Digital Agency Landscape Report

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
pim.mulder@capitalmind.com
’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
ron.belt@capitalmind.com
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 driven
marketing &
advertising
Media
Exploitation
Search marketing
agencies
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%.
260.2
307.8
344.6
381
0
50
100
150
200
250
300
350
400
450
2011 2012 2013 2014
Revenuein€mln
Year
CAGR2011-2014: 13,6%
14/13 13/12 2014 2013 2012 2014 2013 2012
Digital
agencies
9,2% -1,5% 14,3% 12,6% 13,1% 99,6€ 90,8€ 100,6€
SEO/A
specialists
20,4% 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
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
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
WPP
Publicis
Groupe
Omnicom
Group
Dentsu
Interpublic
Group
Other

CAPITALMIND
MARKET LANDSCAPE
TRANSACTIONS
TRADING MULTIPLES
INDUSTRY BUYERS
INDUSTRY EXPERIENCE

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 companies
and 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 STATEMENT
SAMPLE 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 15.245
Growth 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
Margin

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

CAPITALMIND
MARKET LANDSCAPE
TRANSACTIONS
TRADING MULTIPLES
INDUSTRY BUYERS
INDUSTRY EXPERIENCE

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 companies
Large software
companies
IT Other

CAPITALMIND
MARKET LANDSCAPE
TRANSACTIONS
TRADING MULTIPLES
INDUSTRY BUYERS
INDUSTRY EXPERIENCE

INDUSTRY TRACK RECORD (1/3)
A strong industry experience
Expand Online has merged with Tam
Tam. Expand Online is an online
marketing agency specialised in
optimised online campaigns via search
engine marketing, display and web
analytics. Tam Tam is a full service
digital agency.
DQ&A Media Group merged with
IncuBeta. DQ&A Media Group is a
highly innovative specialist in digital
advertising technologies. IncuBeta is a
global leading provider of digital
advertising services and media
solutions.
Social1nfluencers has been partly sold
to SBS/Sanoma. Social1nfluencers is a
network 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 Netsociety
with 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.

Award winning international corporate finance advice
Germany
India
Italy
Japan
Mexico
Poland
Russia
Singapore
South Africa
Spain
Sweden
Thailand
Turkey
UK
USA
Australia
Benelux
Brazil
Canada
China
Columbia
France
FRANCE BENELUX NORDICS
Paris
62, rue la Boétie
75008 Paris
France
T +33 (0)14 824 63 00
‘s-Hertogenbosch
Europalaan 6
5232 BC ‘s-Hertogenbosch
The Netherlands
T +31(0)73 623 87 74
Amsterdam
Vreelandseweg 7
1216 CG Hilversum
The Netherlands
T +31 (0)35 624 43 41
Copenhagen
Lyngsø Alle 3
2970 Hoersholm
Denmark
T +45 20 433 373

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