Danny Rogers: More mergers and acquisitions are coming

PR and marketing agencies are currently seeing a wave of mergers and acquisitions.

Danny Rogers: More mergers and acquisitions are coming
Danny Rogers: More mergers and acquisitions are coming

In the past few months Lexis has bought Paratus, Four Communications has bought Colman Getty and last week GolinHarris bought Virgo Health.

In the wider marketing sector we have seen global giant Omnicom buy Portland PR along with ad shop Adam and Eve. Meanwhile WPP purchased digital specialist AKQA, among others, in a huge deal.

Talk to most bosses of decent-sized PR agencies and they are on the acquisition trail. This may seem surprising as we near the fifth year of a seemingly unending recession. So why the appetite for M&A?

Of course an agency deal must be driven by both sides and there need to be conditions that are compelling for both parties to get things done.

The bigger groups have become gradually more cash-rich. But sustained growth is still hard to come by, and they are often restrained by client conflict. So they have become hungry for specialist brands that can be scaled up globally.

With this demand, and a shortage of genuinely great businesses to buy, the price they are willing to pay has crept up.

In terms of agencies looking to sell, many have simply become fed up with struggling as independents. The PR market has clearly polarised into really big global networks and genuine specialists, for example cutting-edge public affairs or health PR consultancies.

What helps the selling agencies sell is gradually improving earnings in recent years. These profits have been driven by lucrative digital and social media business.

Having said that, agency principals looking to sell have become more realistic about the price they can achieve. The multiples of earnings that became the norm up to 2007 can no longer apply. One agency boss talks of a 'new-found realism' in selling one's business. 'You've got to play by the metrics of the market for 2012, not 2007. Agency owners are gradually starting to realise this,' he said.

But it is not only price that is driving the smaller agencies to join the bigger groups. They see a depressed market in the UK and recognise that long-term growth is more likely to be achieved by being part of an international operation. This is certainly what drove the College Hill and Portland sales over the past year.

We are likely to see even more M&A activity before the summer break, which is no bad thing for an over-supplied agency sector.

Also read: Acquisitions increase as agencies bid for global expansion

 

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