$137.8B U.S. ad spend for top 200 advertisers
Chicago-based private equity firm Lake Capital wants to build an agency-services holding company, starting with the acquisition of London-based agency network Engine Group, whose portfolio includes Deep Focus, Noise and others.
"Our thesis is that pre- and post- the Omnicom-Publicis merger and lack of completion, there's a real opportunity to create a middle-market player in the space," said Lake Capital Co-founder Terry Graunke. He said the group considers mid-market to be an operation with $500 million to $2 billion in revenue.
The private equity firm plans to roll up its entertainment shop Trailer Park and research entity ORC under the Engine Group umbrella, then spend the next 18 months completing other agency deals to grow the Engine portfolio across three categories: business intelligence and data, creative services and digital content.
"When you look at Trailer Park combined with Deep Focus, that creates a huge digital content play," said Mr. Graunke.
Engine declined to comment prior to a formal announcement. Lake declined to discuss specific terms of the deal, but said it expects to complete the transaction in the next couple of weeks.
Engine Group reported worldwide revenue of $156.6 million in 2013, up 10.7% from 2012. International agency operations accounted for $126.9 million, while non-U.S. business comprised just $29.7 million.
The new Engine Group, including Trailer Park and ORC, will have combined revenue of north of $400 million.
Engine has been expanding in recent years, acquiring U.S.-based shops including digital agency Deep Focus and creative agency Noise in 2010. That was aided by a $50.3 million investment from Miami private equity firm H.I.G. Capital, which received a 38% stake in exchange.
In 2011, Engine purchased Mischief PR and production firm Fantastic Thinking in the U.K. as well as Identica Shanghai, later renamed Calling Brands. More recently, Engine bought youth-marketing shop The Intelligence Group from Creative Arts Agency and merged it into Noise.
The agency group was started by Chairman and Group CEO Peter Scott, whose 2004 management buyout of Havas-owned London ad agency WCRS led to the creation of Engine the following year. Mr. Scott was a co-founder of Wight Collins Rutherford Scott in 1979, helping to lead a stock offering in 1983 and then a repositioning as Aegis Group, a U.K.-based media-agency. He stayed on as Aegis chairman-CEO until 1992.
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Lake Capital currently manages more than $1.3 billion in equity commitments, touting investments like Trailer Park, ORC International, management consultant WBB, media company Viamedia and a minority stake in U.K.-based agency group Huntsworth.
"We typically allocate $50-75 million of equity to each of a number of initiatives to build leading business services enterprises through organic and acquisition-enhanced growth," the company says on its site.
The deal did not happen overnight. "I've known Peter Scott, the CEO of Engine, socially," said Mr. Graunke. "We looked at trying to help them originally try to buy WCRS out of Havas 8 to 10 years ago," he recalled. "He ended up eventually getting it done and partnering with H.I.G. So we were not part of that transaction."
Mr. Scott eventually began looking for alternative funding sources, leading to contact with Lake Capital about a year ago, Mr. Graunke said. "We've been working on it steadily ever since then."