Inside the indie agency debate—private equity money is causing a stir

It seems like every agency wants to be an independent agency these days. Many brands are increasingly turning to creative indie shops as they build out agency rosters and continue to move more data and analytics work in-house. Marketers are also looking to move quickly and work directly with senior executives, and they’re finding answers to those needs with indies, according to Simone Oppenheimer Mandel, co-founder of marketing growth consultancy NBZ Partner. “It’s the year of the indie,” she said. Ad Age Small Agency Awards Showcase your agency’s creativity, business success and commitment to a thriving workplace. Enter today As demand for their services grow, many of these agencies are turning to outside capital to help them scale. Shops including Highdive and BarkleyOKRP have inked deals with private equity firms—each selling a different stake in their business. Earlier this year, R/GA left the Interpublic Group of Cos.’ fold in a management buyout backed by a private equity firm. These agencies have continued to label themselves as independent following their moves, which has drawn the ire of some of their counterparts that remain wholly owned by their founders. “The definition of being independent is owning yourself,” said one independent agency executive who spoke on the condition of anonymity. “In no other industry in the U.S. economy do people sell their company to private equity or a global company and then walk around saying they’re independent. That would be insane.” The definition isn’t quite so crystal clear. Independence traditionally has referred to ownership, but it appears the industry has revised or broadened the definition to focus on autonomy, said Jay Pattisall, VP and principal analyst at Forrester. “Businesses that have private equity backing but retain autonomy of their decisions and strategy now claim independence,” he said. Some believe that independence means being privately held and not part of a holding company, while others claim it’s about a specific type of mindset and attitude rather than who owns a majority stake. And all of the confusion is sparking another question: Does the definition even matter? The arguments For Highdive, independence boils down to operational control of the agency, which it claims to have with Svoboda Capital, the PE firm that last year made a significant investment in the Chicago shop. Highdive declined to disclose the percentage of Svoboda’s stake. Svoboda has played an advisory role rather than a directive one, according to Highdive CEO Megan Lally. Along with some independent executives, Highdive and Svoboda have formed a board of directors that meets quarterly, discussing the business and “how things are going,” Lally said. She added that Svoboda and the independent board directors aren’t making the “final decisions.” “We partnered with Svoboda for financial support, not to … run the agency,” Lally said. R/GA has touted its return to independence following its divestment from IPG, in which private equity Truelink Capital took a majority stake in the business. The digital agency declined an interview for this story; in a statement, an R/GA spokesperson framed independence as operational autonomy. “As a privately owned company once again, we’re excited about the benefits this new independence and autonomy brings,” the spokesperson said. “We see being independent as an opportunity to be unburdened by the restrictions and overheads of traditional corporate structures and the ability it gives us to implement the right agency model to better serve our clients.” Few PE-backed agencies, however, have “complete autonomy,” said Pattisall, adding that investors always “apply pressure and direction for growth.” In that regard, PE-backed firms’ “characterization as an independent agency is somewhat misleading,” he added. “What agency leaders are actually referring to is an independent mindset that has carried over from their founding into rounds of investment,” he said. “While these companies can retain an independent spirit, it’s not the same as autonomy of decisions and strategy.” Recent news: McCann and Saatchi vets launch House of Rabbits The level of input an outside entity such as a PE firm has on a day-to-day basis depends on the operating agreement, said Lori Murphree, managing partner at Evalla Advisors, a company that advises on M&A. Legally, however, “if you have 51% you’re in control,” Murphree added. Keystone Capital, which owns a slight majority in BarkleyOKRP, largely leaves daily management to the agency’s leadership team, according to Jeff King, CEO of the shop that positions itself as a “Big Indie.” The PE firm does, however, work closely with the agency on M&A opportunities—it was Keystone, in fact, that brought the idea of the merger to Barkley and OKRP after investing in the former in September 2022. “They’re involved in those discussions because they have a really good point of view,” King said. “They really help in that area because they have a high level of expertise that we don’t.” While there does appear to be an evolution in private equity, with more firms willing to act as silent investors, most won’t sit idly by should the performance of their portfolio companies begin to drop, said Hasan Ramusevic, CEO of marketing consultancy Hasan + Shumaker. “Their first instinct is to tighten the grip rather than invest,” he said. Agency Review Tracker Stay up to date with the latest account reviews Click here King said that Keystone Capital could, in theory, overrule BarkleyOKRP’s leadership on decisions. But, “to me, that doesn’t mean we’re not independent,” he said. “It means that we have a shareholder that has a say in the business, just like any private company that has shareholders.” Not everyone shares that opinion. Some argue that when outside investors fund an agency their focus is on profitability, sometimes at the expense of how the work is done. “If you are partly or totally owned by private equity, you report to them, and they have a financial objective,” said Serge Rancourt, co-founder of The Grid and Mischief @ No Fixed Address. “They don’t invest in advertising because they love the advertising business.” “It’s pretty simple. As soon as you have an outside investor, even if it’s $10, you’re no longer independent,” added Greg Hahn, chief creative officer and co-founder of Mischief. “You owe somebody something in exchange for that $10.” Addressing alternative models Mischief is part of an alternative holding company model called The Grid, an entity that houses creative agencies such as Mischief, No Fixed Address, Courage and specialty shops including No Fixed Address Health. The Grid provides HR, IT, financial and other backend support to its agencies, which operate independently. Mischief maintains it’s independent because it doesn’t pay or run money back up to The Grid, as a holding company agency would do for its owner. The Grid is co-owned by Rancourt and Dave Lafond, who also co-own Mischief, Courage, No Fixed Address and No Fixed Address Health along with their respective founders and partners. “The Grid does not dictate terms, set targets or govern its agencies. It is a not-for-profit entity,” a Mischief spokesperson said in a statement. “These agencies are not in service of The Grid. Instead, The Grid is in service of its agencies.” Also: Why talent might find more job opportunities with marketers An evolving arena? The traditional distinction between independent agencies and holding companies no longer fully captures today’s industry landscape, some agency leaders said. Historically, indies were simply those not owned by major holding companies such as WPP or Omnicom Group. However, new forces—including PE firms and digital consultancies—have created a third category, said Dooley Tombras, president of family-owned Knoxville, Tennessee-based Tombras. “Maybe it’s time to reframe the landscape,” Tombras said. A second indie agency executive who spoke on the condition of anonymity said agencies’ various methods of scaling don’t mean they’re any less independent, as long as they still have autonomy to make key decisions. Every shop “takes help from someone in some form,” whether that’s dipping into a line of credit, outsourcing different services or working with freelancers, this person said. “I don’t know that it’s a realistic expectation that independent agencies, especially small ones, can actually do every single thing on their own,” this executive told Ad Age. Some executives suggest rethinking the concept entirely. “Independents, regardless of their ownership, are uniquely different from holding companies,” King said. “And in my opinion, the influx of PE capital, along with the strategic and financial expertise that comes with it, is making independents more sophisticated and competitive.” “What we call it seems less important to me than the fact that there is an emerging model seeing success in the industry,” he added.

Inside the indie agency debate—private equity money is causing a stir

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