Some thoughts from a conversation with our partner Barry Dudley and host Peter Lang on getting your business into shape generally and with an eye on maybe doing a deal in the future. I’d skip the first 7.5 minutes where they chat about Barry’s career, but then they discuss: 7:30 Why having strong numbers gives freedom for creativity, innovation, people development 11:30 Simple and timely monthly reporting and a handful of KPI’s 18:30 When is the right time to bring in a CFO 21:00 Getting your numbers into shape, with normalisations, to then look towards a value realisation event 32:00 What makes a good deal – it’s not just about the numbers – and changing deal structures On You Tube Or Spotify
Services: Green Square
An Independent Havas Could Lead to Structural Changes and Acquisitions. Barry Dudley quoted in Adweek
French media company Vivendi’s announcement that it’s exploring a sale of Havas—as well as sister company Canal+ Group and stakes in publisher Lagardère and Telecom Italia—could unlock more value for the agency, making it attractive to potential buyers, sources tell Adweek. The potential sale follows the partial sale of record label Universal Music Group (UMG) in 2020, when 10% was acquired by a consortium led by Chinese media company Tencent. Since the listing of UMG, Vivendi has seen a substantially reduced valuation, meaning growth for its subsidiary companies has been limited. “In 2020, Havas was a mere 15% of Vivendi’s revenues, with UMG and Canal+ dominating the numbers and holding center stage,” said Green Square partner Barry Dudley. “When Universal was spun out in 2021, Havas shifted toward the limelight at just under 30% of revenues. If the next step is a stock exchange listing all to itself, Havas will suddenly be putting on its own show.” In the six years since Vivendi acquired the remaining 59.2% stake in the advertising agency held by the Bolloré Group, the ad industry has gone through a fairly tumultuous period of change, as client demand for digital transformation strategies and the advancement of artificial intelligence have disrupted the commercial creative sector.
Unlocking value for future owners
Havas is the fifth-largest communications agency network globally and has been led by chairman and chief executive Yannick Bolloré for the last decade. He also serves as chairman of the board at Vivendi. “If it is to unlock the additional value that is being held back within Vivendi, it is going to need to be quickly communicating a very clear and purposeful strategy,” Dudley explained. Adweek understands that on Friday, a meeting was held with leadership within Havas to reassure them over concerns that arose from the surprise company announcement. Further speculation has indicated that Havas could become a takeover target to merge with a rival agency network group, or potentially a consultancy such as Deloitte or Accenture looking to improve its creative and media credentials. According to Vivendi’s third-quarter results, released in October, Havas’ net revenue was $714 million (654 million euros), with organic growth year-over-year of 4.5%. That followed second-quarter organic growth of 6.3%. “[Havas] is also a relatively unprofitable, complicated and unwieldy part of the group. They are undersize in the U.S. and in media,” said one former Havas executive who requested anonymity. “And, despite what the release says, they have been very reluctant to make big acquisitions—Havas and [Vivendi] will never get scale without that.”
Ownership, acquisitions and agency structure
It is thought that even with going public, the Bolloré family would continue to run the businesses outside of Vivendi’s direct ownership. Dudley explained that the agency network’s media business is its main revenue driver, despite Havas owning 148 agencies worldwide, including agency network BETC. These are based across its 73 “villages.” This could lead to Havas following the WPP strategy of consolidating agencies to simplify the structure for clients. Former Dentsu International and WPP executive Euan Jarvie, who now acts as chairman, investor and adviser for companies, believes that the major holding companies still have transformational challenges in their structures with the rise of consultancies entering the ad market, making driving scale even tougher. “The next few years will [see] a rise of more indies and much more of a struggle for large corporates in and outside the ad market,” Jarvie said. “There is still lots of money in the markets for equity of capital investors to get into this space. “All industries disrupt themselves generationally or evolutionary from time to time,” Jarvie added. “Advertising is doing both, so now might be a great time for Vivendi to consolidate and get value back in from some of its assets.” Dudley added that the business will already be looking for its next high-profile acquisition deal following that of creative agency Uncommon earlier this year, with an eye on either Asia or the Americas. “One thing is for sure: Doing deals is going to be fundamental in the mid-term,” Dudley said. Read more
The 7 key drivers of financial value for agencies. What do you need to get right? Tony Walford’s insightful Futerview podcast
Have you ever wondered about the best key criteria to build, value, and potentially sell your agency? A lot of the answers are here in less than 50 minutes! Tony Walford shares advice and perspective in Henry Piney’s great Futureview podcast, talking about the importance of insights. A few other moments you may find interesting: 20.58: How Green Square operates 23.25: What acquirers are looking for 29.24: Learnings from the Pandemic 31.26: Hot trends over the years 34.31: PE vs strategic acquirers 39.18: What is going on in the market and where it is going to go https://open.spotify.com/episode/5nCOktHBvBofo5jLXvYgG2
Job losses indicate S4 Capital ‘not a business that can say it’s growing’ Barry Dudley quoted in The Drum
The firm recorded negative net revenue growth for the year to date – and signaled more job losses are due in the coming months. Falling revenues and ongoing staff layoffs at S4 Capital, the company behind challenger agency network Media.Monks, reveal how acutely one of the highest-profile businesses in advertising has been stung by lower technology client spending.
