Following a busy year of acquisition and consolidation in the industry, top executives at holding companies and large PR firms tell PRWeek the list of attractive, independent businesses in the US for potential buyers is shrinking quickly.
In fact, the first significant purchase of the new year took place outside of the US, with Havas snatching up Germany-based healthcare specialist Bird & Schulte.
"I don’t have a crystal ball, but I felt every time we looked at the news last year, we read about acquisitions, from the big holding companies to MDC acquiring Hunter PR," says Barby Siegel, CEO of Zeno Group, which is part of DJE Holdings and a sister agency of Edelman but operates independently. "We saw agencies sell that I thought would hold onto their independence."
Put simply, options are running thin for larger agencies that want to bolt on another shop to add expertise in a certain sector or geography.
"We’re always interested to see what’s out there that could strengthen an area of ours or add something that makes strategic sense, but there are fewer and fewer agencies available," adds Siegel. "There is an increasingly smaller group of independent agencies that aren’t connected to a holding company."
Numerous industry leaders note that one of the most attractive targets was scooped up by Havas at the end of the 2014. The French holding company bought Formula PR in late December, which reported $13 million in revenue and a headcount of 95 people in PRWeek’s 2014 Agency Business Report. As part of the deal, Havas also obtained Formula’s brand-activation arm, Formula Street, and the Formulatin Hispanic PR division.
Also in December, China’s BlueFocus – expected by insiders to be a buyer this year – made waves by acquiring a majority stake in Canadian holding company Vision7, whose assets include integrated agency Cossette and Citizen Relations.
Still, there are a number of independent shops on the minds of potential purchasers, representing a cross section of verticals from technology to consumer PR.
Executives also anticipate a slowdown in the market for digital and social media marketing firms.
Tim Dyson, CEO of Next Fifteen, says he thinks activity and interest "in social marketing agencies has really cooled because the pricing is no longer attractive. They’re being priced so highly that buyers are saying, ‘I can build my own for a lot less.’"
Instead, he predicts ad agencies will buy PR firms, given that the "dividing line between paid and owned media has started to disappear."
"I see ad agencies realizing if they don’t move into owned, they’re really going to struggle," explains Dyson, who anticipates PR firms with headcounts of about 50 will be most attractive to buyers. "At that size, they’re big enough that they can work with customers of magnitude, but not so big that they can’t be integrated into something."
Other top executives say they are looking for major independent healthcare-focused firms to be snatched up.
The next 12 months could also see PR agencies look more often outside the earned media box in response to the growing demand for branded content.
"Equally, businesses like ours are looking at paid media firms," points out Dyson. "We want businesses that understand how to create content for a paid audience, and have the technologies that enable them to get that content to the right people."
Richard Edelman, CEO of the world’s biggest PR agency, Edelman, agrees there are fewer attractive opportunities in the digital and social media sector.
"We are Social was bought by BlueFocus, which is a high-valued stock and clearly a buyer, and Sapient was bought by Publicis, so there are fewer digital agencies," he explains. "I don’t see the big holding companies making those kinds of purchases."
He is also less bullish than others about industry consolidation overall, noting some holding companies struggled financially last year. As for his own firm, Edelman says any acquisitions the eponymous agency will make this year "will more than likely be from outside the US," since the country already accounts for half its business.
Meanwhile, a senior executive at MDC Partners says his holding company is expecting to target US PR firms that were founded during the digital and social media age.
"PR is one of the disciplines that has benefited the most from the rise of social media and increased transparency that consumers require of brands," says David Doft, CFO of the holding company.
He touts MDC’s PR group, which has seen annual growth rates in the double digits in the past few years. Its roster of communication firms includes Allison+Partners, Kwittken, and, as of last year, Hunter Public Relations.
"We’ve benefited from having invested behind firms that have been born in the modern age, and have digital and social media capabilities are their core," says Doft.
With the help of insight from top industry executives, PRWeek spotlights six firms that potential buyers likely have their eye on. (Of course, whether these firms are interested in selling is another story).
Founded in 2008, the San Francisco-based tech PR firm has a client roster that includes LinkedIn, Salesforce.com, VMware, and Zephyr Health. Cofounder Rachel Petersen was one of the first employees of The OutCast Agency.
A consumer marketing agency in Chicago that last year celebrated 25 years in business. Founded by former GolinHarris VP Jonni Hegenderfer, JSH&A works for Hershey’s, McDonald’s, and Bosch, among other well-known national brands.
This digital marketing agency in Atlanta has done projects for InterContinental Hotels, Sharp USA, and VeriFone. On his LinkedIn page, cofounder and CEO Brian Easter says Nebo has had 10 consecutive years of growth and has never had layoffs.
A food and nutrition marketing company with offices in Chicago and Washington, DC. Clients have included Kellogg’s, Frito-Lay North America, and Welch’s. Sue Pitman, a former VP at Edelman and Porter Novelli, opened the firm in 2006.
Integrated communications agency in Chicago with a focus on public affairs, healthcare, education, and transportation. Its portfolio includes campaigns for GlaxoSmithKline, US Cellular, and Chicago O'Hare International Airport.
San Francisco tech PR firm made its first acquisition in October of Socialarc to expand its digital and social media services. It’s doing projects for the likes of Visa, Walmart, and Symantec.
This story was updated on January 16 to correct the location of JSH&A, which is headquartered in Chicago, not Boston.