LONDON and SAN FRANCISCO: In one of the most significant technology PR M&A transactions since the sector was hit by a massive downturn, tech-focused Applied Communications has sold its PR division to London-based Next Fifteen Communications Group in a deal valued at between $1.5 million and $2 million, payable in cash over three years. The final payout will be subject to certain performance criteria
The buyout pales in comparison to deals struck for tech shops during Silicon Valley's heyday.
In 2000, Incepta Group snatched up Cunningham Communications for a minimum price then valued at a $45 million (an equal mix of cash and stock), which was nearly twice Cunningham's reported revenue for 1999. By contrast, the maximum price tag of $2 million on this deal represents just 22% of Applied's 2002 domestic PR revenue as reported in PRWeek's annual agency rankings this May.
Next Fifteen CEO Tim Dyson said, "A few years ago, the prices being paid for tech agencies were unrealistic. The price points today have become more realistic."
While Applied CEO and founder Alan Kelly and Dyson declined to reveal more financial details, they pointed to conditions they said make the deal worth more than it appears. They explained that Applied will get a substantial reduction of debt through the termination of its San Francisco lease, and will retain its analytics business and Amsterdam office, as well as accounts receivable and cash.
Dyson said he had been pursing Kelly for a while.
"We've talked for years about how we might work together," said Dyson. "Every six months we'd drag Alan out and hope he would say the time was right to become a partner."
The time was right this time, as Kelly recently put Applied on the market. He has become more focused on his research division, and said he had become frustrated by the commoditization of PR services - no doubt fueled further by the loss of such clients as Hewlett-Packard, Veritas, and Epiphany, as well as several senior staff over the past year. Kelly will stay on as a consultant through the end of 2003, but does not appear to have a prominent role in the firm.
He will continue to run his research division as an independent firm under the Applied Communications name, working with clients such as Cisco Systems (which is currently in the midst of a hotly contested PR agency review), Sun Microsystems, and Genentech.
"This is an indisputably good deal," said Kelly. "This is a situation where it made sense to sell, and lets me maneuver my career in a new direction."
Next Fifteen plans to merge Applied's PR operations with that of Bite Communications. The newly formed agency expects to generate $14 million in revenue, and will have more than 100 employees and 55 clients worldwide. All of Applied's PR clients - including BEA Systems and VeriSign - and most of its staff will make the move to Bite. Clive Armitage, CEO of Bite Communications, will relocate from London to San Francisco to oversee the firm.