firm Madison Alley, pointing to deals like New Mountain Capital’s 2020 acquisition of Tinuiti from another PE firm, Mountaingate Capital.
“Following the Tinuiti [deal], so many groups saw the success of data-driven performance marketing groups and thought that they could replicate that,” he said.
In contrast, PE firms historically saw creative agencies as project-based and talent-driven businesses, and therefore less predictable, Seidler added.
But recently, there has been growing interest in creative and “tech-enabled” shops, said Lisa De Bonis, chief executive of Huge, a former IPG agency that sold to PE firm AEA Investors in December.
“I’m convinced this is the next wave,” De Bonis told ADWEEK. “As a natural consequence of the adoption of tech more broadly, and how quickly consumer behaviors and businesses are having to transform, private equity firms are seeing that tech-enabled creative services are an area of growth. They’ve woken up to it.”
When Brainlabs sold a minority stake to London PE firm Livingbridge in 2019, CEO Daniel Gilbert said M&A advisors set up meetings with holding companies and threw some PE outliers in the ring. He went in with some “negative preconceptions” of PEs as investors that “ruined businesses” by stripping down assets, sacking the CEO, and loading them with debt. But, he kept an open mind.
“We did meet some like that, and immediately said, ‘that’s not for us.’ But then we met this whole other bracket of PEs which was more growth-oriented and believed in our business,” he said.
Seidler said that PE sophistication in this space has increased, pointing to firms like Mountaingate Capital, New Mountain Capital, Shamrock Capital, and Insignia Capital Group as a new crop of agency buyers that have seized the opportunity–and learned more about how to successfully operate agencies along the way.
“It’s completely changed; there aren’t that many PE houses without some form of investment in marketing services or media or the advertising landscape,” Gilbert said.
Long-term growth on a short-time horizon
While PE firms figure out how to operate creative agencies, those agencies are getting used to the PE playbook.
PE firms typically give their acquired companies a three-to-seven-year timeline to increase their value before exiting. During that period, they’re given capital to make “strategic acquisitions to enhance the growth and enhance the multiple,” said Seidler.
“[PE firms] are in the business of growth, so there is capital. That didn’t happen in our previous situation,” said De Bonis. “There is a focus on performance and business excellence that is important and critical to our long-term growth.”
Gilbert said for Brainlabs, PE backing has resulted in a “growth-oriented” structure that has allowed the agency to complete 10 acquisitions since 2019, including social agency Fanbytes and digital shop Sparro. By 2023, the agency had grown eightfold, with client billings over $1 billion, while headcount increased from 250 to 850.
When the time came to sell again, U.S.-based FCP purchased a 55% stake.
While Gilbert said he considered selling to a holding company, he didn’t want the “pressure” of quarterly earnings to force decisions in the interests of investors rather than clients.
“A holding company is full of traditional agencies, so you’re in this conservative model, and [bound by] the constraints that wash across a full holding company and all the compliance issues of being public,” Seidler agreed. “[PE-backed agencies] have capital behind them, and they can look for acquisitions, and they can grow in other ways versus grinding it out to organically grow.”
A more focused offering
PE owners eliminate the pressure facing holding companies to sell fully integrated offerings across historically siloed assets, Seidler said, leaving agencies to get “the focus and the attention to prioritize their needs on a standalone basis.”
He pointed again to New Mountain Capital, which in addition to Tinuiti, holds a stake in healthcare marketing agency W2O and digital transformation company Bounteous. “They have three different businesses that are singularly focused and aligned to build the best performance marketing agency they can,” he said.
Under AEA Investors’ ownership, Huge has zeroed in on its core capabilities of digital product design and customer experience, De Bonis said. “It’s not about what else we can do or how we diversify. It’s about how we make this stronger, better, and more performative.”
For Brainlabs, FCP’s focus on long-term growth versus short-term payoffs has led to bigger upfront investments in talent, including graduate programs.
“If you were in a holding company structure, that sort of investment would look expensive without yielding something short-term to point to in terms of efficiency or production, and therefore difficult to justify,” said Gilbert. “But because PEs [usually plan to] sell, [FCP] knows we need a sustainable way of recruiting, training and producing talent.”
Preserving culture is key
For a PE ownership to be successful, agencies must find partners that understand the importance of preserving the cultures of these talent-led businesses.
“The thing that’s different is with agencies, they’re run by people,” Seidler said. “So preserving the culture matters, and even making acquisitions that are compatible with the culture matter a lot.”
Gilbert said that in the sale process, Brainlabs met many PE firms that asked questions that indicated they didn’t understand the sector.
“They were used to investing in businesses where you could point to the infrastructure. They did not like the concept that all the people could leave, and maybe all the clients could leave as well,” Gilbert said.
For agency staff, there’s the bonus of a greater link between their performance and the growth of the business, according to De Bonis.
“For people at Huge, there is now this focus on performance that directly links to their own growth that they didn’t have before. It’s a simple conversation: we grow, you grow,” she said. “We’re able to distribute the value creation, which means equity and performance-related compensation.”
For Gilbert, the structure Brainlabs currently operates under, where management owns 45% of the business, is working. “It’s a nice balance between good governance, as well as client, and future-centric behavior,” he said.
But depending on the nature of the deal, some founders might experience culture shock, particularly at independent agencies. These entrepreneurial leaders will have to adjust to board oversight and a level of rigor they didn’t have as sole proprietors.
“For many of these founders, they’ve been running the business by themselves and making decisions by themselves,” Seidler said. “You now have someone that you report to.”
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