Week in Media: £30m for MediaSense shows premium value of independence
This may be considered an expensive deal. But brands are prepared to pay a premium for independent consultancy, writes the editor
On paper, a £30m valuation for brand consultancy MediaSense might seem fairly steep.
This is a boutique business with 70 members of staff – albeit an apparently very profitable one.
The bulk of their work is media account pitch management, which many major advertisers like to outsource because it requires a lot of time-sucking administration and knowledge of the agency landscape. While valuable, this is a commodity that is relatively easy to provide and the market is over-supplied with undifferentiated offerings.
So what prompts a private equity company, with seemingly little experience in the media sector to plump for an estimated seven-times profit multiple for MediaSense?
Apiary Capital describes itself as an investor in “education, healthcare and technology services”. On the point of tech, it’s notable that less than two months ago MediaSense launched DiPA, a “Next Generation Media Auditing Platform” that “enables advertisers to unlock incremental performance and value from their investments.”
Is it expensive?
“They’re incredibly knowledgeable and they’ve been looking at this sector for quite a while,” MediaSense co-founder Graham Brown tells me. “Our positioning is different to others in our space, who sit heavily in either pitch management or audit.”
Apiary wasn’t the only one sniffing around MediaSense, which has been in the fortunate position of considering multiple offers in recent months.
The private equity company is likely to have valued the company at around £30m and may have paid at least half of that amount up-front for majority control. No details of the size of the stake have been released.
Compare this to a much bigger player like publicly-listed Ebiquity, which brings in revenue of £69m and has a market capitalisation of £43m at time of publication.
There are reasons why this may be considered an expensive acquisition.
As Nick Manning has written extensively about recently, the market is in the throes of Mediapalooza, with large advertisers putting accounts into review for various reasons due to the disruptive tsunami of Covid-19 and the changing needs of clients as they take greater control.
MediaSense, alongside IDComms, have emerged in recent years as the go-to consultancies for major international pitches.
When major advertisers put multi-billion global media accounts into review, it’s a big business story that attracts the attention of the Wall Street Journal and the Financial Times – publications which are devoured every day by investors.
When MediaSense is attached to global reviews for Dyson, Unilever and Coca-Cola, private equity companies like Apiary will notice.
Also, the private equity market is still awash with cash due to interest rates being at rock bottom for a decade. This cash needs somewhere to go, especially when there are high-growth opportunities to invest in expanding markets during an economic recovery.
“There is so much cash out there looking for a home, you wouldn’t believe it,” one ex-Publicis Groupe exec remarked yesterday. “If MediaSense is very profitable and has a good story, I can easily see it being snapped up for a seven-times profit multiple.”
Is it sustainable?
But there’s a more fundamental reason why MediaSense can negotiaate this kind of deal – media is becoming more complex, more strategic, and more contestable in terms of who does what.
The market is becoming increasingly volatile and difficult to predict as technology continues to be a disruptive force and established media owners respond by trying to become more flexible and offer credible digital alternatives to Google and Facebook.
A trusted independent consultant, which can add enormous value by advising on how and what to outsource vs in-house, and how to probe media agencies on how they can deliver on their many promises during pitches, is a premium worth paying for.
But is it sustainable? At some point the market will surely settle down and brands will have established broad patterns of how to ‘do’ media and work with agencies. As advertisers take more control, there will be fewer pitches in the future.
This is why consultancies can be seen as tricky investments. Private equity companies normally buy scalable businesses with strong intellectual property. Boutique companies who provide pitch management don’t fit this description.
Unless however, you can marry consultancy will implementation.
Companies like Jellyfish have been wildly successful over the last decade because they not only advise on how to optimise digital marketing with Google, but will do it for you too.
It’s why Accenture launched Accenture Interactive and began acquiring ad agencies – it can now do marketing services for you via Droga5 or Karmarama after having developed consulting relationships with clients.
The big question now for MediaSense is how it will use this influx of cash to evolve into a business that offers even more for advertisers when Mediapalooza dies down.
The trouble is, this may have to happen more quickly than is comfortable.
Private equity companies are not typically known for having long-term patience when it comes to making returns from their investments.