Publicis Buys Influential for $500M + Valuation and Deal Waterfalls
RockWater Roundup
RockWater analysis to make you a better investor and operator. Today we discuss Publicis’s acquisition of Influential, including the deal value prop, key deal terms, valuation analysis, and deal proceeds waterfall.
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Last week Publicis bought Influential.
It’s one of the largest creator economy exits at $500M. At the bottom I dive into valuation ranges and the deal proceeds waterfall based on my POV on deal structure.
Let’s break it down…
🤝SELLER: Influential
- IM platform for marketers and influencers
- Finds, vets, negotiates, contracts, and pays influencers using software
- Also designs creative, and amplifies and optimizes campaigns
- Founded 2013 by Ryan Detert, Piotr Tomasik, Daniel Steel
- Based in Las Vegas
- 4 total offices
- 300 employees
- 3.5M influencer network
- Access to 90% of influencers w/ 1M+ followers
- AI-powered platform w/ 100B+ datapoints
- 300+ brand clients incl Disney, Hilton, Hulu, McDonalds
🤝FINANCIALS & CAP TABLE: Influential
- $150M revenue in 2023
- 50% YoY revenue growth
- $51.5M capital raised between 2014 to 2021
- Up through Series B plus venture debt / conv notes
- Investors incl Paradigm Agency, Plug And Play, Ruttenberg, Capital Zed, Tech Coast Angels, WME, ECA Ventures, Regal Funds,
💰BUYER: Publicis
- Diversified agency holding company
- Largest agency holdco by net bookings
- 4 solution hubs: communications, media, Sapient (IT consulting), health
- Founded 1926
- Based in Paris
- 100+ countries
- 103,000 employees
🪙FINANCIALS (in €): Publicis
Stock performance as of 7.29 at 940am ET…
- Share price: €97.72
- Mkt cap: €24.9B
- Up 15.6% YTD
- Up 33.1% YoY
FY 2023 YoY results per public filings (PE 12.31.23)…
- Net revenue up 4.2% to €13.1B, from €12.6B
- Organic net revenue up 6.3% (excl M&A)
- Operating margin up 4.3% to €2.4B, from €2.3B
- Operating margin rate stayed same YoY at 18%
- EBITDA up 1.6% to €2.85B, from €2.8B
- €1.8B in adj free cash flow, up 6% YoY
- €4.3B in cash
- €3.3B in total debt (incl earnout/buyout)
1H 2024 YoY results per public filings (PE 6.30.24)…
- Net revenue up 5.9% to €6.7B, from €6.3B
- Organic net revenue up 5.4% (excl M&A)
- Operating margin up 6.1% to €1.2B, from €1.1B
- Operating margin rate stayed same YoY at 17.3%
- EBITDA up 4.9% to €1.4B, from €.3B
- North America is largest market at 61% of net rev
- Most net new billings (€3.1B) VS other agency hold co’s
- €744M in free cash flow, up 2.6% YoY
- €3.1B in cash
- €3.2B in total debt (incl earnout/buyout)
- Updated guidance of net revenue growth: 5-6%, up from 4-5% previously
🤝DEAL DETAILS
- $500M purchase price
- Deal structure undisclosed
- Expected to close Aug 2024
- 3.3X 2023 LTM revenue multiple ($500M / $150M)
- If assume 2024 revenue growth slows to 30% from 50%, implies $200M forward revenue and a 2.5X revenue multiple
- Much more valuation analysis below..
🧐DEAL VALUE PROP
Overall, expand Publicis IM client services…
- More creators to target any audience demo, niche
- Better creator-client matching, campaign design via Influential AI + Publicis data businesses, Epsilon
- Offer holistic digital campaigns that blend IM w/ digital, affiliate channels
- Better ROI analysis of IM campaigns for brands, will drive more spend
- Retain client media spend as moves away from linear TV and into social / streaming / other digital
- Public has 2.3B people in its Epsilon data portfolio via CTV and Commerce, now adds Creators to that
📝IM MARKET NOTES
- $7B in 2023, up 17.4% from 2022
- Up more than 10.6% for all digital ad spend
- Est to be $8.1B in 2024 and $9.3B in 2025
- Social spend to be $186B by 2025, exceeding linear TV spend by 1st time – IM is fastest growing segment
SOURCE: eMarketer, Publicis press release
🤝POST DEAL OPS
- Influential will operate standalone
- CEO Ryan Detert will stay on
🤔WHAT I FIND INTERESTING & DEAL INSIGHTS…
Which large agency holdco or challenger ad network will do the next big IM deal?
