The Dutch Digital agencies landscape

Digital Agency Landscape I August 2015 I page 1Strictly private and confidential

Paris office

T: +33 1 48 24 63 00

F: +33 1 48 24 63 02

62 rue La Boétie

75008 Paris, FRANCE

Pim Mulder

Analyst

[email protected]

’s-Hertogenbosch office

T: +31 (0)73 – 623 87 74

F: +31 (0)73 – 623 87 75

Europalaan 6

5232 BC ’s-Hertogenbosch

THE NETHERLANDS

Ron Belt

Managing Partner

[email protected]

Denmark office

T +45 20 433 373

Lyngsø Alle 3

2970 Hoersholm, DENMARK

European Mid-Market Corporate Finance Advisory

BENELUX │ FRANCE │ NORDICS | INTERNATIONAL

Paris – ‘s-Hertogenbosch – Amsterdam - Copenhagen

Digital Agency Landscape


TEAM

� Independence

� Client focused and commitment

� Quality and professional

� Smart and pragmatic solutions

� Straight-forward advice

Our values

Highly experienced and committed European team, strong of 30 professionals

30 experienced professionals, located across 4 offices in Europe

France : Paris

Benelux : ‘s-Hertogenbosch, Hilversum (Amsterdam)

Nordics: Copenhagen


CAPITALMIND

MARKET LANDSCAPE

TRANSACTIONS

TRADING MULTIPLES

INDUSTRY BUYERS

INDUSTRY EXPERIENCE


PRODUCTSERVICES

DUTCH MARKET LANDSCAPE

Internetbureaus / digital agencies (Internetbureau) Online campagne

Payment systems

E-mail marketing agencies

CMS Software CMS Open Source

Internetsecurity, Verification, Privacy

IT-software and -hardware

System integrator & Consultancy

Mobile AgenciesSocial Agencies and software

Result drivenmarketing & advertising

Media Exploitation

Search marketingagencies

Marketing & ebusiness

Consultants

Web statistics & Site-optimalisatie

software

Web statistics & optimalisatie

Email Software Development

Comparisors

Media agencies

Affiliate Network

Marketing data Software


REVENUE GROWTH AND PROFITS VARY SIGNIFICANTLY

Newer, more specialized offerings are more profitable

* Source: www.dutchdigitalagencies.nl

� The general digital agency segment contains more larger companies but is

more developed

– Lower margins

– More expensive staff

– Pricing varies with the state of the economy

� Specialists can (still) make better margins

– Younger markets hence better pricing

– Staff is relatively young and therefore cheap

Market development The market / staff play

� In the Netherlands, the online industry remains one of the biggest growth

markets within the Dutch Creative Industry.

� Revenue in 2014 increased with 11% and for 2015 growth is expected to

accelerate to grow with 21% 2015.

� The average project size in 2014 increased with 7% from 2013 and even

with 59% compared to 2011.

� Employment within the sector increased with 11% in 2014, up from 8% in

2013.

� A survey among 84 members from the DDA revealed that these member,

together generating €381 million in revenues (average revenue of € 4,5

million), reached an average profit of around 10%.

260.2307.8

344.6381

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014

Reven

ue i

n €

mln

Year

CAGR2011-2014: 13,6%

14/13 13/12 2014 2013 2012 2014 2013 2012

Digital

agencies9,2% -1,5% 14,3% 12,6% 13,1% 99,6€ 90,8€ 100,6€

SEO/A

specialists20,4% 17,7% 33,5% 30,0% 26,0% 98,2€ 95,9€ 87,4€

Revenue growth EBIT margin (AVG) Rev. / empl. (x1000)


CAPITALMIND

MARKET LANDSCAPE

TRANSACTIONS

TRADING MULTIPLES

INDUSTRY BUYERS

INDUSTRY EXPERIENCE


WORLDWIDE TRANSACTION ACTIVITY PER COUNTRY

Analysed over 600 transactions up from 2006, we see most target companies in this sector are European companies,

followed by US companies. A major increase in deal activity has been noticed in Brazil and South Africa over the last

couple of years.

Digital agency transaction activity


EUROPEAN ACTIVITY PER COUNTRY

Numbers are proving that digital agency deal activity runs at a strong pace. Europe counts for 41% of the deals

through 2006 – 2015.

Digital agency activity

� Of all the transaction in this sector, 41,46% of the deals involved European targets. Especially in the UK, France, Germany and the Netherlands (!) activity has

been noticed. Up from the year 2012, Netherlands has always been in the Top 3 European countries in terms of target companies.

� The Big 4 advertisement companies are main buyers in this sector, counting for 61% of all the deals (worldwide). From the Big 4, WPP by far has been the most

acquisitive party. Worth to notice is also the substantial percentage of transaction, 17%, in which neither a Big 4 company nor Dentsu Inc. has been the buyer.

