Company description: Building blocks
TMG is a network of marketing communication and services businesses, operating across various geographies and operating segments. The rapid initial spate of acquisitions was followed by a change in the management team (new CEO in November 2016, new CFO and chairman in February 2017) and a subsequent thorough strategic review. As a result of this process, three disposals were announced in July 2017. TMG now consists of 16 agencies, which between them have 30 offices in eight countries (across the US, UK, Europe, Singapore and Australia/New Zealand). Australia is currently the largest single region by revenue. Between them, the group agencies cover a wide range of disciplines within the marketing communications remit, with digital and technical expertise at the core. They also address a broad range of client vertical markets. With the latest reported figures (interims to end June 2017), the group has described its activities as falling into three broad groupings: brand & communications; influence & amplification; and science & performance. The breakdown as a proportion of revenue in these groupings and by geography is shown in Exhibits 2 and 3, below.
Exhibit 1: Group agencies and activities
Practice |
Brand & communications |
Influence & amplification |
Science & performance |
Service range |
Brand strategy |
PR |
Data |
|
Brand design |
Social media |
Insight |
|
Creative strategy |
Content |
Media |
|
Broadcast communications |
Sponsorship |
Applications |
|
Integrated communications |
Events |
Platform builds |
Key agencies |
Addiction Advertising (Sing) |
Black Marketing (Sing) |
Clickverta (UK) |
(based from) |
Brand Theatre (Sing) |
Creative Insurgence (Sing) |
Digital Virtue (UK) |
|
Channelzero (Aus) |
Nice & Polite (UK) |
Marker Studio (NZ) |
|
DAE (US) |
One9Ninety (Sing) |
Rainmakers (UK) |
|
|
Ranieri (UK) |
The Lead Generation Company (Aus) |
|
|
Slingshot Sponsorship (UK) |
|
Source: The Marketing Group, Edison Investment Research
The initial concept was put together under the auspices of Unity Group, a private equity house based in Singapore, which also provided the support for the initial acquisition phase. The group listed on Nasdaq First North in June 2016 and at that stage had four agency portfolio companies. For a UK-based group founded out of Singapore with a broad initial geographic mix, and ambitions to diversify it further, there was not an obvious natural stock market on which to list. The listing on Nasdaq First North may not seem the obvious choice. However, given the scale and the global nature of the initial management team’s ambitions, one of the primary objectives was to have a listing in a liquid currency – preferably the US dollar or the euro. They also wanted to be listed on an exchange where there is a culture of IPOs and an enthusiasm for retail investment. Nasdaq First North ticked those boxes. The IPO was in June 2016 at a price of €1.00, with the sale of existing shares raising €1.25m. The offer was over three times subscribed.
By the December year-end of its first financial year, the number of agencies listed as being in the group had increased to 17, located across Singapore, Australia, New Zealand, the UK and the US. The acquisition prices were paid in equity of the enlarged group, with the potential dilution theoretically negated by their a) being profitable and b) adding value to the group beyond their individual contribution. However, the exclusive use of equity for the deals distorted the balance sheet valuations of the acquired companies, due in part to the market’s inability to value the stock given the lack of available and coherent financial information.
From the vendors’ perspective, one of the key attractions of selling into TMG was – and remains – that it is not one of the major holding companies or consultancies. Selling into a global group often leads to a loss of autonomy for the vendor (if they choose to stay) and a change in the character of the business, which commonly will reflect the personality of the founder. The TMG structure should allow the acquired agency to retain key elements of its identity and ethos, while giving access to:
■
larger pools of capital;
■
economies of scale in aspects of central purchasing;
■
the market experience of a group of like-minded peers;
■
other marketing capabilities and skill sets within their peer companies; and
■
opportunities to cross- and up-sell to clients.
Exhibit 2: H117 revenue by activity type
|
Exhibit 3: H117 revenue by geography
|
|
|
Source: The Marketing Group accounts
|
Source: The Marketing Group accounts
|
Exhibit 2: H117 revenue by activity type
|
|
Source: The Marketing Group accounts
|
Exhibit 3: H117 revenue by geography
|
|
Source: The Marketing Group accounts
|
Rather than describe all of the network agencies in detail, we have chosen six key operations in order to give a flavour of the type of work they undertake and some examples of their clients. Fuller descriptions and links to the individual agency websites are available via the group website tmg-plc.com. We here include the financial information as reported at the time of each deal, with the comment that these were usually given as ‘pro-forma’ figures for 2015 (historic) and 2016 (current), without any further detail. All the deals are summarised in Exhibit 4, below.
