Joining Forces—Why Mergers and Acquisitions in the PR Business Are Back

Look out: Mergers and acquisitions are back.

The golden age of PR firm acquisitions took place in the late 90’s when it seemed that every other day a new acquisition was announced (my former firm, LobsenzStevens, fit into that category when I sold to Publicis in 1999). Another wave of pr firm acquisitions took place between 2003 and 2007, leveling off as the sub prime mortgage debacle unfolded.  Since 2009, mergers and acquisitions have been on the rise again, averaging approximately 75 to 100 deals worldwide each year.

Why have more PR firms joined forces as of late? The first answer is clients.  As client needs have expanded both in integrated marketing services and geography, agencies have scrambled to keep up.  There’s not an outpost in the world where international agencies haven’t gobbled up leading regional agencies.  And there’s not a single digital/interactive/social media firm out there that hasn’t been scrutinized by anxious buyers needing to keep pace with technology.

I can imagine the behind the scenes discussions that take place between client and agency.  “You ought to have an office in Salt Lake City.” “You need to bolster your digital capabilities.” “You should strengthen your crisis management skills.” Some firms solve these problems by recruiting the best people they can find, but others do it by acquiring talent through timely and strategic acquisitions.  We’re finding that critical mass has become more of a factor in the continuing growth and marketplace share of the blue chip clients, and they require their PR firms to keep up.

Another major reason firms make acquisitions is out of concern for their future liquidity.  There aren’t too many PR firms we encounter that don’t want to sell their businesses at a certain point. Aside from keeping up with present and prospective client needs, PR firms want to get bigger so that their market place value will be as high as possible when they’re ready to sell. Firms at the $3 million fee level feel the need to get to $5 million as quickly as possible, firms at $7 million want to get to $10 million, firms at $15 million want to get to $20 million, and so on. A logical way to get to the next level is simply to acquire another firm.

Will agencies be worth more in the acquisition market if they achieve higher fee levels?  Most emphatically, yes.  Does it pay for them to wait until they achieve these goals?  Not necessarily.  Firms may be passing up present opportunities to partner with larger agencies that can help them grow perhaps more rapidly than they could on their own.  The most successful acquisitions usually achieve greater synergies than individual sellers could on their own.

Small and mid-size PR firms with net income under $5 million are also playing the acquisitions game largely because they no longer want to leave business on the table. “If I only had IR capability I wouldn’t have had to refer that business elsewhere or partner with a firm that supplies it,” smaller agencies say.  Many agencies have added niches or geographic outlets to their business because their clients would be better served if those niches were part of firm’s overall arsenal of services.

The acquisition process can be fraught with peril, anxiety and failure. I remember putting the CEOs of both a seller and a buyer together at an initial lunch meeting.  The two individuals were men with big egos, and it became clear within the first ten minutes that one was trying to outdo the other.  As hard as I tried to facilitate the discussion, the two CEO’s seemed to get angrier as the minutes went by.  When the waiter appeared to take the lunch order, the CEO of the buyer stood up and left without a word. I learned a hard lesson that day that I believe has served me well ever since: Look very carefully at the styles and personalities of the buyer and seller.

In evaluating potential acquisitions, buyers should consider the track record and capabilities of senior management, the seller’s past and present client roster, niches the seller is in, and the location of the seller’s offices. If you have the people, experience and overall capabilities a client seeks, then your firm stands a better chance of keeping existing business and generating new clients, and you make a better target for acquisition. Ultimately, acquiring target firms that add to client benefits as well as helping to increase market value of the buyer will always be in vogue. In this wave of deal making as in former ones, solid acquisitions are a mighty tool that allows firms to catapult themelves above the competition.

One Response to “Joining Forces—Why Mergers and Acquisitions in the PR Business Are Back”

  1. Drew West said on August 28, 2013 at 9:46 pm

    Nice post, Art.

    We continue to see lots of acquisition activity among the PR firms we serve, both in the US and overseas. We don’t take a stance on the merits of a merger (you’ve done that very effectively,) nor do we advise on timing or potential partners.

    It’s upon completion that we see other forms of the “peril and anxiety” you mention above, and that’s when things actually start to merge. Sooner or later, operations will have to be consolidated, along with the IT systems behind them. IT consolidation (I’m thinking project management or financial systems, things like that) leads to some angst as people realize they may lose a favorite tool, familiar process, or perhaps some historical data.

    Of course, this is but a temporary wrinkle- and the long-term merger advantages far outweigh some of these initial technology annoyances. Still, we suggest both sides take a long look at their systems, and look for an infrastructure that makes onboarding easy, as well as adapts to unique processes across the newly merged organization. Advanced approaches can bring the best of both worlds- sufficiently flexible to let each group operate uniqely, yet still tied tightly enough together so management has the control, visibility, and structure the firm needs.

    Spoiler alert: My company’s products help in this way, just to be transparent about my perspective.

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