Over the course of the last decade, Fingerpaint founder and CEO Ed Mitzen has been approached by would-be buyers and investors numerous times, only to spurn their advances. But with the $100 million revenue milestone in his company’s sights, Mitzen has partnered with private equity firm Knox Lane on a deal that gives the agency the capital it needs to pursue an ambitious growth agenda.
“Growth is expensive,” Mitzen said with a laugh. “It sounds great and it’s something we take pride in, but you’re investing in people and servers and new offices. There are so many things I want to do with the business and I didn’t have the cash to do it.”
The deal takes one of the agency world’s best-regarded independent players off the market (if it was ever truly on the market to begin with). Fingerpaint has grown considerably in recent years, from $21 million in North American revenue in 2015 to $51 million in 2019. In addition, the company’s client base is nicely diversified: Fingerpaint’s largest client only represents 12% of its business, largely insulating it from overexposure to a consolidation exercise. Financial terms of the Knox Lane investment were undisclosed.
The capital infusion comes on the heels of Fingerpaint’s acquisition of market access consultancy 1798 in February, which eliminated one of the gaps in the agency’s offering. But while Mitzen was thrilled to expand Fingerpaint’s capabilities, the process exposed a significant flaw in the company’s growth plans.
“We paid for it with all the cash we had in the bank and then we went to the bank for a loan,” Mitzen noted. “Banks are great, but they’re not comfortable loaning you $50 million if you want to buy a data platform. That desire to continue to grow made it necessary for us to go out and get external capital.”
The process played out over the last half-year, with investment bank Houlihan Lokey serving as a key advisor. In sum, Mitzen spoke with around 35 suitors – an often draining process that, ironically, was made easier by the pandemic.
“I could meet with Copenhagen in the morning and San Francisco in the afternoon,” Mitzen quipped.
Knox Lane, a San Francisco-based firm founded last year, proved a good fit from the outset. Mitzen noted that he and the Fingerpaint leadership team sensed an easy kinship with the firm’s leaders, both on a personal level and on goals for the partnership moving forward.
“They shared our vision for the company and they have the same sort of Midwestern values that we do – good people, young, entrepreneurial,” Mitzen said. “They have women in leadership roles, which I learned is incredibly rare in the private equity space. And I feel like their model is similar to ours, with lots of senior people who left bigger companies because they couldn’t deal with all the bullshit.”
Fingerpaint, Mitzen added, represents Knox Lane’s first investment, which makes the agency “want to make sure we do right by them. Twenty years from now, I want them to think, ‘Gosh, we hit it out of the park with our first one.’”
Knox Lane agreed early in the process to give Mitzen the freedom to “run the business the way we want to.” The agency’s leadership team will remain intact and its famed people-friendly perks – Fingerpaint continues to pick up the full tab for employees’ health insurance – aren’t going anywhere, Mitzen stressed.
“We vetted all that with potential investors. I didn’t need a partner to come in and tell me I can save 50 basis points by telling people they have to pay for their healthcare – I know that already,” he said. “I’ve never laid anybody off – not here, not at [his former agency] Palio before this. Our people know at the end of the day I’m going to do everything in my power to take care of them. It’s in our contract [with Knox Lane].”
Besides, Mitzen noted, Fingerpaint doesn’t fit the profile of a make-changes-for-the-sake-of-making-changes candidate. “We grew 60% this year. Who in their right mind would meddle with a company that grew 60% in a year like this?”
That 60% growth means that Fingerpaint will end 2020 with around $85 million in North American revenue, up from $51 million in 2019. The firm recently hired its 400th employee – it reported 255 people on hand at the end of 2019, prior to the 1798 acquisition – and Mitzen expects revenue to surpass $100 million in 2021.
The growth will likely include another acquisition or two. While Mitzen declined to identify specific areas Fingerpaint is targeting, the company recently unveiled its Shift Performance Center of Excellence, a data-rich offering that could be further bolstered via acquisitions in the realm of, say, machine learning.
“We’re only going to add services and capabilities that our clients value and that make our work stronger,” Mitzen said. “Some of our competitors are buying five companies a year and, when you do that, it’s easy to create this mess where nothing’s integrated. I don’t want to grow this thing for the sake of growing it; I want to do it because I believe in what I’m growing.”
