Understanding the nuances of the sector can make investing in the marketing world a lucrative endeavor, if you’re willing to take the risk.
Chief Marketer recently chatted with John Civantos, managing partner of Court Square Capital Partners, who received the Financial Innovator Award from Marketing EDGE earlier this month.
Civantos noted with a laugh that he “kind of stumbled into” the world of marketing. After graduating college, he worked in investment banking, “Then I went to business school and joined a private equity firm, where I worked on several media deals. It’s different but similar to marketing in many ways.”
He got a feel for ad cycles and the ROI of media. When he joined Court Square Capital Partners in 2004, the company was active in the technology sector, but hadn’t cracked the code on business services. Civantos gravitated towards marketing and information, and had success with initial ventures in that area.
“I was lucky to meet the right company, IWCO Direct, an integrated lettershop business, and have a willingness to dig into an area that the investment community hadn’t spent a lot of time with,” he said.
Unlike individuals and organizations that invest in the open market, private equity firms get involved in the companies they invest in. “That’s hard to do if you don’t know the sector,” Civantos noted. “If you threw me into a food business and said ‘help them make money,’ I wouldn’t know where to start.”
Investing in companies that offer a product or service with a recurring need is a more attractive opportunity for investors than something like an agency, he noted. This is because the agency model is built on projects, rather than an ongoing theme.
Many investors are drawn to companies that dominate narrow niches in the marketplace. “That’s a successful investment formula, and marketing and information and information services can be very niche-y,” Civantos said.
As an example, he cited direct marketing, which has a wide definition. You can break that down into subsets, such as direct mail, and then break that down even further into things like graphics or analytics to improve deliverability. “These are capabilities that people might not have [in-house],” he added.
The marketing sector isn’t for everyone, he said. It makes some investors nervous because some companies have a few end-market customers that can dominate their business. A direct mail firm, for example, might have 20% of their revenue coming from one large customer like a CitiBank type.
“It’s hard to get away from the notion of customer concentration,” Civantos. “You need to have the ability to recognize where that’s a problem and when it is just part of the nature of the business.”
The shift from traditional media has affected a lot of companies, he said. “Traditional media isn’t disappearing, but there are a lot of dollars finding their way to newer media. You have to look at who your end customer is—retail focused businesses are having a lot of trouble, for example, so marketing in that space is a tough place to be.”
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