In 2018, private equity was responsible for almost a quarter of the 882 merger and acquisition (M&A) deals that took place in the marcom sector. That was an increase of a whopping 79% year on year. Twelve months later, and the prominence of private equity within our sector has risen further still.
It’s certainly shown an interest in digital marketing and performance agencies – in the past six months alone Jellyfish took investment from Fimalac in a £500m expansion move, whilst Croud and Brainlabs sold minority stakes to LDC and Livingbridge respectively.
And there may be more to come, with high-profile businesses like Engine and M&C Saatchi constantly rumoured to be courting high-profile deals. Perhaps we should be braced for an even more newsworthy 2020.
Having just been through the process ourselves – MSQ sold a stake to LDC in May – we can attest to the benefits of Private Equity investment. But it’s certainly a long and sometimes turbulent process. It’s a commitment that takes thought, time and effort.
Despite having been involved in these sorts of deals before, it’s still always a big learning process. If thoughts of a sale are on your agenda going forward, here are some of our key takeaways that may help you prepare for the bumpy road ahead.
Define your strategy
It’s easy to decide you want to get some more money. It’s much harder to be sure what the best route is to achieve that. Selling your agency has to be driven by your overall strategy, not just investment for investment’s sake. Know what your business is, what it needs and what the best route is to achieve that. And stay resolute - often the biggest mistake people make is letting the investment wag the tail of the strategy. That creates unnecessary urgency, which creates bad decision making.
Find a good advisor
As I’ll explain later, the investment process can actually be a rather lonely one. This is why getting a trusted advisor on board is so important. Many advisors tend to come through connections, but you need to know what you’re looking for. How well do they know their stuff? Do they connect with you? For me, one of the really big things is looking at the bench strength of your advisory business. Is it just one partner who knows what he’s talking about, or are the others in the team – who are actually going to do the work – also very good?
Use your time wisely
Your business is still your baby, so while new investment is tantalisingly exciting, make sure you prioritise your existing business above the investment process for as long as possible. In the early stages, having investment preoccupy 5-10% of your time is probably a good rule of thumb, but I found that naturally, when the investment really came to a head and you were in the real weeds of due diligence, it jumped up to about 60%. Whilst that’s just about manageable, remember that however far along the process you are, nothing is ever guaranteed, so do all you can to make sure you’re always keeping one eye on the day-to-day.
Don’t jump the gun
One of the hardest things I found during the entire investment process was not being able to say anything to the rest of the business. There’s no real certainty about anything until the last minute, so the default is to simply communicate the generic. Only when something is concrete can you expand any news out – first to the management team and then wider. Because you don’t want to get people overexcited (or scared!) for no reason. And because the more people you get involved, the more you distract from day-to-day client activity. You don’t want that.
Stick to your criteria
Your investor doesn’t just choose you. You choose your investor too. Remember it’s not all about the money – you need to look for a combination of shared strategic vision, financial gain and chemistry.
In our case, because we had a very clear vision, we didn’t necessarily want someone who was an expert in marcomms. We wanted someone who was a generalist, who genuinely backed management, and actually wanted us to implement the strategy that we presented. And while you don’t want them to be your friends, you do need to respect them. Could you work with them? Are they people that, when things go wrong, you can sit around a boardroom table and work together to find a solution?
Don’t expect any grace
The deal’s finally done. So what next?
One thing I hadn’t appreciated is how little time you get to reflect. It feels like it should be an end and a big sigh of relief, but in reality it’s a new beginning. Now’s the time to do all those other things you’ve neglected over the past few weeks. It’s time to pass on proper comms to your team now you have something clear to say. And of course, now’s the time to make sure you build on the plans you promised your new investors. It’s the end of one moment in time, but it’s the start of an even bigger one!
Peter Reid is chief executive of MSQ Partners.