In any sector, SMEs and independent businesses are the backbone of economic growth. In marcoms, digital and tech, they are the throbbing engine that continues to give our industry its verve, dynamism and incessant innovation. Recent insight from Grant Thornton show that Britain’s medium sized businesses (50 – 499 employees) are outperforming both smaller and larger businesses and have grown in number by over 5% since 2007. Tech City UK with its innovative start-ups is frequently held up by the government as an excellent model for growth and an increasingly important cornerstone of the economy.
International expansion is a key measure of success and in our space independent businesses are no slouches when it comes to growing their global footprints. Just look at social media agency 1000heads, which also draws on other communication channels such as experiential and advertising to create, influence or manage word-of-mouth brand messaging. It has offices in London, New York, Berlin and Sydney and is opening in Dubai this year.
Or We Are Social, one of the most talked-about entrepreneurial growth stories of recent years. Founded in London in the summer of 2008 and now part of BlueFocus, it has become the pre-eminent force in global social media marketing with more than 450 staff operating from eight offices around the world.
They’re not alone. Creative agency Analogfolk, also founded in 2008, employs 110 people globally, while Iris now boasts a full international capability and its most recent office opening in Brazil this year.
And when it comes to acquisitions, independent agencies aren’t always being snapped up by the big networks – although that does still happen regularly. In fact, they’re often successful enough to acquire other businesses themselves. Digital marketing agency Essence works has in recent years acquired social media business Punktilio and San Francisco-based digital media agency Black Bag Advertising.
In addition, Karmarama was already a fledgling mini-group at the time it secured its investment from Phoenix Equity Partners, comprising not only the creative agency brand but also Kream and Kaper, its production and PR businesses. It has since merged with Crayon and acquired Grape (now Krowd), creating a powerful integrated organisation capable of taking on any client brief. Digital agency Zone, meanwhile, has evolved into an acquirer with the ability to move at speed and add the skills and talent it needs.
Switching from organic growth to taking the M&A route is a major step in the development of any organisation, testing management and strategy, but many of these businesses have stepped up and done so very successfully.
Forward is an excellent example of this. Five years after it began life as a PPC agency, it took the decision to reinvest some of its considerable profits in acquiring and investing in other businesses. At the time this was a bold and unconventional step, but it’s gone on to acquire U Switch and a variety of VC stakes in marcoms and adtech businesses such as Somo and Hailo.
Not only has Forward continued from strength to strength, but last year it really proved its financial credentials by successfully selling two of its investments.
But if you want to really see how impressive the independents are looking, ask the private equity moneymen. Currently there are over 30 investments in marcoms and adtech companies by UK private equity (PE) houses and we’ve seen many secondary transactions, a number of which have yielded high returns for PE investors mainly due to high growth and hot sectors. Examples include full service digital agency AKQA (sold by General Atlantic to WPP) and integrated content and digital PR agency TVC (sold by Isis to the Economist).
We also saw a big uplift in high growth adtech investments by PE houses in 2013. Historically they were only averaging around one investment per year but there were four in the past 12 months. They included cross-media entertainment business Rockabox, direct digital marketing provider Pure360 and ad platform ExchangeLab.
Serious businesses will always be attractive to these investors. PE houses are investing in high quality marcoms companies with robust three- to five-year business plans and strong management teams (e.g. LDC putting money into Blue Rubicon and WRG; Beringea investing in TH_NK). In fact, we may see even more of this vital investment as the service-based offerings become more productised and therefore revenue becomes more predictable.
What this all means is that the independent sector is stronger than ever. The big networks, the PE houses and even the larger agencies themselves are constantly looking for M&A opportunities and this is good news for the UK economy as a whole.
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