Revenues at the group fell 15.4% in the third quarter of 2023, the firm’s financial results reveal. Like-for-like revenues were down 10% in the same period, while like-for-like year-to-date net revenue growth fell 0.3%. S4 has already issued two profit warnings earlier this year after initial commercial results suggested it would overcome 2022’s setbacks. Tech clients currently account for 43% of S4’s revenue, but “continued client caution to commit and extended sales cycles, particularly for larger projects,” according to executive chairman Sir Martin Sorrell, continued to hold down growth at the firm. In response, the company emphasized a continuing “drive for efficiency,” which has included a “significant reduction in headcount”: its overall workforce fell 4% in the last three months and 9% since June of last year, equivalent to around 850 job losses. The losses “reflect the progress that has been made on aligning our cost base to demand we are seeing from our clients,” a statement to the market read. According to chief financial officer Mary Basterfield, more job cuts are due in the fourth quarter of the year. “It’s probably not appropriate for me to comment publicly on specifics and exact numbers. But we will expect to see a noticeable benefit on our cost base as we go into 2024,” she said. The layoffs mean the company must now find future growth with fewer staffers to service its clients. “Losing people and the word ‘progress’ shouldn’t be in the same sentence in this industry. That’s not a business that can say it’s growing,” Barry Dudley, partner at Green Square, tells The Drum. In the short-term, attention to the company’s margins and cost base is intended to increase shareholder confidence. “It’s what they’ve got to do for the markets, unfortunately – taking action, cutting costs,” explains Dudley. So, too, are promises of cash earmarked for share buybacks and shareholder dividends next year. S4’s strategy of offering cash-and-share deals to the owner of agencies it acquires (and it was previously highly acquisitive) means that its ability to pursue future deals rests upon the value of its shares. Rival holding companies such as WPP or Omnicom, for example, typically buy new companies with cash. “They’re saying: we’re looking after the shareholders here and we’re not going to pile into more deals until things have turned around a little bit,” Dudley adds. The company hopes that the fourth quarter will bring it some relief. Sorrell said: “We expect, as usual, Q4 profitability to be the strongest quarter of the year. “We remain confident our strategy, business model and talent, together with scaled client relationships, position us well for above-average growth in the longer term.” Given the current caution among CMOs across the globe, growth may not be forthcoming. Basterfield said that “expectations for Q4 from a revenue perspective are now lower than they were.” Over a longer span, those efforts may aid its journey back to growth. However, at the time of writing, S4’s share price had fallen 13.85%. It’s down almost 70% compared with its position at the beginning of the year. The bulk of S4’s revenue – 55% – comes from just 13 clients, according to Sorrell. A more diverse portfolio of clients would insulate it against macroeconomic trends such as the tech sector slowdown, which has affected it and many of its rivals, but demand among its smaller, newer clients has been low. According to the company statement, “overall demand was lower, particularly in the newer regional and local clients.” Given that layoffs were also targeted at its local and regional businesses, per Basterfield, its ability to turn that situation around may be limited. AI-related projects may provide some demand going forward. According to Scott Spirit, the company’s chief growth officer and executive director, it’s the number one topic of conversation between the company and clients. In today’s statement, the only parts of S4’s business that recorded growth in the last quarter were its technology services arm, which accounts for around $110m in net revenue; its data, digital and media and content practices, which both saw third-quarter net revenue slide 1.4% and 4.4% respectively, account for the lion’s share. “We’re seeing a lot of [AI] conversations, a lot of new business opportunities with clients, and we are starting to see those convert,” he said on a call this morning with investors. “Initially, a lot of the work is around audits, workshops, examining the opportunities with AI because it is a significant change, not just for us and our people and the technologies that they use, but also for our clients, how they approach their marketing, how they structure it and how they build the relationships and even the remuneration models with their agencies.” S4 and Media.Monks have been among the most bullish organizations within advertising on generative AI and the economies of scale it can potentially deliver to them. They’ll likely play a big role in