Speculation Around Indie Agency Engine's Sale Leads to Questions of Who Might Buy It—and Why

In the tumultuous 20 years so far, many names have come and gone. Once-mighty agencies have been subsumed as the needs and wants of clients evolved. But one thing has been constant. Mergers and acquisitions activity hasn’t let up one bit—and I don’t just write that because we’ve been incredibly busy over the last year.

The pandemic’s impact

The enormous disruption caused by the pandemic has created casualties (sadly and obviously), but it has also created opportunities for both buyers and sellers. Just as there is a good deal of pent-up demand and spare unspent cash in the consumer market, this also exists at the private equity houses, banks and some of the big consulting firms that were among the most eager buyers of marketing communications agencies prepandemic.

The interest in marketing communications for investors looking to splash some cash on acquisitions is set to continue. Only last month, stories emerged that Lake Capital, the private equity house and owner of one of the U.K.’s largest and most venerable independent creative shops, the Engine Group, was looking to sell off, in whole or in part, Engine’s U.K. business.

Lake reportedly thought about selling Engine back in 2017 (a $500 million price tag was allegedly a sticking point), but nothing came of it. But now it’s been reported that Lake has hired banker Lazards to run an auction, with bids expected to start at $140 million (about 101 million pounds).

So, why would Lake Capital be looking to sell, and who would buy?

Why sell now?

Private equity (PE) firms typically invest in a business in order to grow and flip it at a profit later. They want high margins and a reasonably quick return on investment, normally a three- to five-year timeframe. If the stories of a possible sale are true, Lake Capital has been a long-game player; seven years is a long time for any PE. Lake has probably achieved all the synergies and efficiencies it could and may now understandably want to cash out.

Although the summer of 2021, after a year of economic turmoil, might seem like an odd time to sell, it might actually be a savvy move. Tumult creates opportunities as well as causing casualties. The truth is, Engine is an even more attractive buy now than it was back in 2014.

Engine has continued to create ad campaigns for some of the U.K.’s biggest consumer brands, including baking brand Warburtons, with others on its blue-chip client list including the Royal Navy, Red Bull, Money Supermarket, AstraZeneca and telecom Sky. Many of these brands have been with the agency for years, and this kind of stability and loyalty won’t go unnoticed in a world where clients have become increasingly demanding and promiscuous.

Then there’s the structure. Engine has three divisions—creative, communications and transformation—and this structure is important because while the three units work together, they also have their own distinctive propositions and skill sets. This means the group could easily be split into the separate disciplines if needed, making it more attractive to buyers not looking to buy a group but a set of skills or competencies.

The management team is highly competent, and they lead a diverse team of around 800 people. Engine is also particularly good in the creative technology field, with a team led by the highly-rated Kim Lawrie.

Also, there is Engine’s independence. Creative agency WCRS’ management bought themselves out of the Havas group back in 2004, and Engine has remained proudly independent ever since. Indeed, it is the only U.K. indie of scale still left, which in itself makes it a tasty proposition for any buyer, especially in a landscape in which the old model of legacy holding groups is coming increasingly under question.

Finally, there’s the matter of the timing. Things may look chaotic right now, but there will be a need for clear communications and messaging from both brands and the government as we move, however slowly, into a post-pandemic world. Marketing communications won’t just being an attractive industry in which to invest, but one that plays an increasingly important role in the wider world.

Who might buy?

As for a possible buyer? Well, I think we can rule out the WPPs, Publicis, IPGs and Omnicoms of this world, although they might be interested in parts of the group if it were to be broken up. They have too much on their plates right now without taking on something of this scale.

If a buyer emerges, it will be a forward-thinking large PE firm eager to invest in Engine either as a platform or as a flagship (or significant element) for their existing marketing communications portfolio.

It could also be one of the big consulting outfits that goes for it. As we have seen over the past half decade, Accenture has been especially active and successful in this space, and rivals may see the purchase of an entity like Engine as a quick way of getting a one-stop toehold in something that would allow them to compete.

Given the current appetite for acquisitions, this will be an interesting story to follow.

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