What Private Equity Should Know About Creative Agencies

Creative agencies have been under pressure for as long as they’ve existed. But the last decade has seen a sharp increase in that pressure. From nimble start-ups and flexible independents, to the overlapping of services between PR, advertising, media, and digital agencies, to management consulting firms getting into the game, to clients demanding more for less, creative agencies find themselves in dire need of reimagining who they are and what they do.

And now Private Equity (PE) has jumped into the muddy, murky waters, making things even more complicated. PE firms have been buying up an array of agencies and product companies, rolling them up into a one-stop service stack and providing everything a Brand Director could need under one roof. It’s a compelling story. But does it work?

The Pitfalls of Private Equity Roll-Up

On paper it looks amazing — an example of the whole being greater than the sum of its parts.. Pulling it off, however, is something altogether more challenging.

The most prominent roll-up examples have had their fair share of merger and growing pains. Having an operational advisor on a creative agency board is like having a referee at a toddler soccer game.There is so much experimentation and messiness on the path to compelling creative, and creative agencies thrive in a culture of unfiltered, unfettered ideation. It’s interesting, then, to see business strategy clash with creative organizations. Many have tried to harness the power of creativity. Many have failed. Still, it’s possible if you know the potential pitfalls and how to avoid them.

Let’s explore some of those pitfalls (which is by no means an exhaustive list):

1. Creative agencies are different: Coming up with a concept that moves its audience to act isn’t a straightforward business practice you can SOP and lock-in like a manufacturing process or accounting strategy. It takes highly specialized talent, nuanced leadership, and a safe environment for creativity to thrive.
2. Integration: Integrating two creative organizations is a task that takes deft leadership across functional leaders. Having functional leaders who can effectively integrate teams or work collaboratively across teams while being aware of culture differences is important in unlocking the potential of a roll-up or merger.
3. Strategic talent plan: Creative talent and the folks that help inform and enable that talent are the only thing an agency can lean on. Getting the right butts in seats, understanding each functional lead’s alignment with the mission, knowing the team's career paths and aspirations, and identifying redundancies and gaps where hiring needs to happen are core components of a solid strategic talent plan.
4. How clients buy: Clients don’t always want a one-stop solution. They often want the best fit for each of the service categories. Rolling-up rockstar agencies across the entire service spectrum is tough. You are bound to land mediocre pieces of the equation. How do you bring up the level at all those shops? Especially when brand leaders continue to want to hire the best-fit vendor vs. the curated one-stop solution.
5. Selling the whole: Selling the full spectrum of services of the rolled-up newco is often a completely foreign skill set for the founders and leaders of the acquired agencies. The larger organization works at a different level of procurement. Getting the right business development approach and people in place is critical to selling all a newco has to offer.
6. Making the right deals: Founder and service fit seem to be the key ingredients to a successful acquisition strategy. If a founder can seamlessly work with the rolled-up team the likelihood of a successful merger is great. Service offering mergers that are synergistic are more likely to have a market impact. This is basic stuff, but important to a successful deal — and often easier said than done.

Founders, what would you do if PE comes calling? Give me a call. I would love to discuss that scenario with you.

cory@salmelatalent.com

218-590-4448

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Photo by charlesdeluvio on Unsplash