the firm’s proposition to the large multinationals it courts in the near future. But it’s not clear when its business will start to see those benefits show up on balance sheets. “It’s difficult, in all honesty, to say,” Sorrel told investors. The company is experiencing more and more demand among clients for auditing and discovery sessions around AI, but its benefits on S4’s own cost base and how it can improve the company’s margins are so far unclear. “We have to wait and see how that develops,” Sorrell said. “I think it all adds up to being positive for the industry and positive for ourselves.” Until then, the company is likely to remain a hostage to the fortunes of its largest tech clients. Sorrell concluded: “Our client list is very heavily technology geared… we [will] outperform when the technology clients start to become more confident about advertising and marketing spending.” Read more
Agency group Kin + Carta could go private if £200m buyout deal goes ahead. Tony Walford quoted in The Drum
Potential buyer Apax says taking marketing group off the stock markets will enable sustainable business growth. What would it mean for the business? Kin + Carta, the British digital marketing group previously known as St Ives, may be set for acquisition by Apax Partners, a London-based private equity fund. In a statement released this morning, the company’s directors recommended Apax’s bid for the group. The company employs approximately 1,800 staffers worldwide through companies such as e-commerce consultancy Loop, digital consultants Spire and software firm Melon. John Kerr, chair of Kin + Carta, said the deal would allow the company to progress to the “next phase of development.” “We believe the offer to acquire Kin and Carta by Apax Funds represents an excellent opportunity for the Company to accelerate ambitious growth plans and scale the business, building on the acquisition and integration of leading data and technology companies, the development of valuable technology partnerships, and the creation of a strong portfolio of enterprise clients,” he added. Though the business was established as a printer and publisher, it grew through acquisitions to become a wider marketing group. A restructure and rebrand in 2018 saw some of its companies sold off as it pivoted to focus on the digital transformation sector. Recent business growth has been slow, however. Kin + Carta’s half-year results for 2023 showed that like-for-like revenue declined by 6%, while net revenue in its core UK market fell by 16%. The company’s profit for the first six months of this year was £6.5m. According to Tony Walford, partner at M&A advisory Green Square, the group performed less well than had been expected by industry observers. “Following all that – although they’ve done great work, got great clients, all that good stuff – the company’s performance hadn’t really matched market expectations,” he tells The Drum. Exposure to the same macroeconomic issues which have depressed ad spend across the sector, and an underweight share price, has held it back from expanding through deals of its own. Apax intends to delist the company and take it private. This could help insulate the group from the broader market pressures that have held it back from growth in recent years. “These companies [like Kin + Carta] that are floundering around at a poor valuation, they can’t buy anything,” adds Walford. “They’re totally straitjacketed. It makes perfect sense for private equity to come in and take them off the market. Take them off the market and do something proper with it.” In a statement, Apax said it wanted to invest in the business and “accelerate growth both organically and inorganically to continue building scale in key areas. “The changing economic backdrop has highlighted the importance of scale and diversification in the DX sector. Apax believes that as a private company Kin + Carta will be better placed to make the investments necessary to position the business for long-term success,” the statement read. “A partnership with Apax away from the public markets is expected to improve the potential for laue creation compared to the status quo… and position the company to create long-term value.” Based upon Kin + Carta’s current market capitalization and an offer of 110p per share, Apax could end up paying over £200m for the business. Assuming no other bidders become involved, the process of delisting the company could progress swiftly – though a 75% majority of shareholders is required to accept Apax’s proposal. Kin and Carta was the first B Corp to trade publicly on the London Stock Exchange. Read more
WPP ‘taken by surprise’ as ad spend stalls, but are industry analysts? Tony Walford quoted in The Drum
WPP has cut its revenue predictions for 2023 as the tech spending slowdown in the US hit its creative agencies. Analysts break down the results. Falling marketing investment by US tech companies continues to affect large agency groups. And now WPP is feeling the sting.
