Media Buying Briefing: Private equity firms are the new buyers of agencies as M&A market heats up

stack of money

This Media Buying Briefing covers the latest in agency news and media buying for Digiday+ members and is distributed over email every Monday at 10 a.m. ET. More from the series →

Given that 2021 was a pretty active year for mergers and acquisitions (and minority investments) across the advertising landscape, the media agency world had its share of wheeling and dealing). Stagwell and S4 continued their search for shops to fold into their growing holding companies, while non-traditional groups like Jellyfish and Brandtech Group found their own way to accomplish the same.

But there’s an interesting twist to activity in 2022: it’s not the holding companies that are necessarily doing most of the buying or investing. Nor is it the consultancies, which picked up several agencies over the last decade — enter private equity.

PE shop money has been hunting for agencies, particularly in the performance marketing space, to either acquire or fold into other agencies in order to broaden services that are in demand from marketers today. 

“As buyers get accustomed to the risk profile associated with businesses that only have digital assets, the market has just exploded. COVID really exacerbated the M&A market in the agency space,” said Amanda Dixon, co-founder of M&A firm Barney, which has over $500 million in active listings and is on pace to do between 70-100 transactions in the agency space this year. “The mindset that agencies are going to be here in a in a different way than in the past as they participate in helping brands digitally transform has just totally been exacerbated with the global pandemic.”

To wit, only two weeks ago, The Carlyle Group through the Amsterdam-based marketing services firm Dept it controls, acquired 3Q Digital. And only months before, 3Q had purchased SEO firm Inseev. Meanwhile, New Mountain Capital (which bought healthcare agency Real Chemistry), CVC Capital Partners (which bought Asian-based Blue Focus) and Next 15 (which just bought U.K.-based Engine Group) are among the other acquisitive PE firms in the last year. 

What’s behind this trend? For one, there’s the appeal of performance marketing, which can generate more instant results for investors and just happens to be very hot at the moment as consumer habits drift toward e-commerce.

“There’s a lot of high growth in the digital performance marketing sector that’s driven by a lot of more data-driven, customer-acquisition and growth strategies. And through the pandemic, the acceleration of digital and acceleration of e-commerce activity has further enabled that,” said Michael Seidler, CEO of M&A firm Madison Alley. “The other thing that’s driving it [are] new video platforms like YouTube, CTV and OTT, and then even like Tik Tok and Instagram. They’re all growing — so those new platforms are presenting new opportunities” for marketers.

Even the Great Resignation has had an effect on buying agencies, added Dixon.

“People have this notion that a PE buyer coming in is going to completely decimate culture, and that it will be a miserable experience. And the reality is, we have seen way more success stories with financial buyers than not,” she explained. “The financial buyers that have decided to come in and get comfortable in this space, recognize that it’s a very human capital centric business, and the assets that they’re purchasing are really contingent upon people being happy in their work environment.”

There is, however, a different way for independents to grow their roster without having PE money back them. Dan Khabie, co-founder of independent Court Avenue, who sold his old agency Digitaria to WPP in 2010, uses that perspective and experience (including what to avoid) to drive the acquisitions Court Avenue has made — without PE or venture capital help. 

“We’ve created a new playbook on how we plan to scale our business,” said Khabie. “Part of it is [co-founder] Kenny [Tomlin, who sold his agency Rockfish to WPP in 2010] and I investing a significant amount of money into the business, and part of it is bringing in strategic investors rather than a private equity firm. And then we are kind of growing off of our balance sheet because we don’t need to pull money out of our companies.”

Still, with all these PE investments and acquisitions, one can expect another round of selling off agencies, since most PE firms aren’t in it for the long haul, but rather making their multiples nut and then selling within three to five years. 

Color by numbers

Traditional television has held onto live sports as a last bastion of significant ratings, but even that may be starting to slip. According to research from Integral Ad Science, consumers are warming to digital streaming platforms’ carriage of live sports. Likewise, leagues have been spreading their rights to places like Apple TV (Major League Baseball) and Amazon Prime (National Football League) not just traditional broadcast and cable networks. Here are some highlights from IAS’ study, Game Day Digital Strategy, which surveyed 1,100 U.S. online consumers who watch sports:  

  • 46% of online U.S. consumers usually watch live major sporting events on digital streaming platforms, the most popular of which include Hulu, YouTube TV, and ESPN+
  • 90% of consumers who use streaming services agree that their ad experience is better on digital streaming platforms than traditional TV when watching sports
  • 45% of consumers are likely to remember a brand or product with contextually relevant advertising during a major sporting event
  • 43% of consumers find ads helpful when planning for activities leading up to a sporting event

Takeoff & landing

  • Burger King named Omnicom’s PHD its media agency following a review; PHD also handles media for corporate siblings Popeyes and Tim Hortons. Horizon Media was the incumbent and will continue to handle media for BK and TH in Canada.  
  • GroupM media agency Wavemaker named Ryan Webber CEO of Wavemaker Canada, bringing him over from iLobby where he was chief revenue officer.
  • Goodyear named Stagwell-owned Colle McVoy its media and creative agency of record for its company-owned properties.

Direct quote

“Offering some free advice to Netflix … consider well the options you offer to viewers. You obviously want to keep the flagship, and have a free ad-supported service, but what about additional options in between? There’s room for ad-lite services in the middle, perhaps an array of them, so that as people consider the slate, they upgrade themselves up from free in order to get some of the holdback premium programming. There’s a lot of room for creativity in the packaging.”

— Research veteran and columnist Bill Harvey on Netflix’s announced plans to introduce advertising.

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