How Stock Market Swings Impact PR M&A Deals

By Matthew Schwartz

(This article originally appeared on agiltypr.com.)

Talk about whiplash! Heads have been spinning like battle tops due to the recent stock market gyrations. On February 9, for example, the Dow Jones Industrial Average closed out with a 330-point rebound but still suffered its biggest weekly loss since January 2016, per USA Today, adding that the preceding week was marked by a pair of 1,000-plus point drops, the worst day in Dow’s 121-year history.

The volatility has sparked fears among investors that the Federal Reserve will soon raise interest rates faster than expected in order to cool down a heated economy. That may give PR buyers pause about pursuing deals. It may also give sellers the idea to sell sooner rather than later. Is this a developing conundrum for PR firms?

For more insight on how the PR M&A market is shaping up vis-a-vis the stock market, Bulldog Reporter spoke with Rick Gould, CPA, J.D., managing partner of Gould+Partners, which specializes in public relations management and PR M&A.

Bulldog Reporter: How do you think the wild swings in the stock market lately will affect potential PR M&A deals moving forward?

Rick Gould: It’s easy for both buyers and sellers to get spooked by the recent wobbles in the stock market and the subsequent sell-off. But it’s important that PR firms pursuing deals—on both sides of the negotiating table—not get swept up by the headlines or persuaded one way or the other by business news anchors hyperventilating.

The reality is that the overall U.S. economy is stable. Unemployment is at its lowest level in years and the banking system has mostly healed from the 2008 market crash. What’s more, when you consider all the secular changes gripping the PR industry—with myriad new business models emerging—buyer-and-seller strategies will most likely need to transcend the vagaries of the stock market. To wit, selling firms need the capital, resources and staff that buying firms can provide, while buyers need the niche (and digital) capabilities that smaller shops bring to the table.

It’s more a Darwinian dynamic, in which stock prices and sell-offs have only so much pull on how PR firms brace for the future and stay viable competitively—and that means a higher volume of M&As. The new year isn’t even two months old and we’ve seen a flurry of PR deals announced and our firm, Gould+Partners, sees a pretty healthy pipeline of potential deals among both buyers and sellers.

Bulldog Reporter: So where does that leave buyers who are still interested in expanding via acquisition and sellers who are eager to monetize their assets?

Gould: Against the current backdrop, this is a good time for both PR buyers and sellers to stick to the knitting; I would even advise that this is an ideal time for PR firm owners to double down on the M&A fundamentals. For sellers, that means mopping anything messy financially that might alienate potential buyers, strengthening the bottom line—which is what buyers focus on, in addition to top-line consistency and stability—and shoring up staffing and utilization.

It’s also crucial that potential sellers have a diversified client portfolio and that no one client supply a disproportionate amount of net revenue, which is a red flag for buyers. An increasingly diverse staff should be of primary concern. And potential sellers’ offering wouldn’t be complete without taking their digital strategy into account and making sure they can show potential buyers that the firm’s overservicing is under control and not eating into the top and/or bottom lines.

For buyers, that means taking a close look at the seller’s digital PR and social media strategies—and whether the firm is making real money from its social offerings or just breaking even. Buyers are going to want to see a diversified portfolio among clients, too, but they also want to acquire agencies with a diverse staff (or firms that can demonstrate that they are taking legitimate pains to improve diversity). More and more client-side companies are embracing diversity and inclusion on their own and are going to want the same from their PR firms—and buyers are starting to appreciate that.

 

Rick Gould is author of “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger or Acquisition,” and “The Ultimate PR Agency Financial Management Handbook: How To Manage By The Numbers For Breakthrough Profitability Of 20% Or Greater” (4th Edition)

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