ECI Partners Buys Croud // Valuation and EBITDA Multiples Estimate
RockWater Roundup
RockWater analysis to make you a better investor and operator. Today we discuss ECI Partners’ majority acquisition of Croud, including the deal value prop, valuation estimate, pro forma cap table, and payout waterfall.
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ECI Partners bought a majority stake in digital agency Croud.
They bought out previous financial investor LDC, who invested back in 2019.
There’s some good info from press estimates to do some valuation math.
Let’s break it down…
—SELLER: Croud—
- Digital ad and performance agency
- Founded 2011 by Luke Smith, Ben Knight
- Based in London, offices in NYC, Atlanta, Dubai
- Expanded to NYC in 2016, Dubai in 2022
- AI tech platform enables campaign planning and execution (“Croud Control”)
- Clients incl Amazon Prime, Aston Martin, Coach, Nespresso, VF Group
Croud Operating Highlights
- £23.5m income for 2022-2023 per Campaign School Report
- 2,900 offshore PT digital marketers (“Croudie Network”); makes up 20-40% of billable hrs
- 600 in-house specialists (up from 185 in 2019)
- TEAM – US: 150 | UK: 450 | Dubai: 10
Croud Capital Markets History
- 2019 LDC minority investment of £30M (Campaign US estimates £60M valuation)
- 2024 Club loan from OakNorth of £34M (paid off post sale)
- 2025 ECI investment of TBD (I est $100M+)
Croud M&A History
- Vert Brands: Atlanta-based digital agency (Jun 2024)
- Born Social: social agency (Nov 2022)
- Impakt Advisors: data & analytics (Dec 2021)
- VERB Brands: luxury digital mktg agency (Nov 2021)
- Metageni: unknown
—BUYER: ECI Partners—
- Growth PE investor
- Manages £2B GBP
- Operating for 48 yrs
- Focuses on growth businesses valued up to £300M GBP
- Targets media, data, tech investments: Cloud & Digital, Data, Financial Services, GRC, HealthTech, HR & Edtech, and Travel
ECI Highlights
- 270 completed investments
- 51% are founder-backed
- 69% majority / 31% minority investments
- 109 management buyouts
- Latest fund is £1B
—DEAL DETAILS—
- Announced 10.31.24
- Will close in November
- ECI acquired majority stake
- Funded by £77.6M club loan from OakNorth, HSBC, Investec, Barclays
- Previous investor LDC will exit Croud investment
- Formal M&A sales process was run for Croud
- Interested parties included agency networks and PE in UK, US
- 160 employees received cash bonuses
- 15 senior figures got 6-figure bonuses
—DEAL VALUE PROP—
- Expand biz through organic growth and M&A
- Increase M&A in US over next 5 years
- Retain Croud leadership in media, data and creative services
- ECI has successful investment track record in media, data, tech including MiQ, Investis Digital, Imagesound, Clarity Blue
WHAT ELSE I FIND INTERESTING & DEAL INSIGHTS
Estimating valuation, cap table, and multiples…
Below is simple math and logic waterfalls to inform the potential deal structure, valuation multiples, and payout waterfalls.
What We Know from Press Estimates
- £23.5M income for 2022-2023
- £60M valuation in 2019
- LDC invested £30M in 2019
- Valuationed tripled since 2019
- ECI bought majority stake
- £77.6M club loan to fund ECI acquisition
My Assumptions
- Founders previously owned ~50% of company post LDC investment
- Typical founder rollover equity is 20-40% (I explained this last week)
- In sale to ECI, founders sold half remaining equity, and post rollover, now own 25%
- MIP / ESOP plan is 5% of new cap table
- At £190M enterprise value (slightly above 3x 2019 valuation), that means LTV of 41% and that ECI wrote an equity check of £55.4M, which is 29% of enterprise value, to own 70% of Croud
- That feels directionally reasonable based on industry precedent…
Pro Forma Cap Table at £190M Enterprise Value
- ECI Partners: 70%
- Croud founders: 25%
- MIP / ESOP: 5%
Implied Valuation Multiple
- 8.1x income (£190M Ent Value / £23.5M income)
- NOTE 1: I don’t have P&L, so we don’t know if income is same as EBITDA
- NOTE 2: Income is based on 2022-2023 period, so LTM income as of 10.31.24 announcement date could be higher, meaning multiple could be lower. Of course, this also assumes 190M is the right EV
Estimated Deal Payout Waterfall
- LDC sold entire ~50% stake: £95M
- Founders sold 25% stake: £47.5M
- Team ESOP of TBD
- Implies total cash payout of approx £132.5M
Misc Notes / Insights
Reminder this is all speculation, as I don’t have deal details. But it’s helpful to use the provided figures and math to think about typical PE deal structures for agency business models
LTV for digital agencies could be higher, up to 60 or 65%. But I bet the lenders wanted to see ECI write a decent size equity check for this first investment. Further, ECI may add more debt as it ramps up M&A over the next few years, so there’s some LTV cushion here.
