Digital Marketing Group

Digital Marketing Group (DMG) has made its first acquisitive move of 2009, snapping up well-regarded digital and mobile marketing specialist 20:20 London for up to £2m.

The UK’s largest digital marketing agency, led by CEO Ben Langdon, has bought 20:20 London in a cash and shares deal worth up to £2m, financing the initial payment of up to £1.5m cash from existing resources. According to Langdon, 20:20 London, set up in 2003 by creative director Peter Riley, ‘leads the way, both creatively and strategically', in the digital and mobile space. 20:20 London has a track record of work with heavyweights including BP and Procter & Gamble and made £270,000 at the EBITDA level in the year to last April. As for Riley, he now becomes chief creative officer of DMG’s new ‘pure play’ digital marketing division, now known as 20:20.

This is the first acquisition since late 2008 from DMG, a company with a stated buy and build mission which last month impressed investors with resilient interims to September and news its business pipeline was the best it had been for 12 months. DMG made creditable profits of £2.93m (2008: £3.15m) in a testing first half, despite a decline in gross revenues to £24.7m (2008: £26.5m) as certain clients displayed caution. Its digital agencies demonstrated strength, although the data analytics operations, with heavy exposure to financial services, had a tougher time of it.

Having stripped out costs, DMG is strongly positioned for economic upturn as well as the inexorable migration of marketing budgets online, although pre-tax profits and earnings are forecast to reduce from £8m to £6.5m and from 8.6p to 6.9p in the year to March.

Nevertheless, the shares, recently recommended by Growth Company Investor at 39p, look significantly undervalued, selling for less than 8 times earnings, and DMG looks ripe for a significant re-rating.