In the annals of the PR profession, it wasn’t that long ago—say, five or ten years—that PR firms competed with other PR firms for mergers and acquisitions. It was a fairly limited market, but also fairly easy to predict.
But that was then and this is now.
“The PR market is changing radically,” said Rick Gould, CPA, J.D., managing partner of Gould+Partners, who was a guest speaker earlier this week at an event titled, “Maximizing Profits, Controlling Over-Servicing and Limiting Liabilities.” The event was sponsored by the PRSA Counselors Academy and held at the office of law firm Davis & Gilbert LLP.
Gould said that the secular changes swirling through the PR M&A market are being fueled by these factors: Increasingly stiff competition from players who were previously on the sidelines for PR properties and significant generational change.
With regard to increased competition, Gould said: “It used to be PR firms vs. PR firms. Now it’s PR firms vs. everyone else.”
For starters, independent PR firms now have to contend with the mega advertising-marketing holding companies, as the holding companies’ PR shops are competing with independent firms for both clients and strategic acquisitions.
Ad agencies are also getting into the act when it comes to PR M&A. “Ad agencies see that PR firms are now more profitable and well-respected and think it would be good to add that PR discipline to the portfolio,” Gould said.
What is more, PR firms face growing competition from private equity players, which was unheard of just a few years ago.
Private equity players, of course, look to acquire PR firms, pump up their portfolio and, five or six years later, flip them for a handsome ROI, Gould said. That gives PR sellers another option, but they need to approach private equity with their eyes wide open. PR firms may fetch a higher price from private equity firms but jeopardize their legacy because eventually the firm is unlikely to look anything like its previous incarnation once the private equity firm/buyer starts to reconfigure the business.
Digital firms are upping the ante for purchasing PR firms, as well. “Digital firms realize that digital is the wave of the future, but they also feel that they just can’t be digital [firms] and should include PR,” Gould said.
All these changes affect PR firms’ pricing, valuation and earn-outs, not to mention what the firm will look like in the future.
The other factor sparking dramatic changes in the PR market is generational, Gould said. Just do the chronological math. Many PR agency owners—who grew up during the analog age—want to sell their firms and start a new phase of their careers. Few of them want to retire. They just want to try something different.
These are folks in their 50s, 60s and 70s—mainly interested in selling to strategic buyers—who want to protect their business legacy. However, they realize that younger and more digitally savvy executives have a better shot to take their firms to a new level financially and expand their markets and clients. “You have millennials coming into the field, taking up more space and taking over C-suite positions,” Gould said.
He also emphasized that women are having an increasingly tremendous impact on the PR industry. “About 70 percent of the PR field consists of women,” Gould said. “They have always been in the middle management ranks, but now they’re moving into the C-suite. It all adds up to a changing landscape.”
Editor’s Note: We’ll follow up this article with blogs regarding overservicing and limiting liability, which were topics also included in the Counselors Academy seminar.
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