The PR M&A field continues to roll right along. Here’s a few areas where agency owners and managers should keep their eyes peeled this year when it comes to the M&A landscape.
PR M&As, quite active in 2019, show no sign of slowing down this year. Expect a surge in new deals, as a healthy economy spurs more and more owners to put their firm in play and maximize their sale price.
With the economy clicking on all cylinders — and less chatter about a looming recession in 2020— PR firm owners should seriously consider selling sooner rather than later. Even more so for owners in their late 50s and early 60s because it takes six to nine months to identify a buyer and facilitate a quality transaction, plus an additional three to five years for the earn-out to be monetized (financial buyout based on performance).
Buyers are angling for both strategic acquisitions, in the $3 million to $10 million range, as well as bolt-on deals, in the $1 million to $3 million range. Bolt-on acquisitions are increasingly attractive to buyers because they fill a specific and immediate need and can be completed relatively quickly.
Sector-wise, PR firms specializing in healthcare, financial services, consumer, and technology will hold special appeal for buyers, due to their high-growth potential. Public affairs firms, playing into what’s expected to be a furious election season, are expected to be attractive targets, too.
Demand for Valuations
Due to the overall surge in PR M&As, demand for valuations will also grow. The accelerating pace of change in the creative services marketplace has put a premium on owners’ ability to get a better grip on both the value of their firm and on the myriad of intangibles, such as the talent pool and content marketing programming, that may spike the overall value of the firm. PR firm owners also need to do a better job of monetizing relatively new services, such as social media marketing and online video.
Demand for Acquiring Profitable Firms
Owners of PR firms realize that valuations of firms are based on consistent profitability — the goal being at least 20%. The overall average of 16.3% in 2018 indicates there is still a lot of work to do. The most profitable net revenue group is the $10 million-to $25-million category (20.9%), admirably averaging net revenue per professional of $256,000.
Demand for Controlling Labor Costs & Utilization
With tight management of labor, the trend among PR firms will be to get bigger but also get better at controlling costs (overservicing being the primary culprit). Indeed, PR firms continue to suffer from too much overservicing, an industry euphemism for, essentially, working for nothing. Look for a much sharper focus among owners this year regarding improving utilization and paying much closer attention to human capital.