Leveraged Re-Branding: What AEA Investors’ $68MM Investment In Brand Networks Is A Really Big Deal For Private Equity

In an era where private equity is STILL trying to tell its story, AEA’s investment into digital marketing firm Brand Networks is a step in the right direction.

Yesterday, AEA Investors, one of the original LBO shops, put a $68 million investment into digital marketing firm Brand Networks. The firm counts American Express, Starwood Hotels, and Starbucks as its clients.


The news made its way around the news cycle group, and while it’s obviously a great win for Brand Networks, it’s an even bigger win for AEA Investors and private equity.

Why?

Because in this day in age where social media marketing is hitting its stride, we could see more PE shops focusing on providing growth capital to rising stars within the consumer-focused and consumer-visible sectors.

Let’s take a look at the investment details what’s in it for AEA and PE down the road.

AEA’s board nominations


According to the deal:

Two partners from AEA will be joining Brand Networks’ Board of Directors. Additionally, AEA has appointed Kurt Holstein as an independent board member. Holstein is a former P&G executive and co-founder and COO of interactive marketing agency Rosetta, which sold to Publicis for $575 million in 2011.

AEA’s only taking a minority stake in Brand Networks, but what one of PE’s strengths is its ability to bring in seasoned executives. In a time when limited partners are pushing private equity firms to bring in outside help fro day-to-day operations, AEA captures the dual effect of having Holstein, who understands both the large scale consumer network and taking digital marketing into a larger level.

Via pehub.com

Kirk Holstein = The Man In the Middle


AdWeek got some great info from Kirk Holstein (the former P&G and Rosetta exec joining as independent director) on why AEA put in a massive amount of capital:

At any rate, AEA board member Kurt Holstein explained why this business—out of a herd of alike companies—drew such an eye-opening dollar figure. Interestingly, his 45-year-old private equity firm doesn’t have much of a history when it comes to putting big money into tech. And that fact seems to put Holstein front-and-center in this play, as he has had executive positions on the agency and brand side of things, helping lead digital shop Rosetta and Procter & Gamble during his 31-year career.
“The world doesn’t need another self-service-only [software-as-service] vendor for social marketing,” he said in a statement. “We’ve spent more than a year looking for the right technology-enabled marketing platform to invest behind. We believe Brand Networks has what it takes to create a new standard within the crowded social marketing ecosystem: a powerful combination of best-of-breed software and client-focused services that enable large companies to benefit from social marketing at scale.”

Chris Heine is absolutely correct. AEA has always focused on manufacturing-focused companies; its $2.5 billion fifth fund has been making moves in oil and gas recently, and while the Brand Networks deal probably falls within the Small Business fund, with a few exceptions, it’s still manufacturing and industrials-focused.

This trend of having the right executive leading the deal versus the private equity firm’s deal team has been happening much more recently, from Del Monte and J. Crew to Hooters and, well, Dell.

Via adweek.com

Continuing Jamie Tedford’s growth dreams


Brand Networks’s CEO Jamie Tedford (who build up his marketing career in Arnold Worldwide as an ad executive and is known for his strengths in word-of-mouth marketing) built the company in 2006, partnering with technology entrepreneur Mike Garsin (also a founding partner and the CTO with the goal of “bringing the agency and technology worlds together.” The fact that within 7 short years Brand Networks became one of very few companies (13 to be exact) to receive all four Preferred Marketing Developer (“PMD”) badges from Facebook and that Tedford knows there’s still room to grow means getting the right investment means a lot:

Tedford said that with all the activity in social marketing — particularly all the big acquisitions — Brand Networks was left as one of the last big independents. As a result, he’s been getting a lot of interest from both potential acquirers and potential investors.
“We very quickly determined that we feel, to steal a phrase from Facebook, that we’re only 1 percent finished,” Tedford said. So the team decided to take on a big investment in order to pursue the larger opportunity, which includes expanding globally while continuing to improve the product. Brand Networks’ continued independence will provide a competitive advantage, Tedford added, because it can “go deeper with a smaller set of customers, versus to build a one-size-fits-all solution for big, medium and small markets.”

Via techcrunch.com

“Developed Company VC Funding”


As Jaime and others have been mentioning, Brand Networks has been focused on bootstrapping in terms of investments along its 7 year history. To get a massive growth capital injection solely from AEA shows that the PE firm is dedicated to helping the social marketing firm grow.
Private equity has had many troubles showing the general public that it does care about providing growth capital (its main lobbying group, the Private Equity Growth Capital Council added the words “Growth Capital” to its full title in 2011 and replaced its CEO) to companies that are rising stars within their respective sectors. If AEA can build up a positive relationship with Brand Networks the way that TSG Consumer Partners has done with and how KKR (yes, KKR) through Weld North has done with Organic Avenue, or even how Watermill Group runs its social media operations, the sky’s the limit.

Who knows, maybe AEA is taking a stake in Brand Networks to help private equity fix its social media marketing problem!

Who knows, maybe AEA is taking a stake in Brand Networks to help private equity fix its social media marketing problem!


(Kidding, obviously.)

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