Stagwell Buys Team Epiphany, a “Culturalist” Agency

January 12, 2024 by  Chris Erwin

RockWater Roundup

RockWater analysis to make you a better investor and operator. Today we discuss Stagwell’s purchase of “culturalist” agency Team Epiphany, and what I learned from Stagwell’s SEC filings.


Stagwell Buys Team Epiphany, a “Culturalist” Agency

 

Team Epiphany just sold to Stagwell. 

This builds upon 4 acquisitions in 2023.

Deal terms were undisclosed, but a recent 8K SEC filing gives some guidance.

Let’s break it down👇

 

🎯TARGET: TEAM EPIPHANY

  • A consumer “Culturalist” agency – progressive, multicultural campaigns
  • Services incl brand strategy, IM, experiential, PR
  • Started 2004 by BIPOC founder Coltrane Curtis
  • Offices in NY, LA, Miami
  • 100 team members
  • Blue-chip clients incl AirBnB, AMEX, Coca Cola, LEGO, HBO, Amazon

 

💸BUYER: STAGWELL

  • Digital-first marketing company
  • Calls itself a “challenger network”
  • 13k specialists in 34 countries
  • Founded by Mark Penn, 40 yr veteran and former MSFT exec – his bio is VERY impressive, read it separately
  • Stagwell founded 2019 when Mark combined Stagwell Group and his MDC Partners
  • Constellation is a network of marcom agencies within Stagwell across data, insights, creativity, technology, experiential
  • Constellation includes 72andSunny, Brand Citizens, Colle McVoy, Hunter, Instrument, Jemini, Left Field Labs, Movers+Shakers, Redscout, TEAM Enterprises, Team Epiphany, The Harris Poll, and Tinsel Experiential Design

 

🤝DEAL DETAILS

  • Not disclosed, but I believe the Dec 26 8K filing gives some guidance
  • 100% buyout
  • Deal signed Dec 26, closed Jan 2
  • $5M of Stagwell stock incl as portion of payment – unsure other portion
  • Earnout based on financial performance for 2024 – 2026
  • Max of $8.5M for earnout can be paid in Stagwell stock – unclear if $8.5M is max earnout potential OR just what can be paid in Stagwell stock, with rest in cash

 

🤔DEAL RATIONALE

  • Bolsters Stagwell IM and social media capabilities, a clear focus for them
  • Mandate to grow via M&A, builds upon 4 deals in 2023 (Movers+Shakers, In the Company of Huskies, Tinsel, Left Field Labs)
  • 2 managing partners incl Lisa Chu will stay on as leaders, will continue driving growth

 

What else I find interesting about deal…

 

Valuation wasn’t disclosed. But I calc Stagwell enterprise value of $3.37B based on current stock price and 3Q 2023 earnings report.

That’s $1.7B mkt cap plus $1.5B LT debt plus $271M LT leases less $99M cash & equivalents.

With Stagwell giving 2023 adj EBITDA guidance of $390 – 410M in on Nov 2, that equates to a 8.2 – 8.6x LTM adj EBITDA multiple. 

To prevent the acquisition from being dilutive, Stagwell would want to pay a lower or similar multiple for Epiphany. 

Of note, when I did the same math for the Movers+Shakers deal, I calc’d the max multiple range to be 7.2x – 7.6x. But Stagwell stock is up 15% in last 30 days, and 50% since early November, meaning they can afford to pay more – but doesn’t mean they will.

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.

And 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 is happening quickly…check out my post yesterday on the 50+ social agency deals since 2022, and my other recent agency M&A coverage on Izea / Hoozu / Zuberance, Dulcedo / Influence+All / Sundae, Wasserman / Brillstein, et al.

And on Stagwell’s “challenger” positioning, expect a lot more agency rollups by former ad execs. Other than Stagwell, another one to watch is The Acceleration Community of Companies, who bought Pixly, Trailblaze, more.

 


I’m the founder of RockWater Industries. We do financial and strategy advisory for media, tech, and commerce. From M&A and fundraising to consumer research and go-to-market planning.

DM me on LinkedIn or email me chris @ wearerockwater dot com

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