3 Ways the PR and Ad M&A Field is Changing

The PR market is pretty frothy. In the last year, for example, Finn Partners has acquired PR agencies Horn Group, Seigenthaler and DVL. (Gould + Partners represented the seller in each of the deals; Gould+Partners currently has several potential PR transactions in the pipeline.)

What's the price?
What’s the price?

Meanwhile, the Stagwell Group, the investment group started by former WPP and Microsoft executive Mark Penn, recently acquired a majority stake in digital agency Code and Theory and purchased public affairs firm SKDKnickerbocker. (Financial terms were not disclosed.)

The surge is likely to continue well into this year. Whether you are a buyer or seller, there are three trends about the market to keep top of mind.

1. New buyers in the mix. In the past few years, as the economy got off its back, many new PR agency buyers have emerged. These buyers include other PR, of course, but also digital shops and private equity players. Potential buyers “are convinced PR is profitable,” said Gould. “Many firms that previously couldn’t acquire for growth have built up their war chest.” Gould stressed that the key for new buyers is that they now can afford a “down payment” for the seller firm (and the operating profits from the acquired firm will pay for the rest of the sale).

2. More bolt-on deals. To maximize net revenue growth and profitability, more and more buyers are looking for bolt-on deals, or acquisitions that fill a void within the portfolio yet dovetail nicely with existing services. In PR and ad M&As precincts, “bigger is better,” Gould said. “When buyers do bolt-on deals they’re building higher multiples, getting new talent and providing a depth of services, such as digital.” Acquiring digital assets, Gould added, puts the agency in a different league among potential suitors.

3. Multiples are down. Well, it all can’t be peaches and cream. An overflow of sellers translates into lower multiples paid by buyers for sellers looking to exit. Part of the trend is generational. Older baby boomers, who are in their 60s, may be ready for a new phase in life and are eager to sell. But if they can’t get a decent price they may need to chill for a while. “Prospective sellers, who still have gas in their tank and are in good health may decide to hold the line,” Gould said. “Prior to selling they have to build their infrastructure, cultivate their No. 2 executive, possibly improve their bottom line and reevaluate a potential deal in a year or so.”

How do these trends compute with what you’re seeing in PR M&As?