The holding company – the largest employer in the advertising industry – said that “reduced spend across the technology sector and delays in technology-related projects” hit revenues at subsidiaries Wunderman Thompson, VMLY&R and AKQA in its quarterly statement to investors. Revenues less pass-through costs (the company’s equivalent term for net revenue) in North America fell 4.1% in the second quarter of 2023 and 1.2% during the first six months of the year. Greg Paull, partner at consultancy R3, notes that WPP’s core creative agencies took the brunt of the decline. “WPP’s traditional creative agency business is still struggling to show growth as client needs for content continue to bifurcate,” he says. “The opportunity for the group is going to be more Coca-Cola-like successes where creative, media and data are linked together.” ”This is a gloomy, global marketing picture,” says Forrester’s Jay Pattisall. ”WPP showed a trickle of growth, curtailed by US performance and its’ exposure to technology clients. Tech represents about 18% of WPP business and includes Google, Meta and Microsoft. WPP is the second advertising holding company to point to a drop in performance in its creative agency agencies during Q2 (the other being Publicis.) The +2% organic growth is the lowest of all the major advertising holding groups. And with WPP, Omnicom, IPG, Havas and Publicis all reporting single digit growth in Q2, its clear the post-COVID digital growth boom in agencies is done for now.” Client pauses on investment in project-based work also affected its specialist agencies, such as BCW and GTB; that portion of WPP’s business saw net revenues fall 1.6% over the last three months. Revenues from telecoms, retail and automotive fell, too. Chief executive Mark Read said, “the gap between our expectations… and today… took us a little by surprise.” Revenues in the US were “impacted in the second quarter by lower spending from technology clients and some delays in technology-related projects,” he told investors. “The general trend is one of cost control and a focus on margins,” he added. The US is the largest advertising market globally (six-month revenues from the US amounted to more than the revenues from Asia Pacific, Latin America, Africa, the Middle East and central and eastern Europe combined). Still, prospects for WPP in other regions were rosier. Though global like-for-like growth in the first half of the year was only 2%, growth remained strong at media house GroupM (6.1%) and in the UK and Western Europe. WPP’s domestic British business saw like-for-like growth of 12.7%. And although Read said growth in China was still slower than expected, WPP recorded 4.8% growth in the second quarter. Tony Walford, partner at Green Square, tells The Drum that “these results are pretty much as predicted and it’s good to see Q2 growth accelerating, particularly for the UK, together with the strong performance in GroupM and resilience in WPP’s CPG clients (a sector which can tend to reduce marketing in challenging times). “That said, there’s been a clear drop in US revenues due to reduced tech client spend – a trend we’re seeing across our clients exposed to that sector, and as reported by S4 last week. Shares are down 6.5% on the news, which has knocked around £0.5bn off WPP’s value and this is surprising as these aren’t particularly bad results overall.” WPP isn’t the first major agency group to see revenues impacted by lower tech client spending. Last month, figures released by Omnicom and Interpublic Group (IPG) revealed that client caution among tech firms had hit their bottom line. And its results in the year’s first quarter also registered a hit from the sector. Slow tech client revenues are unlikely to pick up this year, Read said. “We expect the pattern of activity in the first half to continue into the second half of the year,” he told investors. “I don’t have a crystal ball. We’re at a unique point; growth has slowed, and companies have driven their share price by rebuilding margins… I would expect it to revert but we’re being cautious about the likelihood of that happening during the course of this year.” Read dedicated time during his investor presentation to highlighting progress made integrating generative AI, particularly its alliance with chipmaker Nvidia. “AI will be fundamental to WPP’s future success and we are committed to embracing it to drive long-term growth and value,” he said. Patissall concurs. “US elections and an Olympics in 2024 will prop up some ad spending next year. But AI is the marketing category’s best opportunity to provide substantial long-term growth,“ he tells The Drum. “And WPP’s commitment and investments in AI is a signal for its bounce-back in 2024. If that comes to pass, I would anticipate investments from Nvidia, Satalia and AI partnerships to start providing growth next years in the content and production agencies using generative AI and virtual technology.“ But, Walford notes, “they’ve given no commercial guidance as to what it means in revenue generation or cost savings, or indeed how its use will affect WPP’s operations and client delivery. We’re wondering when all the hype and talk around AI will actually be translated into measurable tangibility – my gut tells me it will come hard and fast (good or bad), but we will have to wait and see.”
