Venture capitalists have become very active, showing an enthusiasm to invest in people businesses, which have traditionally been no-go areas for such funds. This is an exciting time for marketing communications businesses, which are increasingly attracting "men in suits" wanting to do a deal.
So what has changed? Well, the marketing communications sector has matured, it's on a long-term growth wave, and the move from "mass media to my media" has placed direct marketing and marketing communications agencies firmly in the sights of the money men. Niche businesses in research, database management and the digital space in particular are regarded as hot property.
We are now seeing venture capitalists willing to match valuations offered by the trade buyers, and provide the monies for founder owners to sell their equity and pass ownership on to the management team. Such deals enable the company to retain independence and work with the VC on securing an exit at a future date. The VC also becomes a partner in the growth of the business and a source of further funding for future acquisitions.
Agency creativity is often matched by the money men in constructing a 'tailor-made deal' to fit individual circumstances. The challenge in any transaction is finding the right fund, one who understands your business and whom you can work with as business partners. Securing the right valuation, deal structure and incentives for management are also crucial in the success of any deal.
To illustrate the buoyancy of the private equity market place, recent transactions have included Mori in the research space, ClarityBlue and Occam in data management, Gyro Group and i-level in the digital sector, DVC Sales in field marketing and Media Audits, an advertising monitoring business.
The Alternative Investment Market is also buoyant, with flotation providing founders with the ability to raise money from City institutions at a competitive price. Such money may be used as acquisition currency and provide liquidity for founders to realise part of their investment. However, institutions are savvy and you need a compelling story and clear differentiating features to meet the quality threshold for a successful flotation.
The recent flotations of The Mission Marketing Group and Cagney show that the door is still open for marketing communications businesses to go public. And the growing number of UK consolidators on AIM provides healthy exit opportunities for well-run private companies.
We are also seeing more innovative bank debt funding structures led by specialist media banking teams who are comfortable with highly leveraged loan structures. This includes lending companies money for share buy-back schemes, to help owners realise their investments, through to debt-based acquisition funding with the objective of helping founders hang on to the lion's share of their business.
A word of warning though. Securing best terms, selecting appropriate financial partners and managing the deal process is time consuming -- it can often take up to six months from inception. Professional advisers such as Results steer clients through this minefield, reduce pressure on management and secure competitive terms. This can be a godsend when you have a business to run!
Results is hosting a seminar 'Growing with Other People's Money' on Wednesday May 10 2006 at 6.30pm, Courthouse Hotel Kempinski, London. Leading experts focusing on the marketing communications sector will provide insight into what makes a good investment and demystify bewildering options available.
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