The Insignia Capital buyout of Veritone One was at an 8.9x multiple (incl earnout), and the purchase price was $104M, or about half of what we estimated for Croud. Makes me think there could be an earnout component in the ECI-Croud deal that we didn’t account for, which would increase the potential valuation multiple. For a deal of 2x larger scale, a multiple above my estimated 8x wouldn’t surprise me.
UK performance marketing agencies are attracting investor interest…
This quote from Campaign Live sums it up well…
“It is one of a number of UK agencies to emerge in the performance marketing space and attract investor interest, both before and after the pandemic, as they have sought to expand globally.
Separately, Brainlabs sold a majority stake to a private equity firm, Falfurrias Capital Partners, and Jellyfish sold to the Brandtech Group last year.”
Two final notes on the rise of challenger ad networks, and cross-border M&A…
I previously wrote about Croud buying Vert, an Atlanta-based agency. The deal marked Croud’s 5th acquisition since 2021. Pasting below an excerpt from my M&A deal analysis from this past summer. It’s still relevant today…
“No surprise given the broader ad agency consolidation. It’s getting harder to compete for brand marketing dollars.
Reminds me of a few points I wrote in our 2024 State of Agency M&A report earlier this year…
Agencies that have broader, diversified capabilities will win more of those dollars. The market is now about scale across service offerings, team, and geos.
The Rise of Challenger Networks / Nextgen Ad Agencies
These are modern ad agencies with a broad suite of digital marketing capabilities. They’re helmed by seasoned marketing executives, have investor-backing, and are growing aggressively through M&A. Example companies include Stagwell, which has done 6 acquisitions since 2023 (I wrote about their acquisition of Team Epiphany in Jan 2024 here, and most recently they bought a digital PR agency in Brazil which I still need to write about). Another example is Acceleration Group of Companies.
Based on the overview of Croud I wrote above (backed by investor LDC, 5 acquisitions in 3 years, growing set of agency capabilities), I’d include Croud into this category as well.
International Agencies Seek to Buy Way Into US Market
UK-based agencies are aggressively looking to enter the US. My note from our 2024 agency M&A report…
“We’re getting a lot more calls from agencies across the pond who want to make inroads with US brands and audiences. These agencies have had trouble building organically in the States, since hiring an exec team in a competitive high-growth market with a very different agency culture ecosystem is not an easy feat. So buying their way in is a growing mandate. I’ve gotten calls from Euro-based branded content studios to podcast agencies and larger holding companies who are making trips to the US for “agency roadshows” in 1H 2024, and who plan to transact by the second half of the year.”
Since I wrote that, I’ve also gotten calls from Asia-based digital marketing businesses seeking US agency targets, though I do believe there will be the capital flows will be more typically trend towards US-to-Asia, as more America-based co’s seek access to high-growth markets like southeast Asia and others (I know a target that may be coming to market soon!).
Further, it also seems that Atlanta is becoming an increasingly appealing target in addition to NYC and LA-based agencies.”
Alright, that’s enough deal analysis for one week. Time to get back to my clients.
I’m the founder of RockWater Industries. We do financial and strategy advisory for media, agencies, and creator economy. From M&A and fundraising to consumer research and go-to-market planning.
DM me on LinkedIn or email me chris @ wearerockwater dot com
