Digital Marketing Company for Sale

Stagwell buys out digital agency Instrument

Stagwell buys out digital agency Instrument
Written by publishing team

The holding company said Wednesday that Stagwell Group is buying the remaining 49% independent stake it does not hold in the digital transformation agency Instrument. The deal includes a fixed payment spread out over a three-year period split between cash and equity. Terms were not disclosed.

Portland-based Instrument sold a 51% majority stake to MDC Partners in 2018. The digital transformation agency started as a two-person web design store in Vermont and now conducts digital transformation, direct-to-consumer experiences, and multiple customer channels.

Since 2006, the agency has grown at an average rate of approximately 30% per year, said co-founder and CEO Justin Lewis. Instrument Nike, Google, Salesforce, and Epic Games are among its list of clients.

The instrument’s previous deal structure with MDC Partners, which Stagwell merged with in August, included an unlimited seven-year profit period. Now, the tool is wholly owned by Stagwell, and the deal was structured with incentives tied to the holding company’s share price, as opposed to the agency’s individual performance.

“We aligned our efforts with those of Stagwell,” Lewis said. “We had a more traditional earning program before that was very much about maximizing your finances.”

The creation of joint financial incentives has been an increasing focus of holding companies, from which customers are increasingly required to provide integrated services. However, this is often difficult to achieve when agencies are driven solely by their financial performance.

“It’s a daily conflict of interest to be a partially owned agency in a holding company,” Lewis said. “In the previous deal, the stock price wasn’t paid for by all of us; we were focusing on ourselves.”

While giving up unearned gain may be a personal sacrifice for Instrument’s executive team, it creates more stability for both the agency and the parent company, while delivering more value to investors. Lewis explained that agency founders are often motivated to achieve unsustainable growth at all costs to achieve the best selling price, based on unlimited gains.

“It creates a great deal of responsibility for the parent company,” he said. It can also create a real illusion of growth beyond what is sustainable. We’ve seen these backfires many times in other holding companies. We chose stability for everyone in return for putting more dollars in our pockets.”

The machine is already beginning to feel the shift of its impulse. For example, Lewis is training his sister agency Stagwell on a large customer presentation that can be shared with Instrument.

“when we were [owned by] MDC, Culture was a bunch of cool agencies that didn’t really care about each other’s performance. There was no interagency collaboration,” he said. “If I were to put in a show against one of those agencies, I would have won. Now, I’m immediately like, “The greater good is more important to me.”

With the catalyst for collaboration, cutting Stagwell’s digital transformation can help create more defensive barriers around it. [client] Lewis said. “We do a lot of strategic work around DTC offerings and omnichannel experiences. These digital services are more relevant than ever.”

The tool is the latest MDC portfolio agency to restructure its agreement with Stagwell.

While Lewis and his executive team are entitled to receive the flat fee from the deal regardless of the cause, the motivation to stay and chart the next phase of the tool’s growth under Stagwell is strong.

“It’s very rare that you can create a platform that entrepreneurs want to be a part of after they earn a profit,” he said. “I’ve bought. We’re going to grow this thing and we’re going to be great in the market.”

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