How Should PR Firms Plan for the End Game?

(This article originally appeared in the June issue of  O’Dwyer’s)

The PR M&A process is seldom easy. But as the public relations industry has evolved and become more complex, so too has the PR M&A process. When sellers sit down with buyers these days there are sharper and more difficult questions coming from both sides of the table.

Indeed, the road to a successful PR M&A can be twisty, and nobody wants to get burned after investing so much time, energy and money on a potential deal.

PR M&As were top of mind at the recent Counselors Academy Spring Conference, which took place in Seattle and drew 180 PR firm owners and C-level executives. I had the opportunity to speak and share my advice and insights regarding PR M&As at a session titled, “Planning Your End Game: Maximizing Your Agency’s Value and Preparing for Sale.”

I was joined by Brad Schwartzberg, Esq., partner, Davis & Gilbert LLP, and Alex Halbur, managing partner, Prosper Group. Elise Mitchell, CEO, Mitchell Communications and CEO, Dentsu Aegis Public Relations Network, moderated the discussion.

For my part, I tackled the PR M&A process from beginning to end. A summary of my comments and recommendations follows.

The PR M&A process starts, of course, with assessing the benefits of your most valuable resource: human capital.

Sellers need to highlight the second-tier of management — which ultimately will be responsible for taking the firm to a higher level, post-sale — as well as key staff members in the organization and what they bring to the table in terms of crisis management, digital communications, content marketing and other PR skills at the fore. And having an entrepreneurial skill set is an often lacking but well rewarded advantage for a seller.

The second most important element in a potential PR sale is the seller firm’s clientele. PR firm owners looking to exit must be ready to describe the size and quality of their clients as well as billing methods and collection policies. They also have to demonstrate that no single client comprises an overwhelming percentage of net revenue, and provide a cold-eyed assessment of their competition (which is never easy).

Before they continue on the M&A path, PR firm owners need to ensure that an M&A team is in place, including an attorney experienced in M&A contracts, a quality CPA firm and a savvy M&A consultant who understands the full process. Owners also need to assess overall costs (time and money) of pursuing a transaction.

If all systems are in place, the M&A consultant then has to package the firm for a sale. These elements include recasting the firm’s financials and preparing an “Offering Memorandum.” The latter should always include:

• Financial summaries
• Clients: Number of years they’ve been aboard and type of work
• People: Key executives/bios
• Offices: location(s), capacity for additional staff, lease terms

At this point in the process, PR firm owners need to take a hard look in the mirror and give themselves a reality check:

• Is the firm truly ready for sale?
• Is the infrastructure in place for a new owner?
• Will the second tier of management endorse the sale?
• What are timeline expectations?
• What are the value expectations?

If all the above M&A elements align, sellers should move forward into the Research stage of potential prospective buyers. Sellers need to pre-approve a targeted buyer list prepared by the M&A advisor, and then have their M&A reps start the outreach to prospects.

With transparency as a guide, there are many steps sellers must take once they start to gauge interest among buyers. These steps initiated by the M&A advisor includes:

• Signed NDA (non-disclosure agreement) by buyer
• Disclose seller to buyer
• Initial conference call with buyer
• Sharing information regarding culture, people and clients
• Signing a new “Mutual” NDA

This is the time in the M&A process when sellers and potential buyers get to know each other —not unlike when two people start to date and see if there’s chemistry. Buyers initially are going to want to meet sellers in person — perhaps at a restaurant near the seller’s office — and discuss for 2-3 hours the cultural fit of the seller’s staff, the work done for clients, potential conflicts and the intentions of the seller(s) post-sale.

If they like what they hear, buyers then will request selected and more detailed financial information as well as a Financial Profile of the firm. If things continue on a smooth path, buyers will request a second meeting at the buyer’s office.

This is where the rubber meets the road. At the second meeting, both Seller and Buyer provide detailed presentations and determine if they would like to move forward.

If both sides want to move forward a “term sheet” is presented by the buyer. The term sheet should include the outline of a deal structure. The term sheet, in turn, is followed by a “Letter of Intent,” which will include the following elements:

• Non-Binding Clause
• No Shop Clause, typically for 60-90 days.
• Breakup Fees
• Signatures by both parties

As the excitement among both sides starts to grow, this period will be followed by obligatory due diligence from both sides. Due diligence should feature accounting and legal assessments, as well as the M&A team facilitating the due diligence.

Nearing the finish line, contracts — including clients and executive staff — will need to be drafted, along with HR policies and an additional data supporting the financials.

A deal close could take up to three months, if not longer, with attorneys intricately involved. If both parties are on board, final terms are agreed to and the closing is complete.

The sale can then be announced, first to each of the PR firms and then to the trade media, vendors and affiliates. A celebratory lunch or dinner with top executives from both firms follows. Toasts abound, with an eye toward future integration and growth.

Of course, a monkey wrench can be tossed into the process at any time and derail what had been a smooth ride. That’s why it’s mission-critical that sellers and buyers pay careful attention to every step of the process and exercise transparency and, perhaps most important, not let their egos get in the way of what can be a very prosperous transaction.


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.”