To Merge, or Not to Merge

Opportunity

HyperDrive is a successful digital marketing firm, operating since 2001 with a wide client base that reaches across many industries. 

FanMail, a digital marketing firm started in 2004 focuses exclusively on performance-driven marketing for the music and entertainment industries, also quite successfully.

While these two agencies operate independently, with their own set of employees and clients, they have shared owners. 

FanMail is hyper-focused, well-established, and highly regarded in the music and entertainment industry. Their employees love working with the clients, some of the largest music and entertainment talent in the world. As a result, many of the employees work for less than market rates because of this experience.

In addition to high employee and client satisfaction, FanMail had spectacular margins - double industry average. They also had enormous potential for growth.

HyperDrive, a generalist digital agency, was experiencing volatile growth. They have exceptional talent and solid clients but were beginning to compare the growth potential of the two agencies.

There was potential to build a long lasting, stable business at HyerDrive. But the growth here was significantly less than the potential growth happening at FanMail.

Could merging the two entities unlock latent value or would it cause chaos?

If it did unlock additional value, just how much would the newly combined company improve?

Would it impact the bottom line, and how painful could that be?

Dan, the primary owner, was ready for answers and turned to us for help. He was familiar with our research and knew we would have unique insights that would be valuable in assessing his situation. So, we jumped in and got started!

Solution

Agency industry: We analyzed their various agency metrics in context with what we’ve learned through our primary research of 65k+ U.S. digital agencies. This allowed us to instantly spot weak points and guided our interviews and surveys.

End market industries: We sourced secondary industry research pertaining to the music and entertainment industry to better understand the trends affecting FanMail. As HyperDrive was a more generalist agency, we sourced high-level multi-industry data on digital marketing. With this, we were able to provide leadership with a good understanding of the markets they were operating in.

This research provided a strong foundation for leadership to evaluate their options.

Leadership and management interviews: We needed to establish a baseline understanding of the situation. From there, we would be able to perform a scenario analysis and model out the expected financial future of each option.

To establish that source of truth, we hosted individual interviews with leadership and management from both agencies. These gave us incredible insight into how individual managers thought and felt about each company. This process allows us to uncover the potential risks and benefits of merging. The nature of the interview process allowed us to identify and then delve deeper on topics that came up during them.

These personal interviews gave invaluable insight that assisted in the final assessment.

Employee surveys: Once we had a good grasp of the situation from the leadership and management standpoint, we were able to craft targeted surveys for employees to gain deeper insights into how the companies operated.

These surveys gave us a complete view into the operations and general sentiment of the agency employees. With this information, we gathered a much deeper, inside look into each agency.

Benchmarking, financial analysis, and modeling: As the interviews and surveys were being conducted, we built out a full financial model of each company and benchmarked them against our industry averages for 16 core agency metrics.

We were then able to fine-tune the model based on the information uncovered in the interviews and surveys.

This let leadership understand how various decisions could impact the value of their agencies.

4.2x

Revenue Growth Rate

5.2x

Net Income Improvement