32%

4%

19%

22%

6%

17%

Transactions by acquirer (Worldwide)

WPP Plc Interpublic Group of Companies

Dentsu Inc. Publicis Groupe

Omnicom Group Other

2006

2009

2012

20150

5

10

15

20

25

Transactions per country per year (Europe)


ACTIVITY PER SUB-SEGMENT

Most wanted targets, based on key activity, turned out to be digital marketing agencies. In addition, web agencies and

advertisement companies have been popular targets.

Digital agency activity

20062007

20082009

20102011

20122013

201420150

5

10

15

20

25

30

35

Key activity by target by year


DIGITAL MARKETING

Deal activity in the sector is increasing, the overview below provides Benelux transactions. Capitalmind advised on

several deals, the most recent one being the merger between DQ&A and Incubeta.

Deals by Capitalmind

WPPPublicisGroupe

Omnicom Group

DentsuInterpublic

GroupOther


CAPITALMIND

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TRANSACTIONS

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TRADING MULTIPLES

Trading multiples

The overview below provides an overview of current trading multiples of the main Advertising Holding companies

Trading multiples

� The trading multiples method is based on recent Market Cap valuations of listed companies in the market.

� Most of the times a discount is used for mid-market companies. The main reason therefore is a difference in risk comparing with larger, listed companiesand less liquidity of shares. On average a 20% discount is realistic when used for valuing mid-market companies.

Company Date Market Cap Enterprise Value (EV) EV / Revenue EV / EBITDA

WPP plc (WPPGY) 20-Oct 28,82 $billion 33,88 $billion 1,84x 9,59x

Omnicom Group Inc. (OMC) 20-Oct 17,55 $billion 20,71 $billion 1,36x 9,26x

Publicis Groupe SA (PUB.PA) 20-Oct 13,25 €billion 16,05 €billion 1,90x 10,37x

The Interpublic Group of Companies,

Inc. (IPG)20-Oct 8,78 $billion 10,15 $billion 1,34x 10,27x

Havas (HAV.PA) 20-Oct 3,21 €billion 3,30 €billion 1,62x 10,02x


TYPICAL DEAL STRUCTURE FOR LOCAL PLAYERS

The buyers all use more or less the same deal structure for smaller ‘local’ acquisitions..

Long earn-out periods for ‘local’ players of limited size

TRANSACTION Year Ending December 31st

2015 2016 2017 2018 2019 2020

Net profit 2.070 2.381 2.559 2.733 2.916

Multiple 7,00x 7,50x 7,50x 7,50x 7,50x

Implied Value 14.490 17.854 19.193 20.495 21.867

% of Value Paid 60,0% 70,0% 80,0% 90,0% 100,0%

Payment Potential Value 8.694 12.498 15.354 18.445 21.867

-/- already paid -3.250 -12.498 -15.354 -18.445

To pay in this year 3.250 9.248 2.857 3.091 3.422

Total 21.867

(of which earned by the company) 15.474

(EUR in 000)

INCOME STATEMENTSAMPLE BV

Year Ending December 31st

2014A 2015E 2016E 2017E 2018E 2019E 2020E

Revenue 7.200 8.280 9.522 10.950 12.319 13.859 15.245Growth 15,0% 15,0% 15,0% 12,5% 12,5% 10,0%

Net profit 1.800 2.070 2.381 2.738 3.080 3.465 3.811 Margin 25,0% 25,0% 25,0% 25,0% 25,0% 25,0% 25,0%

<5% >5%<10% >10%<15% >15%<20% >20%<25% >25%

<7.5% 5,00x 5,00x 5,25x 5,50x 5,50x 5,75x

≥7.5% and <15%5,25x 5,50x 6,00x 6,25x 6,50x 6,75x

≥15% and <25%5,50x 6,00x 6,50x 7,00x 7,50x 8,00x

≥25% 6,50x 7,00x 7,50x 8,00x 8,50x 9,00x

CAGR Growth rate

Marg

in


TYPICAL DEAL STRUCTURE FOR LARGER TARGETS

… but they tend to deviate if the targets is larger / international

Long earn-out periods for ‘local’ players of limited size

- For larger, ‘strategic’ assets pricing is substantial higher

- The price compared to own trading multiples is explained using (cost) synergies

0.0

5.0

10.0

15.0

20.0

25.0

30.0

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Multiples, Margins & Size

0.0

5.0

10.0

15.0

20.0

25.0

30.0

EBITDA Multiples


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MAIN INDUSTRY BUYERS


ALTERNATIVE INDUSTRY BUYERS

Alternative buyers

So the main big buyers in this industry are the 5 biggest Advertising holding companies. What we’ve seen

before too though, is that these are not the only buyers in the industry, especially within the last years.

