As the advertising world continues to take in the implications of its biggest-ever merger earlier this week (you know what I’m talking about, I’m sure) I thought we’d take a look at a couple of smaller-scale, but still significant pieces of M&A activity from the past few weeks.
We’ve written before in The Drum about performance marketing – essentially a type of interactive marketing which pays out on results such as clicks or a sale; affiliate marketing is the best-known type of performance marketing - and one of the most important activities in this sector in our digital age is search.
Late last month (July) WPP announced that its digital agency Quisma, part of GroupM, its global media investment management operation that includes MindShare, MediaCom, Maxus and MEC, had acquired H1, a leading performance marketing agency in the Czech and Slovak Republics, for an undisclosed sum.
Founded in 2006 in Prague, H1 specialises in tailor-made paid search marketing, search engine optimisation, web consulting, and training. It employs some 90 people and its clients include Vodafone, Home Credit, Beiersdorf and Tchibo. H1 has offices in Prague, Bratislava, Brno and Zilina.
The agency's revenues for the year ended 31 December 2012 were approximately CZK (Czech koruna) 75 million (£2.5m), with gross assets at the same date of CZK 51 million (£1.7m) – so, for Eastern Europe, it’s a pretty substantial operation.
This investment continues WPP’s strategy of developing its services in fast-growing and important markets (and Eastern Europe’s former Communist Bloc countries represents the continent’s fastest-growing region) and sectors and strengthening its capabilities in digital media.
Countries like Slovakia, the Czech Republic, Poland and Hungary are attractive places for groups like WPP to invest – they have decent infrastructure, well-educated, digitally-savvy and increasingly affluent populations, and the Communist era is far enough away now for big “Western” brands to have established firm footholds. The region is also free from the cultural and censorship issues that China presents and which my colleague Andrew discussed in our blog of last week.
Performance marketing is still relatively new in the region, offering considerable potential, and with this purchase Quisma (which is already established in Poland) becomes one of the area’s leading agencies in the field, particularly in the all-important mobile space. It’s an important step towards WPP achieving its target of 35-40 per cent of revenue to be derived from digital in the next five years (in 2012, the figure was about 33 per cent, so it’s well on the way).
Now let’s move back to the UK and to the related field of email marketing. A decade or so ago, email was seen as the “great white hope” of marketers, but problems with legislation – particularly in the EU – and poor targeting/spamming have hobbled its effectiveness as a marketing tool. But with the rise of social networks, smartphones and better data, ads can be more effectively targeted and are not so dependent on bulk lists; and copywriters have become more adept at writing copy and subject lines that encourage recipients to open their emails.
Last month email and SMS marketing company Pure360 – the UK’s biggest - announced a £10.5m management buyout (including investment, to fund future growth and create 65 new jobs in the South East) from previous owner Gordons 144. Scottish Equity Partners (SEP) led the deal investing £6.5m, with the balance coming from Investec and management.
It’s another example of private equity firms like SEP investing in digital media, which is a good indicator of its potential (the UK market for email marketing platforms and services is forecast to be worth £513m per annum by the end of the year).
Pure360 joins other SEP portfolio companies such as Skyscanner (the world’s fastest growing travel search company), online eyewear business Mr Spex, and Media Ingenuity, which specialises in online comparison tools in the financial sector.
It’s a good deal for both parties. Pure360 has doubled its turnover and headcount since 2008, but, like so many fast-growing companies, was in urgent need of cash investment to continue its upward growth curve. With this investment and the MBO, the company says the next three years will see a further 65 jobs created with turnover expected to double again to £14.5m.
Focusing on improving customer results, Pure360 works with clients such as The Sunglasses Shop, Hackett, innocent drinks, Virgin, Rightmove and Tetley. Integrated with key business systems such as Salesforce, Facebook and Magento, it has a reputation for in-depth customer insights and is well-established in the important SMS message space. Most importantly, it has a 10 per centhigher open rate than the DMA (Direct Marketing Association) average and a team of experts in tech, research, geo-location, social media integration and engagement – all of whom should stay (the great advantage of MBOs over other forms of M&A activity is that they tend to encourage stability).
I think we’ll be hearing much more of Pure360 in the coming months…
Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector.