Stagwell Buys Tel Aviv-Based LEADERS, Marking 7th Acquisition in 2024
RockWater Roundup
RockWater analysis to make you a better investor and operator. Today we discuss Stagwell’s acquisition of LEADERS and IMAI, including the deal value prop, key deal terms, and state of IM Agency M&A.
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Stagwell just acquired Tel Aviv-Based LEADERS and IMAI.
That marks 7 acquisitions in 2024.
Deal terms were undisclosed, but a recent 8K SEC filing gives some valuation guidance and helps us also estimate LEADERS’ 2024 potential EBITDA.
Let’s break it down👇
💰SELLER: Leaders / IMAI
Leaders…
- IM-focused digital agency
- Focus on performance and sales
- Founded 2017 by Eran Nizri, Yehonatan Arami
- Clients include Nespresso, Samsung, Colgate-Palmolive
- Based in Tel Aviv
- Team of 29 per website
IMAI…
- AI-powered SaaS IM platform
- Founded 2020 by LEADERS team
- Connects brands with 300M global influencer network
- Offers analytics, sales prediction models, and mgmt tools to optimize IM campaigns
- Focuses on ecom brands to track conversions and ROI
- Client include Coca-Cola, Playtika, Estée Lauder, Superdry
💵FINANCIALS & CAP TABLE: Leaders
- $750k seed round from Intango Ventures (IV) in Sep 2016
- $300k seed round from unknown in Feb 2018
- IV is a Corporate VC (CVC) that invests in early-stage Digital Mktg and AdTech startups
- IV is Investment arm of Intango, a global tech-driven digital marketing co
🤝BUYER: Stagwell
- Digital-first marketing company
- Calls itself a “challenger network”
- Suite of SAAS solutions via Stagwell Marketing Cloud (SMC)
- 13k specialists in 34 countries
- Founded by Mark Penn, 40 yr industry vet
- Launched 2019 when Penn combined Stagwell Group and his MDC Partners
- LEADERS is Stagwell’s 7th acquisition of 2024
- Follows 10+ acquisitions for 2023 and prior
- Recent M&A incl Team Epiphany, Sidekick, What’s Next Partners, Pros Agency, Business Traveller and Bera
FINANCIALS: Stagwell
Stock performance as of 8.7 at 9:34am PT…
- Share price: $6.08
- Mkt cap: $1.6B
- Down 8.6% YTD
- Down 4.6% YoY
FY 2023 YoY results per public filings (PE 12.31.23)…
- Net revenue down 3.4% to $2.1B, from $2.2B
- Organic revenue down 5.9% (excl M&A)
- Operating margin down 43% to $91M, from $159M
- Operating margin down to 4.2% from 7.2%
- Adj EBITDA down 20% to $360M, from $451M
- Adj EBITDA margin down to 16.8% from 20.3%
- ($101M) reduction in free cash flow, down from $37M
- $120M in cash
- $1.3B in total debt
1H 2024 YoY results per public filings (PE 6.30.24)…
- Net revenue up 1.9% to $1.09B, from $1.07B
- Organic revenue up 1.5% (excl M&A)
- Operating margin up 27% to $48M, from $37M
- Adj EBITDA up 8% to $176M, from $163M
- Adj EBITDA margin up to 16.2% from 15.3%
- $16.3M in adj free cash flow, up from negative ($115M)
- $136M in cash and equivalents
- $1.55B in total debt (incl debt-like)
🤝DEAL DETAILS
- Closed 7.19.24
- At closing Stagwell issued 135,010 class A common stock
- 7.19 closing price was $6.71, implies $906k value (TBD basis of stock options)
- 1st earnout through Jun 2026 for $1.425M
- 2nd earnout through Jun 2029 for $1.9M
- Earnouts to be paid in Stagwell stock
- Continent on unknown financial KPIs
- More valuation analysis below..
🤝DEAL VALUE PROP
- IMAI will supplement Stagwell’s IM platforms for its global agencies
- Joins Stagwell’s PRophet Comms Tech Suite for PR / mktg pros
- Part of global growth push, 1st agency in Israel
- Mandate to grow via M&A, builds upon 17+ deals to date
🤔POST DEAL OPS
- Nizri will continue to serve as Group CEO, reporting into Aaron Kwittken, founder and CEO of Stagwell’s PRophet Comms Tech Suite
- Itamar Gonsherovitz will continue to lead Leaders’ digital agency operations as CEO
- Arami will continue to lead biz dev, expanding the company’s reach within the Stagwell network
🧐WHAT ELSE I FIND INTERESTING & DEAL INSIGHTS…
Deal valuation wasn’t disclosed. But we can run some valuation scenarios based on what was disclosed in the 8-K filing, and by looking at Stagwell’s enterprise value based on stock price performance and their 2Q 2024 earnings report.