Dae Advertising, Inc. (US)
DAE joined the group in November 2016, having been identified by group company Wilkin Marketing (which has, itself, now left the group). It was founded in 1990 in San Francisco and provides advertising and marketing services, strategic planning, creative development, media planning & buying, digital & social media marketing, community engagement, and event management services. It has particular understanding of the substantial and fast-growing Asian American market and its key clients include Wells Fargo, AARP, Southwest Airlines, Gilead, Kikkoman, and Cathay Pacific. At purchase, DAE’s annualised revenues were running at €4.95m, earning an EBITDA margin of 19.4%. The purchase price of €7.76m represented a revenue multiple of 1.2x and an EBITDA multiple of 6.0x and was entirely met by the issue of TMG’s shares at the then price of €3.69. Website: www.dae.com
The Lead Generation Company (Australia)
Lead Generation Company was established in Melbourne in 2004 and specialises in lead generation and new business acquisition strategies for B2B and B2C. Its services include strategic data provision, outbound appointment setting, social media prospecting, email marketing / marketing automation and digital lead generation. Key current clients include Optus, Nestle, Brennan IT and Health & Co. LeadGen had projected calendar 2016 revenues of €2.48m and an anticipated EBITDA margin of 24.5% (up from €1.83m and a 13.9% EBITDA margin in 2015). It was bought together with Rainmakers in June 2016 for €7.04m at an issue price of €1.85, on historic multiples of 1.0x revenue and 13.4x EBITDA; and prospective multiples of 1.2x revenue, 8.9x EBITDA (Rainmakers was forecast to have lower 2016 revenues, but has a large element of media put-through business). Website: www.leadgeneration.com.au
Channelzero (Australia)
Sydney-based Channelzero is a creative brand agency founded in 2003, acquired in August 2016. In its own words, it seeks to connect “brands to grocery buyers with an end-to-end solution that includes packaging and positioning and sales and supply chain management alongside core creative brand strategy.” It had 2015 revenues of €2.71m and an EBITDA margin of 6.5%, which were forecast to grow to €3.81m and 10.6%, respectively, for calendar 2016 at the time of the deal. The deal of which it was part was struck at 2.7x 2015 revenue; 17.5x EBITDA (on 2016 projections, 2.0x and 8.9x, respectively), using TMG’s shares issued at €7.65 (shortly after they reached their peak value of €9 at the start of August 2016). Website: www.channelzero.com.au
Marker Studio (NZ)
Marker Studio is based in Auckland and is a digital product development agency, specialising in creating enterprise-quality web, cloud, tablet and mobile apps. It has a broad range of clients, including verticals such as healthcare, travel and consumer goods. It was acquired alongside Astute and Imagine Group Entertainment in August 2016. Marker had 2015 revenues of €1.73m on which it achieved an EBITDA margin of 2.0%, which was projected to increase to 20.0% in 2016 on top line growth of 4%. The combined deal was valued at 2.6x 2015 revenue, 10.3x EBITDA (on 2016 projections, 2.3x and 8.9x, respectively), using TMG’s shares issued at €6.45. However, the largest constituent of this deal was the purchase of Astute, which did then not complete. Website: www.markerstudio.com
Ranieri (UK)
Ranieri was established in 2002 and specialises in media relations, social media management, influencer campaigns and content creation and is best known in the sector for consumer technology PR in the UK and, more recently, in France. It was purchased alongside Channelzero (above) and achieved a 14.5% EBITDA margin on revenues of just over €1.0m in 2015 with contemporaneous projections for 12% top line growth and an improvement in margin to 17.6% for 2016. The management team was realigned in August 2017 to meet the needs of the growing business. Website: www.raniericommunications.com
Addiction (Singapore)
Established in 2011, Addiction joined the group in September 2016 and is an advertising agency addressing both public and private sector clients. These include the Monetary Authority of Singapore, the Singapore Building and Construction Authority, Standard Chartered Bank, OCBC Bank and China Life Insurance. Addiction had revenue of €1.30m in 2015, with an EBITDA margin of 17.9%, anticipated to rise to €2.96m and 26.7% for 2016. It was purchased alongside TDA in the US in a deal struck at 2.4x historic and 1.9x prospective revenues; 11.8x and 8.7x EBITDA, respectively. Website: www.addictionadvertising.com
New experienced management team in place
In its early quoted days, the group’s executive chairman was the founder, Jeremy Harbour, also chairman (and owner) of The Unity Group, a Singapore-based private equity house that provided the group’s M&A support in its early stages of development. After the first frenetic swathe of acquisitions, the management structure was put on a more conventional footing, with the previous team leaving the board.
Adam Graham was recruited and joined the company in November 2016. His most recent position was as chair of the British Interactive Marketing Association, but he is also known in the marketing services industry from his having previously run Omnicom's digital agency Weapon7 and WPP's Rainey Kelly Campbell Roalfe/Y&R digital operation, Saint. From Weapon7 he had moved to a digital marketing consultancy, Cact.us, and more recently had been working on plans for his own private equity-backed marketing roll-up. The position of CEO at TMG has allowed him to step aboard a ready-formed organisation already partway down the route he had previously identified.
The CFO is Mike McElhatton, who joined the group in February 2017. Mike has also had an extensive career within the marketing sector, mostly at Havas Media, and has a successful track record executing acquisitions for public and private companies. He also held senior roles at WPP, Splendid Unlimited (bought by Creston in April 2015) and at Zenith Media.
