The Door Opens, Investors With Big Plans Pour In

Michael Hedges July 16, 2019 Follow on Twitter

Most business sectors are fairly insular, internal structures strong and skill-sets narrow. In this respect, media and advertising businesses operate like aerospace, agriculture, mining and pharmaceuticals. Financial services touch them all. And, now, so do digital technologies. These are new inputs, sometimes welcome and sometimes not.

At this summer’s Cannes Ad Fest, a significant conversation point was the entrance of management consultants and private equity investors. There was fear. Sitting on about US$2 trillion in leveraged assets, private equity firms see old-model opportunity; break-ups and shake-ups. The consultancies trade on big data. Cannes observers noted the “less than stellar track-record” of private equity firms in the media sector.

Giant business consultancy Accenture acquired in April award-winning independent creative agency Droga5. Accenture was spun-out of big accounting company Arthur Anderson. It competes with McKinsey, Deloitte, PwC, KPMG and Ernst & Young, all specialists in strategies, transformations and change. Subsidiary Accenture Interactive has also acquired smaller creative agencies in Spain, Ireland and Denmark in the last year or so. At the Cannes Ad Fest, the session featuring Accenture Interactive chief executive Brian Whipple and Droga5 founder David Droga was standing room only. Accenture paid US$475 million for Droga5. “The industry has changed; we need to stay relevant. We need to stay on the front foot,” said David Droga, quoted by WARC (June 26).

Last week big communications conglomerate WPP sold a majority stake (60%) of market research business Kantar to Bain Capital Private Equity. The transaction values Kantar at US$4 billion. WPP gets about US$3 billion, which will sooth the debt-laden balance sheet. A strategic equity transaction involving Kantar was telegraphed last October.

Respective executives offered the usual warm and fuzzy statements. “As a strategic partner and shareholder in Kantar, WPP will continue to benefit from its future growth while our clients continue to benefit from its services and capabilities,” said WPP chief executive Mark Read said in a statement, quoted by TechCrunch (July 12). “This transaction creates value for WPP shareholders and further simplifies our company.”

“Our deep sector knowledge, operational expertise and strong track record of partnering with management teams to accelerate growth gives us confidence that we can help Kantar grow both organically and by acquisition,” said Bain Capital managing director Christophe Jacobs van Merlen.

Kantar has a worldwide footprint in the market research field. Much of the work is very arcane - and profitable - product measurement. Kantar is also involved in media measurement; subsidiaries like TNS Global and Millward Brown folded under the Kantar umbrella earlier this year. It competes with Nielsen and, more recently, comScore.

Bain Capital refers to itself as a “multi-asset alternative investment firm.” That includes private equity, public equity, venture capital and much more. Its business model over three decades has been to apply fair-market value to assets - rather than tangible value - to increase dividends paid to itself. It is not known as a big spender.

One of its big leveraged buyouts, with private equity Thomas Lee Partners, was the 2008 privitization of US broadcaster and outdoor ad company Clear Channel Communications, now known as iHeartMedia. Clear Channel shareholders received about US$25 billion. The debt from that transaction has devilled the company since. Last year iHeartMedia filed bankruptcy, citing US$20 billion in debt. Bain Capital did much better with Dunkin’ Donuts.

A month ago German publisher Axel Springer enlisted the aid of private equity legend KKR, formerly known as Kohlberg Kravis Roberts, in taking the company private. KKR would, in essence, buy out minority shareholders - all but the Springer family holdings and those of chief executive Mathias Döphner - allowing a de-listing from the Frankfurt Stock Exchange. Many big companies have done this sort of thing to keep unruly shareholders out of those meetings.

Last week the transaction became official, reported Süddeutsche Zeitung (July 11), with KKR making a €65 per share offer for the 65% of the company shares not owned by the Springer family and Herr Döphner. In the agreement’s fine-print, however, is only conditional support for Die Welt, the legacy daily newspaper. Unsurprisingly, KKR can exert “reasonable control of the annual earnings situation,” which German media watchers suspect means highly profitable tabloid Bild, the digital operations and TV projects are safe, loss-making Die Welt not so much. In February KKR acquired German broadcaster and film rights holder Tele München Gruppe as well as film distributer Universum Film from RTL Germany.

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• Hot Topics - Mergers and Acquisitions

• Hot Topics - Private Equity