Advantage Solutions Inc.’s initial public offering filing provides a glimpse into the Irvine-based company’s strategy of growth through acquisition of complementary sales and marketing businesses—it spent about $566 million on 39 deals in the past three years.
The approach has “dramatically” expanded its capabilities in digital marketing, and extended its sales services into e-commerce and its reach into international markets.
It has also bolstered the company’s bottom line—Advantage Solutions’ revenue last year was up 10.8% to $2.1 billion, with 11 acquired companies contributing 43% of the $205.1 million increase.
The revenue uptick stemming from new deals was even greater in 2015, when it spent $180.6 million on 10 sales agencies and two marketing firms. About 85% of the $181 million annual revenue growth to $1.89 billion was attributed to the acquisitions, according to documents it filed with the Securities and Exchange Commission on May 4.
The shopping spree dates back to 2014, when Advantage Solutions picked up 11 companies for about $185 million, and it has continued this year with six deals totaling $40.6 million so far and more to come.
Growth is financed “through cash flows from operations,” “long-term debt” or borrowings “under lines of credit when necessary to execute acquisitions,” according to the SEC filings. The company said it plans to use the IPO proceeds to repay a portion of its $760 million second term loan.
Its total debt is $2.74 billion and includes $1.8 billion used to finance its $4.2 billion sale in 2014 to Los Angeles-based private equity firm Leonard Green & Partners LP and CVC Capital Partners in Luxembourg.
New York-based rating agency Moody’s Investors Service last month—prior to the IPO announcement—issued a credit opinion that said the debt will be hard to reduce.
“While we anticipate earnings growth, the company’s strategy of growth through acquisition will likely limit the use of free cash flow for any meaningful future debt reduction,” it said.
IPO Plans
Advantage Solutions provides sales, marketing, merchandising and digital technology services to about 2,000 packaged goods manufacturers. Its teams also work with Wal-Mart Stores Inc., Kroger Co., Sam’s West Inc., BJ’s Wholesale Club Inc. and other major retailers.
The company has 120 offices and more than 45,000 employees, 14,000 full time. Its competitors include Acosta Inc. in Jacksonville, Fla., and Crossmark in Plano, Texas, both privately held equity.
Taking the company public was one of the goals Advantage Solutions set when it partnered with CVC and Leonard Green, Chief Executive Tanya Domier wrote in a letter to prospective investors submitted with its SEC filing.
“We believe that after … three chapters of private equity [ownership] the best long-term partners for us will be public shareholders for whom we are excited to create value,” Domier said. “We see growth opportunity through further diversification in services, channels, and geographies as well as ample M&A opportunities.”
Terms of the offering haven’t been disclosed. The company set a placeholder $100 million figure for the IPO. Its stock would be traded on the New York Stock Exchange as ADV.
Sonny’s Vision
Domier’s former boss and a member of the company’s board of directors, Sonny King, founded Advantage Solutions in 1987 after spending three decades at grocery chain Vons and collaborating with sales agencies that served a small number of brands. He “believed there was an opportunity to … become a more significant strategic partner and offer national, rather than just local representation,” and put his retirement savings behind the vision.
The company joined forces with three regional sales brokers to form Advantage Sales and Marketing LLC in 1997 with combined revenue of about $100 million. It added 11 more partners and by 2000 had established a national footprint. It also aligned back-end operations of member companies, which were sharing costs, as well as revenue of about $500 million.
Domier, meanwhile, initiated the marketing division, having joined the company 27 years ago from the J.M. Smucker Co., now an Advantage Solutions client. She took the CEO role in 2013.
A boost came in June 2004 from Washington D.C.-based Allied Capital Corp., which acquired a 75% stake in the consolidated company for $70 million in equity and provided $175 million in debt financing to fund expansion, according to a 2008 report by consultant Consolidation Partners LLC, whose principals include Bob Vesely, Advantage’s chief financial officer from 1996 to 2007.
Allied Capital sold Advantage two years later to Merrill Lynch Global Private Equity and J.W. Childs Associates LP in Boston for “an enterprise value of approximately $1.05 billion,” realizing “a gain on the equity being sold of approximately $415 million.”
Advantage, under the new ownership, further eliminated redundant costs and expanded its marketing business.
“We realized that our intimate knowledge of retailers, combined with our understanding of brand needs from a sales perspective, enabled us to create more effective, shopper-focused marketing promotions as compared to traditional advertising agencies,” Domier said in the letter to investors. “Today, our marketing division delivers over 30% of our enterprise revenues.”
In 2010 London-based Apax Partners LLC acquired majority interest in Advantage for about $1.8 billion. Advantage then reignited its “M&A activity to diversify our offerings,” Domier said, adding that the move “paid off with significant business growth taking us to $1.7 billion in annual revenues.”
CVC and Leonard Green stepped in when Apax cashed out in 2014. The new owners offered “deep industry expertise, ability to make introductions for Advantage domestically and internationally, and shared viewpoint and reputation for investing for growth,” Domier said.
Future
Advantage said it plans to “continue to seek strategically and financially attractive” targets that provide it with “new capabilities and drive long-term stockholder value.”
“We are excited to share our next chapter with public market shareholders,” Domier said. “While we believe that retail will encounter significant change in the coming years, we equally believe that there are many paths to growth that capitalize on the strengths of our platform, technology, and key position as the intermediary between brands, consumers, and both physical and digital retailers.”