Why Sir Martin Sorrell has issued another profit warning for S4 Capital. Tony Walford quoted in The Drum
Overexposure to the tech sector is the culprit behind the company’s second warning to investors in a year. The tech winter has continued to bite advertising groups well into the summer. S4 Capital has issued a profit warning to investors, citing “challenging macroeconomic conditions” and technology clients “remaining cautious and very focussed on the short term.”
S4, which is led by former WPP founder Sir Martin Sorrell, revised its prediction for annual organic revenue growth to 2%-4%, down from 6%-10%. The company’s statement suggested that job cuts could be on the way in the second half of the financial year, referring to “a disciplined approach to cost management, including headcount and discretionary costs.” S4 Capital currently employs 8,600 people worldwide. This is not the first profit warning Sorrell has been forced to issue. In 2022, despite bullish predictions, he was forced to row back on numbers as operating costs rose faster than revenue. That followed an auditing mix-up that delayed the release of financial results and sent its share price tumbling. Tony Walford, Partner of Green Square, said of the latest update: “It’s never great when a company issues a profit warning and S4 is likely to get more scrutiny than most given its share price woes over the past 18 months.” S4’s share price was down by around 20% on the update. The group is more exposed than other holding companies to the broader tech sector, notes Walford. Its growth strategy has focused on capturing and keeping a small set of very large clients, dubbed ‘whoppers’ by Sorrell. That approach has meant that spending shifts at those companies have disproportionately impacted its revenues. “Agencies with significant tech clients are likely to see revenue challenges, given the continued layoffs in that sector, and S4, with ‘whoppers’ Adobe, Google, Meta and Amazon, will certainly be feeling the pinch,” continues Walford. Revenues at S4 came in underweight during May and June, resulting in the company’s operating margins being thinned. In particular, S4’s latest statement highlighted a slowdown in activity within its core advertising and content business and client hesitancy around big-ticket ‘transformation’ projects, which previously propelled the company’s growth. “We continue to see longer sales cycles, particularly for larger transformation projects. Some impact has been seen in each of the practices, but it is particularly evident in content,” the statement said. According to Walford: “The longer sales cycles for large transformation projects are not a surprise, as big corporations focus on short-term revenue and shifting products in an economic slowdown, but what did stand out is the reduction in spend on content. I would have expected this to be more resilient as it’s a key component of consumer influence. It will be interesting to see if this is a trend across the agency landscape.” The profit warning makes S4 the second advertising group to reduce revenue growth expectations this year. Last week Interpublic Group said it expected organic growth of 1-2%, down from 2-4%. IPG, which owns agencies R/GA, Huge and Mediabrands, also credited that reduction to lower spending among tech clients.
