Stake-Taking Tops Buying

It takes a stake—not a buyout—to woo an entrepreneur. That’s the takeaway from a recent flurry of micro deals involving small shops looking to grow internationally (Anomaly and 72andSunny) and agencies just getting off the ground (Socialistic and Camp+King).

In each case, agency principals mulled several suitors and picked one—MDC Partners for Anomaly and 72andSunny, and Havas for Socialistic and Camp+King—that left them with equity in their business.

Why? Because the leaders are in the prime of their careers and aren’t looking to check out. Rather, the shops need cash to realize their goals faster and are willing to trade some equity to get it. Anomaly and 72andSunny aspire to become global micro networks a la Wieden + Kennedy and Bartle Bogle Hegarty with offices in key hubs like South America, Europe and Asia. After talking to a handful of holding companies and private equity firms, each agency sold a majority stake to MDC, in part because of MDC CEO Miles Nadal’s reputation for being a hands-off owner.

While leaving equity on the table is hardly a new strategy in the realm of mergers and acquisitions, MDC nonetheless deserves “credit for coming up with a way of presenting a package that looks very attractive to certain kinds of entrepreneurs who love their independence and are able to retain it to a very large degree,” said Seth Alpert, a managing director at M&A firm AdMedia Partners in New York. Alpert compared Nadal’s approach of taking majority stakes and leaving equity with principals as “similar to the private equity model, and he ends up with a portfolio. But the key difference is he’s not a re-seller.”

From a buyer’s perspective, stake deals are relatively cheap—in the 10s of millions for two-office shops like Anomaly and 72andSunny and in the low single-digit millions to fund startups such as Socialistic, a social media specialist led by former TBWA digital chief Colleen DeCourcy, and Camp+King, whose founders are creative Roger Camp and brand strategist Jamie King. That price is certainly right for smaller holding companies like MDC and Havas, whose M&A budgets are a fraction of those of bigger rivals like WPP Group and Omnicom Group. And, of course, the less you spend the less you risk losing should an agency collapse.

“In general, startups are a much better model than an acquisition because if one of the cases goes terribly wrong, worse-case scenario you burn a million dollars,” said David Jones, global CEO of Havas, which took a 51 percent stake in Socialistic and an estimated 35 percent stake in Camp+King. “If you buy a…$100 million revenue agency (and it) goes to $95 million the following year, all you’ve done is bought yourself an organic decline.”

Nadal, who acquired 60 percent of Anomaly and 51 percent of 72andSunny, positions himself as a partner and banker in his M&A pitches, with the tacit understanding that money alone won’t sway successful entrepreneurs. Naturally, it also helps that he’s associated with the ascent of Crispin Porter + Bogusky, which MDC first invested in 10 years ago.

“It was obviously a great proof point that MDC really walks the talk,” Nadal acknowledged.

Sounding more like an agent than a holding company boss, he added that “great thought leaders are like athletes. You need to make them feel important, respected and appreciated every day because economics are not what drives people in this industry.”

Indeed, Anomaly co-founder Carl Johnson and 72andSunny chief strategy officer Matt Jarvis cited the promise of self-determination as a key reason why they chose MDC. “They have a track record of not interfering with your business,” Johnson said. “They will not change my day-to-day life. They will support us.” Or, as Jarvis simply put it, “They want for us what we want for ourselves.”