Buying a PR firm is an excellent tool for strategic growth, but it’s also a complex risk that requires careful consideration. If you are thinking about a PR firm merger or acquisition, Gould+Partners can guide you through every step of the M&A process, and answer any questions you may have along the way.
To help get you started, we’ve provided our expert answers to some of the most frequently asked questions about buying a PR firm below.
1. What is the process for buying a PR Firm?
Buying a PR firm is a strategic, relationship-driven M&A process typically spanning five core phases over 12 months. It involves researching acquisition agencies, evaluating financial health, conducting due diligence, negotiating purchase agreements, and executing post-deal cultural and client integration.
2. How is a PR Firm’s worth calculated?
The valuation of a PR firm is a complex process. It requires financial expertise, knowledge of the mergers and acquisitions marketplace, and a thorough understanding of what buyers are looking for. Firms are not valued solely based on the revenue they generate or their net worth. Instead, a combination of factors must be carefully examined and evaluated to accurately determine just how much value a firm holds.
3. Does size matter when buying a PR Firm?
Yes, but profitability and quality clients are more important than size. A $3 million firm with quality brand clients and 25% recast profitability is more valuable than a $5 million firm with mainly smaller, questionable, less profitable clients.
4. What is recast profitability?
Recast profitability is the adjusted net profit of a PR firm calculated by adding back personal, one-time, or non-operating expenses. This process, often called “normalizing” the financials, shows a buyer the true cash flow and earning power of the agency without tax-saving write-offs or owner-specific perks.
5. Is there a standard down payment for buying a PR Firm?
There is no single standard down payment for buying a public relations firm, but deals typically require 20% to 35% of the total purchase price upfront at closing. The rest is paid over time through performance-based earn-outs.
6. What are performance-based earn-outs?
With a performance-based earn-out structure, the buyer makes a down payment, and the remainder of the purchase price is tied to the acquired PR firm hitting specific revenue and/or profit goals after the sale.
Payouts are typically calculated annually. They are paid in cash to the seller, and occasionally scaled or tiered, rather than all-or-nothing. During the earn-out period, usually 3 to 5 years, the seller and key staff typically stay on and work hard to ensure performance goals are met.
7. Will the original PR firm owner stay on salary?
Whether the original PR firm owner stays on salary depends entirely on the specific terms of the acquisition. However, many sellers opt to sign an employment or consulting agreement to stay on a salary for a transition period of 3 to 5 years to help build the firm and retain clients before exiting.
8. What happens to the PR agency name and branding?
When a PR agency is bought, the buyer decides what happens to the name and branding based on their business goals. You might keep the old name, blend the two names together, or completely replace the old name with the new parent company’s brand.
Keeping the name works best when the acquired agency has famous clients or a trusted brand that people already love, while replacing the name may make more sense if you want one unified brand or you are worried about additional marketing costs. Blending the two can help clients feel safe during the transition, and show that they still get the same local team with new big-company tools.
9. How important is the firm’s second tier of management?
A Buyer will look right past the owner(s) and want to learn everything about the second tier of management.
The second tier represents the future of the firm. They are the key staff that will retain the client relationships and be sure the clients
are serviced properly and profitably. Most buyers will want the second tier to be included in the earn-out, so they have a stake in the buyer attaining their return on investment (ROI).
10. Do I need to hire a M&A Advisor?
Buying a PR firm does not strictly require an M&A expert, but hiring one helps protect your investment. A deal involves complex tasks like PR firm valuation, client contract reviews, and transition terms. Without help, you risk overpaying or missing hidden business risks.
By focusing exclusively on merging, acquiring and selling PR firms and related agencies, Gould+Partners is able to provide our clients with the highly specialized service required for answering and executing on the most critical questions faced by agency owners. Not sure if external growth is right for you? Our expert team of M&A advisors can advise you on whether acquiring another firm is your best strategic option or if it’s better to sell to a larger, culturally compatible firm.
To schedule a consultation, call Gould+Partners at 917-783-4500 or contact us online.