The last five months have seen at least eight small-to-medium
specialist PR businesses sell to larger, full service agencies.
The acquisitions have ranged from GCI’s purchase of consumer agency Jane
Howard PR in June, to Biss Lancaster’s merger with regional network
Leedex PR the same month, to Fleishman-Hillard’s purchase last week of
healthcare agency CPR. In fact, the market for small and, in particular,
specialist agencies is now so buoyant that some are in danger of pricing
themselves out of reach.
PR businesses are often valued at a multiple of their earnings after
tax. While multiples in the UK used to range from five to eight times
earnings two years ago, they can now reach 11 times earnings, on a par
with prices paid in the US.
Until recently, the trend was for large marketing services groups such
as Omnicom and Interpublic to acquire international PR networks and fill
gaps by buying local operators.
Now full service agencies are using acquisition to consolidate their
position in particular industry sectors and PR practice areas.
Fleishman-Hillard director Matt Fearnley says: ’Our healthcare business
is one of the largest in the world, but the London office has not got a
particularly strong healthcare presence so the purchase of CPR will help
greatly with that.’
There are a number of reasons why this kind of filling-in is happening
with such intensity in the latter half of 1999.
The most obvious reason agencies are turning to smaller PR businesses is
that most of the larger ones have been bought. Of the top 15 in the UK,
only three - Text 100 group, Edelman PR Worldwide and Brunswick - are
not part of larger groups.
But many full service agencies also see acquisition as an alternative to
recruitment. Ogilvy European president Paul Philpotts says: ’Buying an
agency is the most effective way of hiring people, as you get experience
and income.
’In the last two years the healthcare, technology and financial services
markets have matured in a big way and there aren’t enough people to go
around,’ he adds.
Ogilvy itself acquired financial specialist in September and merged it,
and its staff, within its European corporate practice. Sector managing
director Julian Goldsmith became MD of the practice.
Indeed, the use of acquisition as a recruitment tool is now so
established that ’marriage brokers’, go-betweens who organise
acquisitions, sometimes charge a headhunter fee rather than the usual
commission.
Mark Madsen, who brokered deals between Consolidated Communications and
consumer agency Leadbetter PR, and Chime and technology agency Landmark,
often works for a headhunters’ fee.
It is traditional for brokers to charge a commission on the price paid
for the agency - these days around 1.5 per cent on the first million and
one per cent of the balance thereafter. But some brokers now ask for 20
to 30 per cent of the agency head’s salary.
According to Madson, prices are particularly high in the financial,
healthcare and IT sectors. Ten years ago, when full service agencies
began to create specialist practices, many consultants with
entrepreneurial spirit left to set up on their own.
’A lot of these guys have found themselves in a rapidly growing
marketplace and are now in a position to capitalise on their growth,’
says John Smith, senior partner of Landmark, a technology PR strategy
specialist which has just been bought by Chime for its Bell Pottinger
Good Relations business.
In the meantime, hi-tech companies have grown into multinational
corporations, while the healthcare and financial services industries
have consolidated, again creating large companies. As these companies
have matured, their PR needs have broadened. While still relying on
their consultants to have specialist knowledge of their sector, they
need a broader set of PR skills, from public affairs to financial media
relations.
Many hi-tech and healthcare clients are simply increasing their roster
of agencies, but others are looking to one PR shop to serve a variety of
needs. ’Size is beginning to matter again,’ says Philpotts.
His view is backed by GCI UK chief executive Adrian Wheeler: ’You have
to stake your claim as a serious, large, quality full service agency now
or you will miss the boat.’
Competition is growing particularly tough for the largest agencies. The
latest survey from marketing services accountants Willott Kingston Smith
shows gross income at the top 20 agencies grew by 8.5 per cent in the
last year, down 6.9 per cent on the year before.
Anyone who has been through the process of buying or being bought
advises caution and a long courtship. Wheeler has looked at 60 potential
acquisitions in the last two years, but has actually consummated only
two.
With Shandwick now part of McCann-Erickson parent Interpublic, and about
to get out its chequebook again after a period of consolidation, the
acquisition market is likely to heat up further. Keeping a cool head
will become increasingly important.
RECENT ACQUISITIONS
JUNE
- GCI buys Jane Howard PR
- Consolidated Comms buys
Leadbetter PR
- Biss Lancaster acquires Leedex PR
AUGUST
- Rowland acquires Red Rooster’s fashion business
SEPTEMBER
- Ogilvy PR Worldwide acquires Sector PR
- Chime buys Landmark October
- Chime acquires Wearne Associates
- Fleishman-Hillard buys CPR
