- Private equity has poured money into ad agencies for the past five years.
- This trend has intensified as the pandemic has entrenched traditional buyers like agency holding companies.
- Insider identified 14 companies like Bain and Carlyle Group that spend big on marketing.
- See more stories on Insider’s business page.
Private equity firms are pumping money into the advertising industry after avoiding it for decades.
In 2019, PE invested approximately $57 billion in marketing and technology companies, and the percentage of related deals backed by private equity has more than doubled in the past five years, to 42%. Investors poured money into the sector in 2021 as advertisers crushed by the pandemic started spending again and are expected to be even more active in 2022.
Investors have long avoided the advertising industry because, unlike manufacturing, food or healthcare, it has no tangible assets.
But Simon Nicholls, a partner at investment bank GP Bullhound, said they were more interested in the sector because of the explosion of digital advertising.
Ad agencies spent about half of their revenue on talent, said Chris Sahota, CEO of mergers and acquisitions advisory firm Ciesco and a former IPG executive. But a lot of that money has gone into technology, especially at digital-focused agencies that are building their own technology to compete with big networks.
This makes agencies behave more like software companies, making them more attractive to investors. Agencies, for their part, are looking to private equity firms to grow, Nicholls said.
Nicholls oversaw the 2015 acquisition of Essence by WPP, a digital agency that analyzes Google’s programmatic ads. He said the deal paved the way for similar EP-backed purchases.
Stephen Master, director of private equity firm GTCR, said most private equity firms still don’t understand the advertising business.
Yet others are now entering the industry for the first time, said managing director Marc Flor of investment bank Berkery, Noyes & Co. Some, like CI Capital and GTCR, have launched new groups dedicated to marketing .
With trillions in capital, private equity firms are providing new competition to traditional advertising portfolio companies such as WPP and Omnicom for agencies and technology companies.
They also compete with new ad networks like S4 Capital, Stagwell Group and You & Mr. Jones for tech companies, said Jay MacDonald, CEO of Digital Capital Advisors.
Insider has identified 14 of the most active private equity firms in the space, listed in alphabetical order, based on recent deals and conversations with bankers, agencies and investors.
Representatives for the private equity firms declined to comment or did not respond to requests for comment unless otherwise noted.