Does the Uncommon-Havas deal make financial sense? Barry Dudley writes in The Drum
Uncommon’s sale of a majority stake to Havas is a great result for its founders, but might not be quite what it seems, writes Green Square’s Barry Dudley. There’s been plenty written about how Uncommon will ‘bring new energy’ to Havas and the work that made its creative reputation but what of the deal itself, the structure, the heady numbers? That’s where I come in. As is usually the case there is very little disclosed, which means the information void gets filled with assumptions and guesses. Completely understandable. But I thought I’d use some EI to delve into things – that’s right, EI not AI: experience intelligence. Let’s start with the official Havas release: “The Uncommon founders will retain a material stake in the business (49%), maintaining their entrepreneurial zest, growing their brand globally and sharing best practice across Havas and parent company Vivendi, a world leader in media, entertainment, and communication.” This landmark deal reflects the entrepreneurial approach of Havas and bucks the industry standard deals – valuing the future potential of Uncommon at £80-£120m considering their projected growth plans. Uncommon will retain its brand, vision and freedom to make its own decisions across its client partners, internal team and creative output in this exciting next stage of growth for the studio.” What does my EI make of ‘entrepreneurial approach’? Havas has bought 51%. As this is a majority it means that it can bring 100% of Uncommon’s results into its group numbers. Pretty smart. But why is it entrepreneurial? I think there are a number of factors: The management team still holds equity, it remains owners of a substantial part of the business. They will feel that it still belongs to them. The mindset and outlook of an owner is very different to that of an employee. This ownership maintains their status as entrepreneurs, they haven’t sold out. But they are entrepreneurs that have also reset their personal lives by realizing a healthy lump of value. Surely they will relax a little now? For Uncommon I think it will be quite the opposite. Their appetite for being entrepreneurial, for taking risks, will be higher – they are no longer betting the farm as they were when everything sat on their shoulders. And there’s still 49% to be realized at some stage. The phrases “valuing the future potential” and ‘considering [Uncommon’s] projected growth plans’ were the next things to get the EI twitching. For those of you easily shocked or disheartened, you should stop reading now. Uncommon’s founders have not sold their business for ‘£80m-£120m’. So where do these fabulous numbers come from? The ‘future’ is six years from now, which I assume is a time when Havas has agreed that management could sell more of their equity. If over those six years, Uncommon has delivered ‘their projected growth plans’ the business will undoubtedly be significantly bigger than it is right now. Apply an agreed valuation multiple to that business and you get to £80m-£120m. That’s a value six years from now, assuming significant growth and it’s for 100% of the business (51% of which has already been sold). It sounds like my EI is trying to make out that this isn’t a great deal. That’s not the case. To save you doing the maths, at the upper end, selling the remaining 49% at a valuation of £120m would give them £58.8m! And I would not be surprised if the Uncommon team smash their own growth plans and the numbers get even bigger. But this maths is still quite hard to comprehend, so I thought I’d make the EI work a little harder. Uncommon’s last filed financial statements were for the year ending 31 December 2021. It had a turnover of £26.8m, gross profit (or net revenue) of £11.6m which was 50% up on the prior year, and an operating profit of £1.6m. If you add back depreciation to the operating profit you get to an EBITDA that is probably around £1.8m – that’s a margin on gross profit of 15.5%. And the average monthly number of employees for 2021 was 63. According to LinkedIn Uncommon now has 168 ‘employees’. This will include contractors and freelancers, so I’m going to take an EI guess that Uncommon’s average monthly number of employees for 2022 was 95 – ie, it grew by 50% again. Maintaining this level of growth is going to be very hard to sustain even if it conquers the US as I believe it hopes to. If, say, the business then grows at 20% a year from 2022, the gross profit in 2028 would be £52m. At 30% a year, it would be a “mere” £84m. And let’s assume the EBITDA margin improves over that time from 15.5% to 17.5% as the Havas corporate expertise is leveraged. That would give a range of £9.1m to £14.7m for EBITDA in 2028. Apply an eight to 10 multiple… Lots of assumptions on assumptions, but that’s what growth plans have to be built on. Only time will tell if this rather distracting future valuation becomes a reality. Fingers crossed for Uncommon and Havas. Read more
Majority stake in London indie Uncommon will ‘bring new energy’ to Havas. Barry Dudley quoted in The Drum