Alongside the appointment of Mike McElhatton, TMG also announced a new chairman: Don Elgie, well-known to the market as the founder and former CEO of Creston plc up until his ‘retirement’ in 2014. His long marketing services career went from McCann to Grandfield Rork Collins (subsequently bought by Saatchi & Saatchi), before founding Creston in 2001.
The most recent addition to the team is Mary Keane-Dawson, who was appointed as global CEO, performance media in July 2017. Her role is to drive the cross-agency delivery of online marketing strategy and implementation for global brands. Mary has extensive industry experience, including at a senior level within WPP, most recently at Ogilvy & Mather.
Between them this team has an enviable quantity and variety of experience in the sector, particularly in the digital space. This stems across the quoted and unquoted space and in companies of all sizes, including working knowledge of conditions within the large groups that dominate the space.
Acquisitive and organic growth strategy remains in place
As can be clearly seen over its short life, TMG’s initial phase was one of rapid growth through acquisition. The deals to date are summarised in the table below.
Exhibit 4: Deal flow summary (€m unless otherwise stated)
Date |
Agency name |
Deal price |
Strike price |
2015 Revenue |
2015 EBITDA |
2016 Revenue |
2016 EBITDA |
Notes |
30/06/2016 |
Lead Generation |
7.04 |
€ 1.85 |
1.0 |
13.4 |
1.2 |
8.9 |
|
|
Rainmakers |
|
|
|
|
|
|
|
25/07/2016 |
Clickverta |
18.58 |
€ 4.15 |
2.4 |
13.7 |
2.2 |
8.9 |
|
|
Wilkin Marketing |
|
|
|
|
|
|
Disposed Aug 17 |
|
Skye Multimedia |
|
|
|
|
|
|
Disposed Aug 17 |
|
Marker Metro |
|
|
|
|
|
|
Merged with Marker Ltd |
26/07/2016 |
Digital Virtue |
0.22 |
€ 4.15 |
0.6 |
3.0 |
|
|
|
|
VOQS |
|
|
|
|
|
|
|
01/08/2016 |
Imagine Group |
43.2 |
€ 6.47 |
2.6 |
10.3 |
2.3 |
8.9 |
Disposed Aug 17 |
|
Marker Ltd |
|
|
|
|
|
|
Merged with Marker Metro |
|
Astute |
|
|
|
|
|
|
Acq. cancelled |
22/08/2016 |
The Brand Theatre |
13.7 |
€ 7.65 |
2.7 |
17.5 |
2.0 |
8.9 |
|
|
Channelzero |
|
|
|
|
|
|
|
|
Ranieri |
|
|
|
|
|
|
|
|
Slingshot Sponsorship |
|
|
|
|
|
|
|
26/09/2016 |
TDA |
12.5 |
€ 4.22 |
2.4 |
11.8 |
1.9 |
8.8 |
Acq. did not complete |
|
Addiction Advertising |
|
|
|
|
|
|
|
18/11/2016 |
Khemistry |
29.62 |
€ 3.69 |
- |
- |
1.0 |
6.6 |
Acq. did not complete |
|
McCorkell |
|
|
|
|
|
|
Acq. cancelled |
|
Marc Edward Agency |
|
|
|
|
|
|
Acq. cancelled |
|
Precision Marketing Gp |
|
|
|
|
|
|
Acq. did not complete |
21/11/2016 |
DAE |
5.76 |
€ 3.69 |
- |
- |
1.2 |
6.0 |
|
14/02/2017 |
The Content Agency |
0.11 |
€ 1.79 |
|
|
|
|
|
11/05/2017 |
Reflexion |
not disclosed |
|
|
|
|
|
|
Source: Company press releases, Edison
Following the appointment of the new management team, starting from November 2016, there has been a thorough ‘state of the nation’ review, including a convention of all of the group agencies in New York in the early part of 2017. This enabled the operational and leadership teams of each of these agencies to build personal relationships on which collaboration can grow, as well as give a clearer indication to the central team of where the group’s strongest opportunities lie. Two of the acquisitions the incoming management team inherited were not proceeded with. Three deals that had completed were identified as not being core to the ongoing business and were accounted for as discontinued in the H117 figures, with their balance sheet value written down.
The structures of the deals in the initial phase have also been shown to be flawed. Being entirely for paper, the value was based on the share prices at the time that the deals were struck. Subsequent weakening of the share price has undermined the value that the vendors received for their businesses, as well as leaving them artificially highly valued in the group balance sheet. The sizeable write-down on the goodwill relating to agencies retained by the group (€30.7m) also taken with the interims aims to have addressed the technical aspect of this, while the original vendors have even more incentive to ensure that their being part of the group helps deliver a greater financial return at group level and return the share price to a growth trajectory.
The group strategy is now for a combination of:
■
organic growth, particularly through encouraging and facilitating network agencies collaborating on larger and more complex projects and accounts; and
■
acquisition of complementary businesses that will add value.