Services: Green Square

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.

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 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.

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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.”

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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

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

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.

With speculation growing that Vice Media Group is on the brink of bankruptcy, we explore what could become of its creative and content agency. As its parent company seeks a sale to stave off collapse, the future of agency Virtue has been thrown into doubt. The agency employs hundreds of staff across 21 offices worldwide and has carved out as formidable a reputation in adland as its parent company has in publishing. Its ‘Backup Ukraine’ campaign released last year, for example, brought in armfuls of industry awards and saw the company in the top 30 agencies on the planet in The Drum’s World Creative Rankings. Vice is currently exploring a sale to five potential suitors, according to The New York Times, in order to avoid filing for bankruptcy. Earlier reports suggested its owners sought a sale to help the new media company grow sustainably after it missed revenue targets in 2022 by $100m. Should that effort fail, bankruptcy would lead to an auction for the company’s assets – including Virtue. Would it be viable as a standalone agency, if a buyer amputated the business from the wider Vice group?

Is Virtue viable alone?

According to M&A expert Tony Walford, partner at Green Square, Vice’s quest to find a buyer doesn’t necessarily reflect on Virtue. “I’m not surprised that it has been hard to find a buyer for the Vice Media Group as a whole, primarily because of the diverse nature of its operations – from news, to ad creative, entertainment platforms, TV and feature film production, distribution of the content it has created and more,“ he says. “Many acquirers will likely want some of these capabilities and assets, but not all. But if you separate any or all of them does the sum of the parts end up at a value lower than the whole? One has to question if there’s some co-dependancy.“ The agency’s connection to the media company is both pro and a con, he notes. “Virtue will probably have won some pitches simply because of the connection to Vice – the halo effect. It will have won work because of the unique cultural insight and expertise it can bring from elsewhere in the group. “What if it no longer has access to this? Or has Virtue been though childhood and adolescence and matured into an adult that can now master its own destiny, with this being a new chapter in its story?“ Rebecca McKinlay, managing director of the Financial Times content studio Alpha Grid and formerly head of The Economist’s Impact outfit, says such an outcome is possible, but difficult. “Virtue has a great client base and it has got very strong creative credentials… it has got an opportunity to stand up as a standalone creative agency or creative content agency. But as we all know, that’s a massively competitive market.” “What is that differentiation when it’s not ‘powered by Vice’? It’s a very hard thing to differentiate in a marketplace when you’re talking about culture and creativity – because so many others are.” Virtue has established a heavyweight reputation among a set of peer agencies created by rival publishers, including names as diverse as The New York Times and LadBible. Business consultant Mark Sandford, who helped to establish Shortlist Media’s in-house creative agency Family, says: “They have got a great reputation in the market as great content creators for brands.” There’s a future for the business, he says, “if brands are still confident that they can deliver on what they want. Their big thing is reaching young people authentically and making sure that the content they’re putting out is relevant and engaging, and they are very good at that. It’s something they can certainly build on for the future.” And though Virtue operates in a competitive agency space, he suggests Vice’s connection to younger audiences has given it a “leg up” that could provide a distinct foundation even after a potential separation. Publisher-owned agencies are, however, very closely tied to their parent companies. McKinlay notes that “for a business like Alpha Grid, truly our differentiation is our ownership by the FT. There are no other creative businesses owned, supported and invested in by the FT.” As such, “the majority of our clients come to us via the FT… to reach its audiences of C-suite decision makers and financial influencers. That has historically always been the majority of the business. “We do work with clients that might not want to spend on FT.com and want content for their own channels. That’s where the real competition lies because any agency can build content for clients and lots of clients can do it themselves.” Though the studios have different clientele and different target audiences, she says the principle applies to Virtue, too. One media executive, who asked not to be named, was skeptical Virtue would be attractive to an acquisitive agency group without its umbilical cord to Vice. “Would anybody buy it? I doubt it very much. I can’t see any of the agency groups buying it. I don’t know what you would buy.” The primary temptation for a potential acquirer, they suggested, would be the agency’s talent. “There may be individuals within [Virtue] that have specific knowledge of certain formats. The speed of being able to turn around content on social platforms, the whole idea of being able to generate engagement… most creatives in agencies, even the cool ones, wouldn’t be able to do that.” It’s not just the association with Vice’s brand. The publisher’s access to first-party data is an invaluable aid to creative agencies like Virtue, says Sandford. “The advantage of having real first-party audience insight is great for forming those ideas and making sure they get the best outputs,” he says. Vice may yet reach an agreement with a buyer that takes the entire group, keeping Virtue and its parent company intact. But even then, Virtue will likely come up against heavy competition from other agencies hungry for its share of youth-focused brand budgets. “No one can rest on their laurels,” says McKinlay. “Innovation across formats, across messaging, deployment of AI, you do need money for all of those things.” Sandford agrees that Virtue will likely find other agencies parking their tanks on its lawn. “Without investment… other agencies are going to be looking and saying: how can we replicate that? They’re going to see a gap in the market to counter what they’ve done.” A Virtue spokesperson declined to comment for this story. 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A recent ‘flurry’ of deals for specialist influencer agencies indicates the sector has become important industry crossroads, say M&A experts. British holding company WPP made two significant deals late last month. It acquired Obviously and Goat – both agencies active in the social and influencer space, both in the same week, both with the intention of making its established flagship networks GroupM and VMLY&R more competitive. The timing might be a coincidence, but the deals themselves aren’t. Indeed, they’re a sign that confirms the industry’s biggest players have come to see the influencer sector as a serious business. According to Barry Dudley, partner at media and marketing M&A advisors Green Square, WPP’s pair of deals showed the agency giant was fighting to keep up with competitors. “When these two landed, it looked to me like WPP was playing catch-up. They bought probably the two biggest [agencies] they could get their hands on… and they’re not going to go hungry for work,” he says. “They’re good things to have bought, it just feels like they got to the party quite late.” Before WPP’s move, Publicis Groupe sprung for Perlu, while S4 acquired XX Artists last year. Across the Atlantic, Omnicom launched LevelUp OAC, an influencer and gaming practice. Green Square analysis shows that in addition to Obviously and Goat, the last six months have seen agency acquisitions by a range of groups in a lower weight class – including deals for Social Chain by Brave Bison, Born Social by Croud and Populate Social by Mission Group. There’s also been activity from lesser-known names such as Keywords Studios, Dolphin Entertainment and Velstar. Farther back, you might look to Plus Company’s deal to merge Singaporean influencer shop Kobe into We Are Social. Read more