Private equity (PE) firms identify under-developed private resources, snap them up, fix them and sell them at a strong profit. Sometimes they can hang onto assets that generate good returns for some time. Generally, they have a four-to-seven-year horizon to deliver returns.
I am old enough to remember when Sir Martin Sorrell and WPP bought Ogilvy Group in 1989 for $864M. While not a PE deal, the uproar in the established ad business of these holding company deals was terrific. Many thought having a financial parent would ruin the business. These holding companies did end up creating value – for shareholders and large marketers - only to see their size and lack of nimbleness erode their value in recent years.
Why would private equity do it differently?
The financial holding companies like WPP and Publicis scooped up established businesses with good margins that might scale in one direction or another (e.g., geographically) if added to a portfolio of other proven capabilities.
Private equity is more speculative. They are looking for under-leveraged opportunity. Oddly, their short-term view may be an advantage in such a quick-changing space. Some of the most under-exploited opportunity in marketing right now is assembling the right combination of brand and performance capabilities and business models to drive business growth in this accelerated, post-Covid digital world - more ecommerce, more reliance on digital channels and platforms, new opportunity with data, disruption in supply chain and sales channels and so forth.
This requires PE to have expertise in contemporary marketing to see the future opportunity. Generally, PE brings a strong management capability that can see how a manufacturer is stumbling or a software services business is failing. But pure management expertise won't be enough for PE firms to win at next gen marketing.
As Patrick Coffee mentions in Business Insider, “Stephen Master, principal at PE firm GTCR, said most PE firms still don't understand the ad business.”
Speculating in marketing will require more specialized insight:
How digital ad delivery blends brand and performance goals
How changes in data management and consumer privacy will increase brands needed sophistication in 1st-part data
What is the path for sales and marketing integration for B2B including digital sales enablement
With the continued dominance of the big media platforms – Google, Facebook, Apple, Amazon – how do marketers need to get great and efficient at exploiting them
How to optimize the ecommerce marketing supply chain to help shops grow profitably
How to build the right talent model with data, content, creative and performance advertising including what to “own” and what to “network”
Probably most importantly for investment, what “technology-enabled services” to grow such that the marketing company of the future has greater revenue and margin opportunities than the old agency services model.
Recently, Business Insider identified top private equity firms investing in advertising/marketing including:
Properties: MediaAlpha, Market Performance Group
Properties: Tinuiti, Real Chemistry
Properties: Seismic
Properties: Integral Ad Science, Mediaocean, Numerator, TripleLift, Khoros
But also keep an eye on firms like Periscope Equity. They invested in Grayson Lafrenz’s Power Digital which is building a strong technology-enabled services offering around performance marketing.
And Carlyle has put a lot of their chips in on Dept which has been on its own acquisition path to build a new, tech-strong marketing company.
The opportunity to bring data, content, performance marketing together in a new tech-enabled service model is very interesting. Private equity has an opportunity to invest and make this future happen now.
