I had the privilege of speaking at the Public Relations Global Network‘s (PRGN) annual conference, which took place in Dallas, in late April. The presentation, titled “Agency Mergers and Acquisitions: What Works, What Doesn’t,” was well-received among the PR firm owners and C-level communications executives attending.
During my presentation and afterward—when I had the opportunity to meet and chat with some of the attendees—I got some very sharp and intelligent questions about where the PR M&A market is headed in light of the ongoing surge in PR deals both at home and abroad.
From my perch I see the PR M&A market continuing to percolate nicely. For active PR buyers, both boutique firms and small-to-midsize shops are fair game. Bolt-on deals—or PR firms buying other creative-services firms to fill a specific need in-house—will increase, too. Ditto for independent firms that are looking to bolster their portfolio.
Whatever sort of transaction, buyers favor those PR firms that can present a profitable and integrated package of professional services, particularly in the digital realm.
Transparency is critical. Don’t play up services, say web design or paid media, that you can’t deliver anytime soon.
Several factors are driving the consolidation in PR.
For starters, many PR firm owners are in their late 50s and/or early 60s, and want to cash out and begin a new phase of their career.
Another and perhaps more pressing reason is the accelerating pace of change in media and communications. More and more PR firms owners acknowledge that they can no longer go it alone sans the digital resources and larger budgets that a buyer can provide.
What is more, there is a growing pool of buyers eyeing PR properties. These buyers include strategic buyers (who acquire for the long-term and encompass the large global agencies like Edelman and W2O), and private-equity players (who buy for the short-term and flip the property for what they hope is a much higher multiple).
New buyers have emerged, as well, such as the mega management consulting firms like Accenture, Deloitte, IBM and PwC that have started to acquire specialized PR/digital firms.
And while the trend is in the nascent stage, millennial PR firm owners are beginning to join the M&A fray. This may portend unique changes in PR M&A because millennial owners bring much more financial education to the table than previous generations.
As I told the audience in Dallas, the steady rate of PR M&A deals reinforces what I’ve been preaching to the industry for years: run your firm ‘as if’ you’re going to sell it. It’s the only path to real profitability and maximizing value.
With that in mind, here’s a recap of my presentation from Dallas, focusing on what works and what doesn’t for agency M&As.
What sellers must consider
• Grow organically?
• Acquire a bolt-on acquisition(s)
• If the firm is in ‘growth gridlock,’ it’s logical to sell
Why Sellers Sell
• Ready to monetize the firm and get more resources
• Owner is eager to take care of his or her family financially
• Services and talent need to be expanded
What Buyers Need
• Brand: What’s the firm’s brand reputation in the market?
• People: Stable workforce/staff and solid second-tier
• Clients: Strength of portfolio and steady revenue streams
Questions to ask prospective sellers
• Growth: Where is the financial upside for the new owner? How profitable is the firm?
• Culture: Does the culture of the seller firm gel with the culture of the buyer firm?
• Clients: How diverse is the portfolio? What’s the pipeline look like for new clients? What’s the level of churn among clients?
Every PR deal is different, of course, but it’s a safe bet that these questions and similar ones will be part of the M&A PR process.
Whatever the amount of questions—and the degree of granularity in the ask from potential buyers—your answers have to be accountable. That’s the way to create value in the relationship from the get-go. That’s doing it the right way.
Rick Gould, CPA, J.D., managing partner of Gould+Partners, is the author of “The Ultimate PR Agency Financial Management Handbook: How to Manage By The Numbers for Breakthrough Profitability of 20% or Greater,” and “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger Or Acquisition.”
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