Any independent, well performing PR agency is potentially a take-over target. Some will catch the eye of an ambitious group looking for a lion's share of the profits. Others will find their accounts and personnel make them appear to be a ‘ready-made' new division of a bigger firm looking to expand.
Business may be booming at most agencies, but experts have started to warn of uncertainty when it comes to M&A in the marcoms market.
According to Wallhouse Consulting partner Rupert Ashe, the stock market is predicting a recession in advertising and PR. ‘At the moment the stock market thinks it knows something companies don't,' he explains.
Put another way, reduced valuations mean medium-sized UK-listed companies such as Chime Communications and Creston may find it harder to shell out for acquisitions.
The bottom line? There could be fewer deals in 2008 than in 2007. As Ashe says: ‘All the groups want to buy good companies, but good companies will always require a decent price to give up their independence. So group stock valuations will have to recover before good companies are picked up.'
Although there is likely to be activity in ‘hot' sectors such as health, public affairs, B2B technology, online PR and crisis management, for those agency principals thinking of selling in two or three years, Results International managing partner Keith Hunt recommends looking at the agency's structure now.
‘Decide what you want to be famous for,' he advises, ‘and position it in a way that is most attractive to a buyer.'
Remember, this is not necessarily the same thing as being a well run agency. Most buyers require a minimum net profit margin of 17-18 per cent.
Also, according to Loewy CEO Charlie Hoult, culture is key. ‘It's not just schmoozing or dating, it's a marriage for life. You end up spending more time with these people than with your own husband or wife, so it's vital to get on,' he maintains.
Another effect of the stock market downturn, according to analysts, may be that mid-sized conglomerates such as Huntsworth, Creston, Next Fifteen, Mission Marketing, Freshwater and Chime Communications could merge, an arrangement that would appeal to the City by minimising central costs.
Moreover, according to Hunt, who worked on the sale of Hotwire to Photon late last year: ‘We might see an emergence of newly created private equity-backed buyers.'
Add to the mix the changes to capital gains tax, which are not as crippling as was feared but will still affect some of those who sell after 5 April 2008, and this may encourage agencies to complete deals before then.
It is of course difficult to predict who will be buying and selling. As Pembridge Partners partner Rose Lewis points out, it is always down to the age and individual wishes and ambitions of the agency: ‘That said, there aren't that many independent larger firms left.'
But with Valentine's Day romance all around, PRWeek could not resist taking an educated guess about who might ‘fancy' who.
So, if we were to run a dating service for PR agencies, it might look something like this...
WOULD LIKE TO MEET...
Generous Antipodean marcoms group would like to meet ‘best of class' UK PR agencies for long-term relationship. I'm the strong, silent type, so agencies expecting hand-holding - shared clients or obvious Photon branding - need not apply. You must be decent-sized - agencies with £3m-£4m fee income have suited me so far - entrepreneurial, forward-thinking and well-respected.
Venture capital-backed creative agency seeks agencies, 30-strong at least, with good prospects. Likes include food and technology. Online PR is a particular turn on. Would like to hear from agencies that are bright, confident and competitive, and interested in a committed relationship. I don't get on with people that are emotional and gung-ho - and I don't work with people with whom I don't click.
Welsh rarebit seeks Manchester-based partner for lasting relationship. Also interested in applicants from Scotland, the Midlands and Wales. As well as location, I'm after skills, with specialisations in tech and pharma an advantage. I'm not sizeist, having courted agencies with £0.5 to £1m fee income in the regions, and around £3m in London. Candidates should be prepared to take my name if we get married.
Shy and retiring marcoms group seeks profitable, well-managed businesses for flirtation and maybe more. You won't be disappointed by my size and track record - if I do say so myself - and I'm willing to commit if something very special comes along.
Independent City boy on the lookout for a love match, exotic partners a turn on - if you are from Europe, the Middle East or Asia, or if you specialise in investor relations, crisis, corporate and B2B, drop me a line. I would also like a partner to help me explore my creative side through increased digital capability.
Well-respected corporate consultancy, 60-plus. Clocked up £6m in fee income last year. Attracting interest far and wide after winning PRWeek's coveted Consultancy of the Year Award in 2006 and 2007. Rumours Blue Rubicon may opt for self-love in the form of an MBO are as yet unconfirmed.
Happily single, but rumours abound that it is not prepared to close the door to romance completely. This consumer and digital specialist has yet to find the right partner. Size matters and unlikely to go with just anyone. Would probably prefer a big network, in order to enjoy access to clients, expertise and new geographic territories.
Desirable, perfectly formed crisis specialist with around 20 staff and £2.1m annual fee income (financial year April 2006-07). Proudly independent but any potential suitor would have to be the right fit geographically and culturally.
Public affairs agency with a fee income of roughly £4m last year and around 30 staff. Has been playing hard to get. Unlikely to forego its name and even less likely to join a big marcoms group.
Virgo Health PR
Formed in 2003, with 36 staff and a fee income of around £3.6m in 2006, desirable Virgo is single and proud and potential suitors will need to be patient, given the agency's reluctance to join a big network. But its founders have never said never.
WHO HAS TIED THE KNOT IN THE PAST 12 MONTHS...
The sale of tech consultancy Hotwire and consumer hot shop Frank PR to little-known listed Australian company Photon - paying £10m and £8.1m upfront respectively - rounded off a busy year of M&A in 2007.
-- PRWeek also broke the story of sports consultancy Fast Track being sold to Chime Communications in March, and the follow-up story in December when Chime also acquired Stuart Higgins Communications, merging Higgins' consultancy into Fast Track.
-- Additionally, Freshwater continued its strategy of buying regional and specialist consultancies, with the acquisition of Leeds-based Lynx and public affairs shop Waterfront Partnership, and London consumer agency Attenborough Saffron.
-- Six-year-old corporate and consumer agency Mantra PR was snapped up by marcoms agency Loewy during the summer of 2007.
-- City agency College Hill acquired 32-strong life science specialist Northbank Communications, as well as Gainsborough Communications and Stonehenge PR, while Edelman and FD bought agencies in China.
-- Already in 2008, Freshwater has bought Cardiff PR shop Merlin, and Photon has continued to show its interest in the UK, buying advertising agency Naked Communications. Also, comms agency Gyro International acquired healthcare PR shop HSD Communications in January.