Mergers and Acquisitions: Growing through small agencies is all the rage - Fleishman-Hillard’s acquisition of CPR last week followed a growing trend of large corporations expanding their offerings by engulfing smaller agencies

The last five months have seen at least eight small-to-medium specialist PR businesses sell to larger, full service agencies.

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


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


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


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.



- GCI buys Jane Howard PR

- Consolidated Comms buys

Leadbetter PR

- Biss Lancaster acquires Leedex PR


- Rowland acquires Red Rooster’s fashion business


- Ogilvy PR Worldwide acquires Sector PR

- Chime buys Landmark October

- Chime acquires Wearne Associates

- Fleishman-Hillard buys CPR

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