Where next for PE firms with major investments in the marketing services sector?
Private equity investment always comes with an exit plan baked in. With The Brandtech Group finalising its acquisition (or should that be merger?) of Jellyfish, Fimalac, which took a stake in Jellyfish in 2019, now becomes an equity holder in the larger group, alongside other key investors such as Baillie Gifford and Chrysalis.
When you look around the industry, there’s a not insignificant cohort of $ billion+ value businesses that are private equity owned, some by top tier PE firms including KKR (FGS), Carlyle (Dept) and CVC (Plus Company). With an ever-decreasing pool of players with the fire power to buy them out from their investments, there’s an exit plan conundrum that’s impacting them all. It would be surprising if there wasn’t a very firm collective wish for the IPO markets to recover in the next couple of years. If not, how else do investors get out from this size of investment?
What’s also interesting about this particular deal is that Brandtech Group’s David Jones spoke to the media in 2015 about his focus on tech, distancing his group, known as You & Mr Jones at the time, from the creative advertising world. Now Jellyfish is by no means a traditional advertising business, but it is a pretty sizeable agency. While it might be “tech-enabled”, it’s very much a people-based service business. Today the markets have fallen dramatically out of love with tech companies, so this transaction, a combination of tech and services, is likely to appeal to the investment community and serve as a useful prepping of the ground for an IPO announcement when the markets recover.
Then there’s the important question of ambition. If you position yourself as a challenger to the holding companies, as businesses such as Dept, Stagwell and The Brandtech Group have done, then you have to live up to that moniker. While challenger businesses are certainly growing faster than the holdcos, the latter still handle most of the big global media briefs, because of their scale and because it’s generally seen as the way things are done.
The time must surely be ripe for a challenger business that’s now achieved a significant critical mass to attempt to rip a prestigious media account from a holdco incumbent. Growth by acquisition is one route, but when a business reaches the scale of a Brandtech Group, it needs a huge, headline-grabbing account win to fuel meaningful organic growth and feed the beast! With media still the largest part of the market and so representing the biggest growth opportunity, it would definitely make sense.