The French holding company has acquired a controlling stake in one of the most successful indie shops in Britain. Havas has acquired a majority stake in creative Uncommon in a deal which values the vaunted London indie at £120m. The deal, Havas boss Yannick Bolloré said, would “bring new energy” into the Havas network and bolster its creative edge at a time when many clients are being lured away from traditional suppliers by in-housing or the promise of generative AI. “Uncommon have created a new space and energy in the industry. They are a once-in-a-decade company and having them join the Havas family is an exciting prospect. We share a vision: with every project, Uncommon and Havas remind the world that creativity is, and always has been, the difference,” he said. According to Barry Dudley, partner at M&A consultancy Green Square, the deal could go some way to rounding out Havas’ client offer to the broader market. “That’s quite a coup for Havas to snap up one of the brightest stars on the UK creative scene in recent years. And super smart for the Uncommon team – landing in a group known more for its media than its creative capabilities; that has arguably needed a statement creative asset in the family; that has the footprint to rapidly accelerate Uncommon’s growth; and gives them access to the broader Vivendi group,“ he says. “The deal value will undoubtedly have been at the premium end of the spectrum and I’m fascinated by some of the words in the Havas release: ‘entrepreneurial approach’, ‘bucks the industry standard deals’, ‘valuing the future potential’. There’s quite a bit to delve into there.“ Uncommon’s founders, Lucy Jameson, Natalie Graeme and Nils Leonard, retain a 49% stake in the agency, and will continue to run the business at arm’s length from the wider Havas group. Graeme said the deal would allow the business to open an office in New York and expand rapidly. “Havas, along with its sister companies in Vivendi, offers Uncommon a way to accelerate into the spaces where we have already made headway,” she said. Read more
MSQ’s buyout shows the power of proper integration, investment and leadership. Barry Dudley quoted in The Drum
US private equity firm has purchased a majority stake in UK digital ad agency group MSQ, promising further deals. MSQ, the parent company behind design agency Elmwood, and B2B shop SteinIAS, has been acquired by an American private equity firm, One Equity Partners. The group has expanded rapidly in recent years following a cash investment by private equity firm LDC in 2019, when the company was valued at £37.5m. In contrast, The Sunday Times estimates that One Equity acquired its majority stake for £170m. After a series of acquisitions – including Elmwood, Be Heard and Brave Spark – MSQ’s annual revenues rose to £125m, with an EBITDA (earnings before interest, tax, depreciation and amortisation) of around £20m, representing a fourfold expansion. Peter Reid, chief executive officer of MSQ, said that the deal would allow it to grow even further. “It’s been a highly successful four years at MSQ and there is huge potential and ambition to do more to build on our capabilities and footprint to enhance existing client relationships, attract new business and retain, develop and grow our team. “The structure of the deal and the players involved will give us access to greater resources to extend our global offering, invest in talent, technology and services and position ourselves as the leading next-generation partner for the world’s leading and most ambitious brands through the continued successful integration of insight, data, technology and creative.”
Further deals expected
In recent years, the company has focused on expansion into the US market. A company spokesperson signaled further M&A activity could follow shortly, saying that “a number of potential add-on acquisitions have already been identified and are under evaluation.” Barry Dudley, partner at M&A advisory Green Square, told The Drum: ”This is a great story showing how private equity can help accelerate a business forward and what feels very compelling here is that the growth has come organically as well as through acquisition. ”Just buying things will clearly make a group bigger, but it’s how you integrate these businesses, invest in them, lead and manage them, that will take performance to another level. It looks like Peter and his team have done a great job. To date, they have bought cleverly and arguably in a relatively below-the-radar way. With One Equity Partners now in the mix with their Madison Avenue head office, the focus is shifting to the US and also to Europe where they have offices in Germany and the Netherlands.” He added: ”My money is on a statement acquisition, something high profile, being high on their target list.”
New backer
Founded in the US, One Equity Partners previously served as the merchant banking arm of American banking giant JPMorgan Chase (in 2014, JP Morgan sold half its stake in the business). Dr Jörg Zirener, senior managing director of One Equity, said: “MSQ’s business model and strategy provide a fantastic platform for future growth and we look forward to working with the excellent team there in accelerating the vision of creating a leading international digital, tech and creative group. “With our experience and successful track record in buy-and-build transactions as well as our international set-up, we feel that we are well positioned to help the management of MSQ to develop the company into one of the leading global digital agencies.” MSQ’s earlier private equity backers, LDC, retain a minority stake in the company. John Clarke, investment director at LDC, said: “MSQ is a phenomenal business and it’s been great to work alongside [Reid] and his team as they’ve built one of the most dynamic international groups in the market. There is still so much more to come for MSQ and our ongoing investment is testament to that and the quality of the team onboard.” MSQ was first established in 2011 and has a global workforce of 1,200.