- Last week fast-growing ad network Stagwell bought digital agency and IM specialist LEADERS, including their IM-planning software IMAI
- In Mar 2023 WPP bought social-first ad agency Goat
Makes me wonder which of the next large agencies will make a large move in social / IM services. I think of Omnicom, Dentsu, Interpublic, Havas, Acceleration Group of Companies, Croud, who else?…
Of note, there aren’t many scaled social / IM agency players left. Some immediate names that come to mind include Whalar and Viral Nation, and I know I’m leaving out a handful more. Again, speaks to something I’ve written about many times…will the many subscale players start joining forces? Can they actually fit together well and attract buyer interest?
DM me if you’re trying to figure this out, glad to help you think through viability and deal structures.
Let’s run some numbers on the deal proceeds distribution waterfall…
Public Info on valuation and funding
- $500M purchase price
- Crunchbase says total Influential funding was $51.5M, between 2014 – 2021
- Of that $51.5M, it seems $20M was venture debt financing, and the rest was equity capital. Can’t tell if this was in Australian or US dollars, so I’ll assume US to keep math simple
Cap Table Assumptions
- $20M was venture debt and had 10% warrant coverage, or 2M of warrants. Assume that was 1.5% of company outstanding shares (midpoint of avg 1-2% range since later stage), and all interest was paid on time in cash since Influential was profitable (i.e. didn’t accrue as PIK)
- Venture debt balance was 50% paid off prior to sale, leaving a $10M loan balance
- $31.5M of equity financing rounds was done at a blended company valuation of $75M, which implies a 42% stake
- 17.5% employee stock option pool
- No investor liquidation preference
Deal Structure Assumptions
- If 2024B revenue is $200M (30% YoY growth slowing from 50% prior year), that’s a 2.5x half year forward revenue multiple. That feels high
- Based on all the IM company bids I’ve seen in our M&A sales processes and market research, I assume the following deal structure…
- 50% upfront proceeds or $250M → $200M in cash and $50M in Publicis equity (80/20) with TBD lockup period
- 50% earnout or $250M → $125M cash and $125M Publicis equity (50/50) over 3 to 5 year period against unknown KPIs / milestones
- Implies $250M upfront consideration, and a 2024 forward revenue multiple of 1.25x
Waterfall of upfront sale proceeds to founders and investors
- $200M total ($50M upfront equity is in lockup)
- LESS: $10M to venture debt investors
- LESS: $12.5M transaction fees e.g. bankers, lawyers (5% of ALL $250M upfront consideration though TBD language of banker agreement)
- BALANCE: $177.5 to split among equity owners
- LESS: $74.6M to venture equity investors (42%)
- LESS: $2.7M to warrants (1.5%)
- LESS: $31.1M employee option pool (17.5%)
- Liquidity to founders at closing: $69.2M (pre tax)
I don’t know how that was split between the 3 founders, but Ryan the CEO likely got more than the other two founders who moved on to other companies and investing endeavors prior to sale. Though I’m sure all three received a life-changing amount of money, with a chance to earn more via future exercise of stock options, and potentially earnout.
Big congratulations. What a great win for the founders, team, investors, and our industry.
Lastly, let’s estimate EBITDA multiples…
Public info
- $150M revenue for 2023
Margin Assumptions
- I assume $150M is gross 2023 revenue, pre talent share and other direct COGS
- I’ve heard Influential keeps very high margins vs other IM co’s, up to 60% of campaign budgets…very high to typical influencer mgr with 15-20% commission, though Influential positions itself as a platform and providing end-to-end campaign services of design and talent sourcing to production and amplification, which would command a higher rate (which I know some of you will debate!)
- Let’s therefore assume 45% GM after talent share and COGS, implies $67.5M
- OPEX of $33M
- 300 employees x $80k avg salary + 18% fringes = $28M / year
- Add another $5M annually for offices and misc SG&A
- Implies 2023 EBITDA of $34.2M, or 22.8% margin
- Implies 2024B EBITDA of $45.6M at same margin
EBITDA Multiples
2023 LTM
- $500M incl earnout: 14.6x
- $250M upfront: 7.3x
2024B
- $500M incl earnout: 11x
- $250M upfront: 5.5x
Ok, that’s enough math for this week.
FYI I’ll likely write about the Stagwell / LEADERS deal next week. Happy weekends all. 😉
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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