HOW TO ESTIMATE STAGWELL’S ENTERPRISE VALUE AND MULTIPLES…
ENTERPRISE VALUE CALC: Stagwell
$1.6B mkt cap
LESS:
- $136M cash and equivalents
PLUS:
- $1.4B LT debt
- $263M LT leases
- $64M of ST leases
- $47M LT portion of earnouts due
- $24M ST portion of earnouts due
That implies a total Stagwell enterprise value of $3.3B.
With Stagwell giving 2024 adj EBITDA guidance of $400-450M on Aug 1 in their 2Q earnings report, that equates to a 7.3x – 8.2x forward adj EBITDA multiple.
To prevent the acquisition from being dilutive, Stagwell would want to pay a lower or similar multiple for LEADERS, assuming that LEADERS was profitable.
Of note, when I did the similar math for the Movers+Shakers and Team Epiphany deals, I calc’d the max multiple range to be 7.2x – 7.6x and 8.2x – 8.6x, respectively. But it’s worth noting that those multiples were closer to an LTM basis VS 6 month forward like the multiples I newly present above.
Assuming company growth, one would expect forward multiples to be lower VS LTM multiples (because the denominator gets bigger while numerator stays the same). Though note that 2023 adj EBITDA was $451M for Stagwell, so the new Aug 1 guidance means that Stagwell 2024 EBITDA will be either breakeven or 11% down YoY. With stock price down around 5% YoY, expect a larger stock price decline if 2024 EBITDA comes in at the low end of that guidance range.
I didn’t take the time to dig into SEC filings to understand why the lower growth (I have only so much writing time in the week in between my client advisory work!), but high level themes that could be impacting performance are (1) slower ad market growth than expected for 2024 and (2) more competition for digital marketing dollars from well-financed and growing digital agencies.
LET’S NOW ESTIMATE THE VALUATION FOR THE LEADERS DEAL…
What We Know
- At closing Stagwell issued 135,010 class A common stock
- 7.19 closing price was $6.71, implies $906k value
- 1st earnout through Jun 2026 for $1.425M
- 2nd earnout through Jun 2029 for $1.9M
- Earnouts to be paid in Stagwell stock based on unknown financial KPIs
My Assumptions / Valuation Estimate
- All consideration was stock, no cash (didn’t see any in 8-K, unless it wasn’t reported)
- Adding up the upfront shares + 2 earnouts, that’s $3.33M total purchase price
- I don’t know the earnout thresholds nor LEADERS financial performance, so can’t opine on likelihood of hitting earnouts
- Leadership team likely got strong comp packages for 5-year commitment, with maybe a step-up after 2026
For a team with around 30 people, some of you might say a $3.33M valuation feels low. But remember that LEADERS is an Israel-based agency. If they’re primarily serving clients in the MENA region, where ad rates and CPMs are lower than in the US, then the company’s revenues and EBITDA are likely lower vs similar-staffed co’s in the US serving western clients.
(though interestingly, the cost of living in Tel Aviv is considered comparable to NYC, per some quick online research)
If the deal’s EBITDA multiple is in the range of Stagwell’s current forward multiple range of 7.3x – 8.2x, that would imply the company’s budgeted 2024 EBITDA to be around $400-450k. That would imply around $15k EBITDA per head, which feels low relative to western IM agencies.
Further, total EBITDA (or even 10x that) is subscale relative to Stagwell’s $400M+ of global EBITDA, but the deal value prop is likely that Stagwell sees a chance to meaningfully grow existing client budget share and new client opportunities with the IMAI platform, and to also get a foothold in the growing MENA advertiser market and others where LEADERS operates.
Of course, I don’t know the exact details here, this is just me speculating. I could be way off on my logic and math, and perhaps there was other deal consideration not reported in the 8-K. But as always, I use the data I have access to, and leverage my dealmaking experience in the creator x media space to give you readers the best deal analysis I can.
If any of you have more deal intel, feel free to DM me!
I WROTE THE BELOW DURING THE TEAM EPIPHANY DEAL ANNOUNCED IN JAN 2024. IT STILL APPLIES TODAY…
“This deal is no surprise, since there’s very high demand for modern ad agencies with IM capabilities in today’s deal market (I know because we’re advising another one on a sale). The reason is because the modern brand and marketer wants a one-stop shop for all its marketing needs…media, branded content, influencers, analytics, PR, etc.
The agencies that can service those diverse needs under one roof will continue to grab majority of client budget. This puts a lot of pressure on subscale agencies to grow revenue through building new capabilities and developing new client relationships, or more realistically, finding a new owner with complementary capabilities.”
On the latter point, industry consolidation continues to accelerate. Just read my blog and newsletters, with last week marking one of the largest creator economy / IM exits ever with Influential’s $500M sale to Publicis (I estimated valuation and deal proceeds waterfall here).
Lastly, on Stagwell’s “challenger” positioning, expect a lot more agency rollups by former ad execs with PE backing. Other than Stagwell, another one to watch is The Acceleration Community of Companies, who bought Pixly, Trailblaze, more, as well as Croud which recently bought Vert (my deal analysis here).
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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
