A more focused offering
PE owners eliminate the pressure facing holding companies to sell fully integrated offerings across historically siloed assets, Seidler said, leaving agencies to get “the focus and the attention to prioritize their needs on a standalone basis.”
He pointed again to New Mountain Capital, which in addition to Tinuiti, holds a stake in healthcare marketing agency W2O and digital transformation company Bounteous. “They have three different businesses that are singularly focused and aligned to build the best performance marketing agency they can,” he said.
Under AEA Investors’ ownership, Huge has zeroed in on its core capabilities of digital product design and customer experience, De Bonis said. “It’s not about what else we can do or how we diversify. It’s about how we make this stronger, better, and more performative.”
For Brainlabs, FCP’s focus on long-term growth versus short-term payoffs has led to bigger upfront investments in talent, including graduate programs.
“If you were in a holding company structure, that sort of investment would look expensive without yielding something short-term to point to in terms of efficiency or production, and therefore difficult to justify,” said Gilbert. “But because PEs [usually plan to] sell, [FCP] knows we need a sustainable way of recruiting, training and producing talent.”
Preserving culture is key
For a PE ownership to be successful, agencies must find partners that understand the importance of preserving the cultures of these talent-led businesses.
“The thing that’s different is with agencies, they’re run by people,” Seidler said. “So preserving the culture matters, and even making acquisitions that are compatible with the culture matter a lot.”
Gilbert said that in the sale process, Brainlabs met many PE firms that asked questions that indicated they didn’t understand the sector.
“They were used to investing in businesses where you could point to the infrastructure. They did not like the concept that all the people could leave, and maybe all the clients could leave as well,” Gilbert said.
For agency staff, there’s the bonus of a greater link between their performance and the growth of the business, according to De Bonis.
“For people at Huge, there is now this focus on performance that directly links to their own growth that they didn’t have before. It’s a simple conversation: we grow, you grow,” she said. “We’re able to distribute the value creation, which means equity and performance-related compensation.”
For Gilbert, the structure Brainlabs currently operates under, where management owns 45% of the business, is working. “It’s a nice balance between good governance, as well as client, and future-centric behavior,” he said.
But depending on the nature of the deal, some founders might experience culture shock, particularly at independent agencies. These entrepreneurial leaders will have to adjust to board oversight and a level of rigor they didn’t have as sole proprietors.