U.K. performance marketing agency Brainlabs said early on Tuesday it’s acquiring U.S. digital agency Hanapin. It’s the latest example of how newer agencies are also becoming dealmakers in the agency industry, where for a time legacy advertising holding companies were the dominant merger participants.
The terms of the deal were not disclosed. A source familiar with the matter said the deal’s value is in the low double-digit millions.
Last year Brainlabs sold a 40% stake in its business to private equity firm Livingbridge. Brainlabs CEO Daniel Gilbert said on Monday this maneuver gave Brainlabs more firepower to make acquisitions. (Earlier this month Brainlabs said it plans to acquire London-based search engine optimization agency Distilled.)
Over the next three to four years Brainlabs intends to make 10 to 15 acquisitions — all of them aimed at extending its international reach and building on its digital services capabilities, Gilbert said.
While Brainlabs has a very small share of the total marketing-services agency market, “on a 30-year view we want to build the biggest and best advertising agency in the world,” he added.
The new acquisition will help Brainlabs extend its reach in the U.S., where Hanapin’s 70-person staff works for clients including NPR, Icelandair and IBM’s The Weather Company on paid search, paid social media and programmatic advertising.
Hanapin recorded $8.6 million in revenue in 2018, per a Inc. 5000 profile. The company has been profitable each year since it was founded in 2004, said Hanapin president Jeff Allen.
Brainlabs generated £1.7 million ($2.2 million) in profit on revenue of £15.7 million ($20.3 million), according to its most recent filings, for the fiscal year that ended March 31, 2018. The company had 121 employees that year, according to the filings, but Brainlabs said that it expects its head count to reach 350 once the Hanapin deal closes.
Hanapin also owns the digital marketing conference Hero Conf, which puts on two annual events, in London and Austin, Texas, and publishes the industry blog PPC Hero. Once the sale is complete, the publication and conference will be operated separately from the agency business, Brainlabs said.
Last year Hanapin executives began exploring a sale of their company and had discussed the matter with other businesses, primarily technology firms in search of an ad services operation, Allen said. But “nobody scratched the itch for us,” he noted. Brainlabs is a good fit for Hanapin as its clients are desiring more of an international reach and enhanced service offerings, such as analytics and search, social media and programmatic advertising, he added.
Last year, 1,104 mergers and acquisitions took place in the marketing services industry around the world, according to Capital IQ and JEGI Clarity research. Traditional global advertising networks represented a smaller proportion of those deals in 2019 — just 3% as compared to 9% in 2016. Global networks announced just 31 such transactions in 2019, 47% fewer than in 2018.
Independent marketing services businesses have become warier of striking deals with agency holding companies, which have struggled to post organic revenue growth in recent years amid the advertising industry’s shift to more digital marketing, said Simon Nicholls, a partner at advisory and investment firm GP Bullhound. (Organic revenue growth is a closely watched metric in the advertising industry, which strips out currency effects, acquisitions and disposals.) Nicholls’ firm served as a financial adviser to digital services agency Jellyfish when it took investment from French holding company Fimalac in November last year. Also in November, GP Bullhound also advised Croud, another digital marketing services agency, when it received investment from private equity firm LDC.
“Independent entrepreneurs are always nervous about the impact [an acquisition] will have on their culture, autonomy, independence, etc. That’s not new,” Nicholls said. When traditional agency networks “were doing well, the benefits of joining them outweighed that disadvantage.” He added, “When they’re not doing that well … they are probably viewed with a little more concern.”
Investment bank Garros Group advised Hanapin on the Brainlabs acquisition. And a mix of law firms and financial firms including Cooley, PwC and Fairgrove advised Brainlabs on the deal.
This article has been updated to correct the list of companies that advised Brainlabs on the deal. A previous version used information from an incorrect list that was supplied by a Brainlabs representative.