The Stagwell Group acquires Forward3D and is hungry for more: An interview with Mark Penn and Jay Leveton

At the back end of 2017, The Stagwell Group acquired the UK’s largest independent digital agency Forward3D in what was its first deal outside of North America. This acquisition was number 15 in Stagwell’s portfolio, having only been founded two and a half years ago and the objective is to get to 30 in the next two years. We caught up with Stagwell’s Mark Penn, one of the biggest names in the industry and hot on the heels of publishing his latest book MicroTrends Squared, and Jay Leveton to discuss amongst other things the origins and vision of Stagwell and what they look at when appraising M&A opportunities.

What are the origins of Stagwell and overall vision of the group?

Mark Penn says – The origins are really 40 years of experience I had founding my own company, growing it, becoming part of WPP and being on the client side. I thought well ok when you look today and ask are there any digital first holding companies or funds, no, and so I tried to take the experience I had in marketing services and technology and put it together and create Stagwell, the very first investment vehicle for digital marketing services companies.

Jay Leveton says – We wanted to set-up an alternative to what we saw as existing models of investments out there by PE firms that in our view didn’t have much experience in marketing services and/or the holding companies that we see as becoming increasingly bureaucratic.Also, many of the holding companies’ models are built on talent retirement, as opposed to talent growth and we wanted to offer a home for younger, ambitious CEO’s who are not yet ready for retirement – this is a very big differentiator for us.

Mark Penn says – In terms of vision, it is to continue to grow and build the world’s premier digital-first marketing fund and I think we are half way on the road to doing just that. We have come from nothing two and a half years ago to 15 investments and a portfolio of companies doing hundreds of millions of dollars of revenue and I think we have got to scale in the US. The plan is to continue to invest in the new areas of marketing services and sciences and then also to broaden it out geographically.

Tell us about what attracted you to Forward3D and why now to make your first big steps into Europe?

Firstly, we genuinely believe there is good growth in the performance marketing space. Google continues to grow 15-20% a year, which means that I think clients are shifting money into the core Forward3D areas. I came over and met with Forward3D management and they appeared to have an excellent grasp of the digital world and the fact that they also have been able to sufficiently globalise their offering was also quite attractive.

We already had a really critical mass of performance marketing in the US through PMX and Forward3D gave us that entry point in Europe as well as APAC and the combination enables us to better serve our global clients. It was always our plan that once we got to a reasonable scale in the US that the UK would be our next stop, and this is probably how it will remain for a while with North America as our core area of focus and the UK the other geography of interest.

So Brexit has not put you off?

Not really and I was curious that the only growth area of WPP was in the UK so it’s very hard to separate the actual economic reality from hype. Anyway, we are bullish on the UK.

Moving onto future acquisition targets, what are you evaluating when you are appraising opportunities and where are your vertical areas of focus?

Our primary emphasis is on marketing services that are digital or online in nature and have a programmatic component to their offering. We look at the marketing wheel and we try to cover one or two of the key players in each area and right now we are a little weaker in B2B having really ramped up our B2C capabilities.

We look for great management teams and think to ourselves, “Are these guys skilled professionals with genuine sector expertise? Have they been through ups and downs and come through even stronger? And do they have what it takes to both build and lead a team?”

Scale is also important to us. We want to know that the company has strong processes in place, with a number of A-list clients and the capability to grow further and that it is not just a few people who have a handful of accounts. US $30 million is a revenue target for us but that is not to say that we would not look at exciting businesses in a hot space generating less than that.

How do you like to structure deals?

We like to structure deals so that the management team has a strong incentive to continue to grow the business – that is our primary interest. We have a lot of different ways of doing this, but we generally look to have a majority interest in the company and have a management team that is highly motivated for success.

Post-acquisition, what is the integration process and how do you add real value?

Companies remain on their own with their own culture and coming into the office looks exactly the same as the day before. The biggest integration element is probably adopting common accounting.

In terms of adding value, we bring an understanding of what people are going through and what they need to do to get to the next step. You have to look at building these businesses as climbing a mountain and we’re many times acquiring them halfway up their journey.

I think what we try to do is give them the tools to complete that journey. Collaboration between our portfolio companies is also key to this. We have quarterly meetings with everyone and socialise these in our network during that period and actively encourage collaboration in both new business and into existing accounts. As we grow we will likely set-up a central group whose sole function is to create group accounts.

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