The Changing PR M&A Landscape
It’s a testament to the increasing value of PR services that public relations firms continue to attract a growing number of buyers. Despite a still-wobbly economy, there are more buyers and sellers for PR services than ever before. But it’s not just the increasing pace of transactions. It’s the types of buyers that are joining the fray.
Private equity firms, for example, have jumped into the PR market with a vengeance. Take the Stagwell Group, backed by billionaire and former Microsoft CEO Steve Ballmer, which in the last year or so has acquired SKDKnickerbocker, Nielsen NRG and Code and Theory. Then there’s Providence Equity Partners, which teamed up with a marketing-advertising conglomerate WPP to acquire Chime and Global Relations.
Private equity players, of course, often purchase properties only to flip them a few years later for what they hope is a handsome profit. On the other hand, strategic players usually make acquisitions for the long haul. They want to bolster existing PR services—and bring additional clients into the fold—or fill a much-needed void.
Foreign acquisitions among both the holding companies and independent agencies are also on the rise. Global markets continue to shrink at a fairly rapid clip, and the PR field is no exception. For example, Golin acquired Magic Group in China while WPP acquired Indian firms Six degrees for Cohn & Wolfe and Brazil Ideal for H&K. Adfactors, the largest independent firm in India, has also pulled the trigger on several acquisitions.
And despite the growing crowd, “traditional” PR firms continue to buy and sell each other as well. For the last few years Finn Partners has been on a buying spree of smaller to-midsize PR firms while Edelman, the largest independent PR firm in the world, seems constantly in the hunt for new properties to acquire.
The flurry of buyers now swirling the PR marketplace changes the equation for potential sellers, in terms of how they brace for a sale, potential earn-outs and, perhaps most important, their legacy. That’s why it’s so crucial that buyers and sellers are simpatico and share similar values.
The PR M&A market shows little sign of letting up and, if anything, should pick up even more speed. As you ponder a sale, or acquisition, here are the general trends changing the market:
> Next generation.With digital PR creeping toward the core of communications, the next generation of deals will focus on synergy, services and scale, with an eye on integrated marketing. Social media—while still difficult to monetize—will play an increasingly important role for how the transactions shape up for the future.
> Age factor. As we enter a post-digital age, agency owners who grew up in the analog age are deciding to hang it up, hand over the reins to digitally savvy executives and start a new phase in their lives. Age is critical for buyers. They don’t want to buy firms whose owners/partners are in their late sixties or seventies, thinking they may not have enough gas in the tank to fulfill their earn-out obligations and stay on beyond. In looking toward future growth, buyers are eager to see in the seller firm “digital natives” who are abel to harness multiple new communications platforms and tools.
> Bigger is better. Transactions are based on taking PR firms to a higher financial level: $3 million to $10 million to $15 million and so on. Firms with higher “quality” net fee levels will demand a higher price. Firms with a full suite of services, will also command a higher multiple. Size and scale are not to be underestimated, as more and more clients demand one-stop shopping to fulfill their creative services needs.