It’s been a pretty busy year on the PR M&A front, with strategic, financial and private equity players getting into the act. But 2017 may simply turn out to be a prelude for what’s expected to be a very active 2018 PR M&A-wise.
The market continues to force PR firm owners to reconsider selling their assets, particularly those owners of boutique and/or smaller firms who face “growth gridlock” and need additional resources to reach the next level. Indeed, the pace of change throughout the PR industry continues to accelerate, as digital channels begin to eclipse traditional media venues and clients and prospects seek a wider breadth of services.
For more insight on how the PR M&A market is shaping up, Bulldog Reporter spoke with Rick Gould, managing partner of Gould+Partners, which specializes in public relations management and PR M&A.
As we approach 2018, where’s the pendulum swinging regarding PR M&A?
Rick Gould: There are several PR M&A trends that are starting to coalesce and I expect them to be more pronounced throughout 2018. For starters, there are a growing number of aging baby boomers and Gen Xers who own their firm and have reached the end of their financial rope. They’re having a harder time retaining clients and landing bigger budgets because they don’t have the digital services that clients increasingly demand.
These are firm owners who realize that they may need to sell their firm in order to save it. They want to stay active in the business and continue to work directly with clients, but need a bigger infrastructure and more financial resources to do so. If they don’t consider selling in the next few years, they could face an existential threat because the industry is changing so fast and gravitating toward a bigger-is-better model.
For 2018, I also anticipate that the large management consulting firms (Accenture, Deloitte, PwC) will be quite active on the creative services M&A front. These companies have deep pockets of course, and, apparently, would rather acquire creative services firms (PR, marketing, and social media assets) rather than grow them organically. That increases the competition among buyers, of course, but doesn’t necessarily translate into higher multiples for the seller. Price always comes down to existing value and what the buyer thinks is the untapped value of the firm.
Another trend likely to impact PR M&A is the proliferating number of millennials who own PR and other creative services firms. These are digitally and financially savvy PR execs—conditioned by online media—who have a laser-like focus on the top and bottom lines and, like other buyers, will be looking to grow their market presence via acquisition. As the global economy continues to shrink, also look for more foreign buyers—whether from the U.K. or India, for example—to increase their appetite for acquiring PR and other creative services firms in the States.
Regardless of the type of buyers involved, what do potential sellers of PR firms need to do to a) make sure it’s the right time to sell and b) make their property more attractive to suitors?
Gould: No doubt the first thing potential sellers need to do is take a hard look in the mirror. Selling a PR firm—which, in many cases, is the baby of the owner/founder—is perhaps the toughest business decision sellers will ever make. Before they commit to a sale, owners must ask themselves some key questions and answer them candidly: Is the firm truly ready to sell or need more time? Is a proper infrastructure in place? Does the second tier of management—which will call the shots post-acquisition—endorse the sale? What is the firm’s valuation expectations? Is there a deep bench of talent, particularly for digital PR, data management and online video?
None of these questions can be adequately answered unless the owner has been keeping a very tight rein on the firm’s financials and doesn’t suffer from overservicing. Top-line growth is all well and good, but serious buyers have a keener eye on the bottom line and what they anticipate to be an infusion of new business once the ink is dry on a sale. Expectations among buyers is constantly growing.
Therefore, sellers don’t want to start walking down the aisle with a buyer unless they are metaphysically certain that the two firms are compatible and there will be ample upside to the sale.
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)