Who are these other the buyers (17% of the buyers)?

� Customers nowadays can move to a competitor more quickly and easily than ever and many products are becoming price-driven goods. This means that

customer experience is becoming vital to retain customers and companies with best customer experience will be winners. Digital agencies manage and create

customer experience, this is where the interest from ‘alternative’ buyers for digital agencies begins. Secondly, customers are becoming more independent,

meaning they investigate more their selves and they are buying products later on in the sales cycle. Again, companies that can control the (online) sales funnel,

digital agencies, are becoming increasingly important.

� Analysing this group of alternative buyers, we see increasing interest in digital agencies from: (i) IT services / consulting companies, (ii) Adtech companies, (iii)

Big data companies, (iv) Large software companies and (v) ‘other’ IT companies. Besides, advertising companies who don’t have a digital department yet are

buyers, as digital will play an important role in the future of the industry.

� Aside from Havas, also within this 17% group (17,3%), over the last couple of years several ‘alternative’ buyers have blend themselves into the

world of digital agencies. Recently, IT Service company Cognizant bought interactive marketing firm Cadient, Ensighten acquired marketing

analytics firm Anametrix and Alliance Data has acquired Conversant, a digital marketer. And these are just some of the examples.

Source: http://venturebeat.com/2014/11/13/why-digital-marketing-companies-have-become-tasty-acquisitions/; http://adage.com/article/digital/datacenter-agency-report-2015-charts/298214/; Headwaters Internet Advertisement update 2014Q2

…

Alternative example buyers

IT Services / Consulting companies

Adtech companies Big data companiesLarge software

companiesIT Other


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INDUSTRY TRACK RECORD (1/3)

A strong industry experience

� Expand Online has merged with TamTam. Expand Online is an onlinemarketing agency specialised inoptimised online campaigns via searchengine marketing, display and webanalytics. Tam Tam is a full servicedigital agency.

� DQ&A Media Group merged withIncuBeta. DQ&A Media Group is ahighly innovative specialist in digitaladvertising technologies. IncuBeta is aglobal leading provider of digitaladvertising services and mediasolutions.

� Social1nfluencers has been partly soldto SBS/Sanoma. Social1nfluencers is anetwork of popular videographers,especially among teenagers

� IPG Mediabrands owned by US based Interpublic Group acquired Traffic4U. Traffic4U is a digital marketing agency focused on search engine optimization, search advertising and conversion rate with a market leading position in the Netherlands




� Tiin Capital and PPM Oost invested in Informaat CXP. Informaat CXP will use these funds to further develop CXP and to roll-out the company internationally.

� Informaat CXP is a Customer Experience Platform that allows companies to service customers across all possible touch points.

� IPG Mediabrands owned by US based Interpublic Group acquired bGenius. bGenius is a bid management software company servicing online marketers to optimize and manage campaigns in different search engines in one system.

� PPM Oost invested in Service2Media. This investment will strengthen Service2Media’s position and help to expand their business. It will be used by Service2Media’s R&D team to bring the App Lifecycle Platform™ – M2Active to the next level.

� Service2Media is a developer of a (mobile)app platform allowing creation and running of (mobile) apps.

� Netsociety is acquired by Aegis Media, the UK communication and media company. Aegis will integrate Netsocietywith its Dutch based subsidiary iProspect, provider of leading digital performance marketing solutions.

� Netsociety is a leading Dutch online media company.




� IceMobile merged with Brandloyalty, the globally active, leading consumer loyalty company.

� Icemobile is a developer of mobile applications, including leading brand applications for Ahold (Appie) and ABN AMRO, and Sara Lee (Douwe Egberts).

� Videostrip is acquired by RTL Nederland, the Dutch subsidiary of leading European audiovisual group. Videostrip’s technology and relationships with advertisers enables RTL to monetize its premium content online.

� Videostrip is the largest Dutch multimedia video advertising network.

� Cleafs was acquired by Affilinet, the leading European affiliate network active in 7 countries in Europe, serving over 2000 affiliate programs. Affilinet is part of German listed United Internet AG.

� Cleafs is the leading affiliate advertising network in the Netherlands, specialized in travel, ticketing, parking, living and fashion.

� Private Plus Fund (Newion Investments) and PTV invested in Service2Media.

� Service2Media is a developer of a (mobile)app platform allowing creation and running of (mobile) apps.


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75008 Paris

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T +33 (0)14 824 63 00

‘s-Hertogenbosch

Europalaan 6

5232 BC ‘s-Hertogenbosch

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T +31(0)73 623 87 74

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1216 CG Hilversum

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Lyngsø Alle 3

2970 Hoersholm

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T +45 20 433 373

The Dutch Digital agencies landscape

Economy & Finance

Transcript of The Dutch Digital agencies landscape