It’s just a few weeks into the new year, but the media M&A field is starting to percolate already.
There were two deals in early January alone. Highwire PR, one of the fastest growing tech independent firms, acquired Inner Circle Labs and merged the two San Francisco-based agencies, while the Association of National Advertisers (ANA) acquired the Word of Mouth Marketing Association, consolidating ownership of several marketing associations.
The flurry of recent deals comes amidst the Dow Jones logging a 25 percent jump in 2017. The U.S. economy, meantime, grew faster in the third quarter of last year than in the past three years. Unemployment is at a 17-year low (4.1 percent).
For potential sellers of professional services firms, the economic constellations are aligning nicely and the timing may be right for maximizing valuations. Only Merlin knows when the window will close and the bears come back.
As the economy continues to flourish, more rollup could be in the offing. With that in mind, here’s three PR M&A trends to watch.
- Smaller agency and firm owners pressed to sell. There are two key reasons spurring this particular trend. First, owners of smaller and boutique firms may want to take advantage of a bullish market, which will fetch higher prices and, depending on how attractive the asset, boost interest among buyers. Second, as the transition to digital media accelerates, owners will realize that they need to sell their firm in order to save it. Even if they have what they consider a decent digital presence right now, they will need digital scale in order to thrive in the future—and achieving that will only come from the additional resources and talent that a buyer can provide. If they don’t consider selling in the next few years, these owners could very well face an existential threat because the industry is changing so fast and embracing a bigger-is-better model.
- Millennial run firms emerge as buyers and sellers. There is a proliferating number of creative service firms owned by millennials. After having picked up a few years experience at a larger agency, we anticipate a spike in the number of millennials who launch their own firm, whether for PR, influencer marketing or social media services, for example. Then there are those millennials who started their own firm straight after graduating college and want to make a name for themselves. Whatever, many millennials working in business communications are financially and digitally savvy and will be looking to flip their firm after a relatively short period in the trenches. Other millennial owners, of course, will be in it for the long haul. Credit lines notwithstanding, these firms will want to grow via acquisition and make sure they have the digital assets to compete effectively.
- Content marketing fuels competition among buyers. As content marketing accelerates—and brand managers figure out how to monetize such efforts—more and more buyers are going to seek out those PR firms/creative agencies that are predicated on telling stories and driving conversation. Advertising is everywhere and nowhere these days. Consumers want to be “friends” with brands and cannot abide the “salesy” approach that is the traditional domain of marketing. All of this feeds into a hunger for content marketing services among M&A players. These players include larger PR firms that may want to fill a strategic hole with a bolt-on deal; large management consulting firms (Accenture, Deloitte, PwC) eager to acquire creative services firms (PR, marketing, and social media assets) rather than grow them organically; and private equity firms willing to pay a premium for firms, grow the top line, and flip the property at a higher rate. The current duality of content marketing—an enormous amount of inventory being produced at depressed rates—leaves a lot of upside for buyers. For potential sellers, content marketing becomes an asset they’ll have to invest and nourish in order for them to be viable for buyers.
What do you see as some of the major M&A trends in PR and creative services this year?
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