For entrepreneurial agency owners it would be nice to think that this week’s rash of mergers and takeovers in the public relations sector presages a return to ever more frenetic and generous deals fuelled by buoyant economic times. But why should anyone think that?
We are told the economy is making good progress, but are warned that there are plenty of reasons why it may not last.
So it is hard to believe that more agencies are being bought and sold at the moment simply because a gentle boom in trade and money supply is fuelling company values.
Nevertheless, market conditions have probably improved sufficiently for companies to be looking ahead more positively, rather than simply struggling to keep on course.
And, with the cost of borrowing remaining favourable, we may be seeing evidence of opportunistic buyers seizing the chance to acquire businesses at an attractive price that will redress past weaknesses – genuinely strategic deals.
A quick look at the recent deals suggests that, to a greater or lesser extent, there were genuine strategic reasons for them.
The game of pass-the-parcel played with Speed Communications (formerly Raymond Loewy International) is a case in point.
Writtle Holdings acquired the business as part of the Loewy Group in a deal in 2011, but the agency had not been making money recently and lacked critical mass.
So Writtle was happy to pass it on to Mission Marketing Group where it could be combined with the Bray Leino PR operation and bring more clout to the combined enterprise.
The background to the PPS sale to Porta Communications is also rather untypical.
Porta believes PPS Group’s biggest shareholder Stephen Byfield and his team will be able to bring real value to its public affairs and lobbying business.
That ambition must be set against a backcloth of PSS Group’s rather erratic profit.
A year or so ago the consultancy did little more than break even as it suffered from a fall in business from the food retailing sector.
That spurred the management to tighten its grip on resources and, lo and betide, revenue rose by 15 per cent, the operating profit margin exceeded 15 per cent and the pre-tax profit leapt to £706,000.
Nevertheless the lack of a solid track record probably enabled Porta to negotiate a purchase price of £6m that remained well below the stratosphere.
Byfield enjoyed two-thirds of those proceeds, so will not need to work again, but half of his payout has been paid in Porta shares.
Only time will tell whether that will be enough to retain Byfield’s continuing commitment to the business.
Weber Shandwick’s acquisition of Swedish agency Prime may also be as much about expanding the network’s critical mass in the Nordic region as about buying businesses for the sake of it.
After getting its fingers and toes quite severely burned in the first half of the last decade, Interpublic has not been particularly energetic in the acquisition market in recent years. But its balance sheet is looking better now.
Even the sale of Braben to the US agency MWW looks more like a territorial bid for strategic reasons than the purchase of Sarah Locke’s relatively small business for any other purpose.
In a nutshell, this is the shake-out season, when companies feel secure enough to do measured deals for reasons other than size alone.
It would be a brave person who assumed that the industry was approaching a frenetic period of takeovers again. But who knows?
Bob Willott is the editor of Marketing Services Financial Intelligence
