Confidence fuels industry's acquisition appetite

More than two dozen M&A deals have taken place between US PR firms since the beginning of the year, with more than half of those occurring from June on.

More than two dozen M&A deals have taken place between US PR firms since the beginning of the year, with more than half of those occurring from June on. These include high-profile deals such as Next Fifteen's August purchase of M Booth and Associates to this week's merger of two Las Vegas agencies.

As expected, the number of deals is much lower than M&A activity in boom years such as 1999 when PRWeek reported more than 80 US deals, and at least 100 when including the purchase of overseas firms. In fact, the PR industry's acquisition environment of 2009 more closely mirrors that of 2001.

But in just the past couple of weeks alone, PRWeek has reported on five acquisitions that involved various types of firms including major independents like Edelman and the holding company Huntsworth, which has undertaken a reorganization of its brands in the midst of the recession. Industry veterans suggest the trend bodes well for the industry, and it mirrors an overall warming of investor confidence after the worst nine-month global M&A period in six years.

“Buyers were very scarce earlier this year and last December,” says Ted Pincus, managing partner at StevensGouldPincus, an agency that helps PR firms position for a sale as well as facilitates both sides of the deals. “But in the last couple of months this has stepped up. Those with parent companies are going to be a bit looser with their purse strings, and also medium-sized firms that see what they perceive as weak prices.”

Both buyers and sellers are looking to be more competitive by expanding their offerings, he says, and some sellers are looking for “protection against rough weather.”

Kathy Cripps, president of The Council of PR Firms, says, “It's about being more competitive and offering varied services, and the best way to do it quickly is through acquisitions where they get built-in services.”

As the head of Omnicom's Diversified Agency Services (DAS), which houses its PR firms, Tom Harrison has handled more than 100 acquisitions. Its firms now include Fleishman-Hillard, Porter Novell, Ketchum, Kreab Gavin Anderson, and Cone, among others.

“We don't buy for revenue; we buy for talent, for strategic reason,” says Harrison. “More recently we've become more interested in very strategic acquisitions.” He is paying particular attention to social media and word of mouth capabilities.

Many in the industry suggest that the growing prestige of PR is also fueling the acquisitions.

“Everyone's beginning to recognize the critical relevance of public relations, and it's much broader than it used to be,” says Harrison.

Miles Nadal, CEO of MDC Partners, which houses both PR and ad firms, says acquiring a PR firm is one of the holding company's top three priorities going forward, along with interactive and analytics. MDC recently took a stake in social media PR firm, Attention.

“PR to us is the new ‘new' thing,” he says. “More and more dollars are going to go to social media, special events, etc. … all the things that PR has taken significant ownership of.”

Nadal says MDC is now in “an active dialogue” on acquisition with a number of firms.

There's little doubt in the PR industry that the past year, or even 18 months, have been tough as clients have pulled back spending and reduced budgets in a number of categories.

Pincus, for example, says 2009 will be a “mediocre” year, and could even be a down year “majority-wise.” At the same time, many interviewed suggest 2010 will be “much brighter,” for PR, as Nadal puts it.

“2010 in our view is going to be a robust, or rebound year, with 7 to 10% growth,” says Pincus.

Those firms that have made purchases are no doubt banking on that turnaround in revenues to help justify some of their recent purchases.

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