When Brainlabs sold a minority stake to London PE firm Livingbridge in 2019, CEO Daniel Gilbert said M&A advisors set up meetings with holding companies and threw some PE outliers in the ring. He went in with some “negative preconceptions” of PEs as investors that “ruined businesses” by stripping down assets, sacking the CEO, and loading them with debt. But, he kept an open mind.
“We did meet some like that, and immediately said, ‘that’s not for us.’ But then we met this whole other bracket of PEs which was more growth-oriented and believed in our business,” he said.
Seidler said that PE sophistication in this space has increased, pointing to firms like Mountaingate Capital, New Mountain Capital, Shamrock Capital, and Insignia Capital Group as a new crop of agency buyers that have seized the opportunity–and learned more about how to successfully operate agencies along the way.
“It’s completely changed; there aren’t that many PE houses without some form of investment in marketing services or media or the advertising landscape,” Gilbert said.
Long-term growth on a short-time horizon
While PE firms figure out how to operate creative agencies, those agencies are getting used to the PE playbook.
PE firms typically give their acquired companies a three-to-seven-year timeline to increase their value before exiting. During that period, they’re given capital to make “strategic acquisitions to enhance the growth and enhance the multiple,” said Seidler.
“[PE firms] are in the business of growth, so there is capital. That didn’t happen in our previous situation,” said De Bonis. “There is a focus on performance and business excellence that is important and critical to our long-term growth.”
Gilbert said for Brainlabs, PE backing has resulted in a “growth-oriented” structure that has allowed the agency to complete 10 acquisitions since 2019, including social agency Fanbytes and digital shop Sparro. By 2023, the agency had grown eightfold, with client billings over $1 billion, while headcount increased from 250 to 850.
When the time came to sell again, U.S.-based FCP purchased a 55% stake.
While Gilbert said he considered selling to a holding company, he didn’t want the “pressure” of quarterly earnings to force decisions in the interests of investors rather than clients.
“A holding company is full of traditional agencies, so you’re in this conservative model, and [bound by] the constraints that wash across a full holding company and all the compliance issues of being public,” Seidler agreed. “[PE-backed agencies] have capital behind them, and they can look for acquisitions, and they can grow in other ways versus grinding it out to organically grow.”