Publicis, Headland, Hotwire, Clarity: PR M&A shifts up a gear with familiar trends

There's one word I would use to describe the recent spate of mergers and acquisitions (M&A) in the PR industry: familiar.

Recent deals (clockwise, from top left): Publicis and Taylor Herring; Clarity and 3WhiteHats; Hotwire and McDonald Butler Associates; and Headland and LDC
Recent deals (clockwise, from top left): Publicis and Taylor Herring; Clarity and 3WhiteHats; Hotwire and McDonald Butler Associates; and Headland and LDC

Encouragingly, predictions of multiple PR agency 'fire sales' during the pandemic did not materialise.

Joe Hine, an M&A advisor and partner at SI Partners, explains: “There were some businesses, either very unlucky or badly run, that collapsed very quickly [after the pandemic hit] because they didn’t have cash reserves or [were] overexposed to the wrong sectors and fell apart. But actually most survived and the Government’s support was very generous.

"We thought that in September, when they were starting to switch off Government support, we would see a cash crunch, but we didn’t see it then either. The reality is most people consolidated what they were doing and clients were pretty robust… by the end of the year a lot of businesses we know had stronger profits than they did before."

The second quarter of 2020 was very quiet for M&A, Hine says, but activity sped up from last summer. “Coming into Christmas it was incredibly busy and Q1 this year has been absolutely phenomenal, in M&A more generally, but also in PR and comms businesses. People are thinking: 'Now is the time I need to make my moves while other businesses are weak and I’ve succeeded.'”

We're broadly seeing a return to pre-pandemic trends; albeit, as with much in the COVID-19 era, at an accelerated pace.

Well-funded agencies have been making acquisitions to fill gaps in their current offerings and take advantage of new opportunities. Last month Hotwire paid £3.5m for McDonald Butler Associates (MBA), a UK-based b2b sales and marketing agency with 30 employees.

"We have no doubt that adding MBA’s specific sales and marketing expertise and complimentary client roster will unlock new possibilities of growth," said Brent Scrimshaw, chief executive of Hotwire's parent company, Enero Group.

There was a similar trend at Finn Partners, which earlier in April snapped up MintTwist, a digital marketing shop with expertise in performance marketing services delivered by specialists working across web, SEO, paid advertising, social media and more.

This week brought another example: Clarity, with backing from Freuds network The Brewery, bought 3WhiteHats, a creative SEO, paid and analytics specialist.

From 'M' to 'A'

Frank co-founder Andrew Bloch, who last year joined M&A advisory firm PCB Partners, says: "There was a trend that was happening anyway, and that's now collided with the economy and a feeling of optimism. Last year there were definite elements of consolidation happening within holding groups and within the industry. Now there's less of the 'M', more of the 'A'."

He highlights the trend of "big agencies and holding groups building their skill sets, especially in digital, data, ecommerce". That's combined, he argues, "with clients who are looking for less complicated, more single-agency structures".

Where earned media specialists have been acquired, the spur has not generally been desperation caused by recent poor performance.

Take Publicis Groupe's two PR acquisitions this year. Revenue at Taylor Herring, the multi-award-winning consumer agency renowned for its punchy stunts, grew a healthy 13 per cent in 2020. For context, aggregate revenue across the PRWeek UK Top 150 Consultancies fell 4.3 per cent last year, with consumer among the hardest-hit areas. (Pictured below: the Publicis and Taylor Herring leadership)

Speaking on PRWeek's podcast in April, Taylor Herring co-founder James Herring said the pandemic "did play a role" in the timing of the deal, "but not because we were having a hard time financially". The lockdown and subsequent slowing of the 'hamster wheel' of pitches and activations presented the leadership with a rare opportunity to properly consider their next move, he explained. Herring also reiterated that the deal aims to 'turbo charge' growth at Taylor Herring.

The situation at Octopus, which was acquired by Publicis in February, is similar. Revenue at the agency grew two per cent in 2020 and the b2b specialist has been a leading player in its field for several years, topping the PRWeek UK Top 150 b2b table in both 2021 and 2020.

Publicis, which is also the owner of PR agencies MSL and Kekst CNC, views the Octopus acquisition as a way to gain specialist b2b expertise to compliment its existing roster of agencies. These agencies are in particular demand at present, says Hine. “The b2b world is one people are realising is quite untapped with great margins, and particularly tech b2b," he says.

Holding companies

It's tempting to see the Publicis acquisitions as a sign that global marcomms holding companies are back in the business of PR M&A. Received wisdom was that the behemoths have been out of the game for years as private equity (and, to a lesser extent, management consultancies) snapped up PR assets.

However, that's only partly the case. True, the biggest deals in recent years – including Teneo, Huntsworth and Instinctif – have involved private equity. But Weber Shandwick's acquisition of social creative agency That Lot and mobile and digital specialist Flipside, and Havas' move for independent public affairs shop Cicero (led by Iain Anderson, pictured below), show holding companies were willing to put their hands in their pockets to diversify their offers in the pre-pandemic era.

Bloch suggests another reason to expect more acquisitions from the big listed holding groups: "They've got a responsibility to their shareholders to deliver value. If they're not getting that by organic growth and they see a decline in revenue from existing clients, they have to get that growth elsewhere, which is why they turn to inorganic growth.

"In some ways that has benefited the movement in the market. If you're in a stable market, in terms of the economy, you can – to a greater degree – manage your organic growth. That has steadily gone out of the window for most of the groups because it's been such a volatile period like we haven't seen before."

Along with b2b, healthcare is also a target, Hine believes. In March, UK healthcare PR specialist Spink was acquired by global group Emotive, ending its 32-year history as an independent business.

Hine also points to public affairs/strategic communications specialists as being especially attractive for acquirers, particularly as companies navigate the challenges of Brexit. He believes professional services consultancies could make a play for strategic comms firms.

“That professional services sector, which is not core to where we think comms are, [is] likely to work out how they get into the comms space. That strategic comms layer is exceedingly valuable, particularly in the year of the CEO."

But private equity's interest in the sector has not diminished. Says Hine: “Private equity have woken up to comms businesses, particularly well-run comms businesses with a high retained client base, high profit margin – those that are very strategic in a lot of the communications that they're doing."

This week one of the most active private equity investors in comms, LDC, moved for Headland (pictured below), the fast-growing corporate communications and public affairs firm.

LDC invested in Blue Rubicon back in 2012 and in 2019 became the majority backer of Instinctif, and MSQ, the marcomms group that owns consumer PR agency Smarts. It's little surprise Headland would be on its wishlist.

What's unusual about the deal is that LDC has only secured a minority stake in the business, which runs as a partnership. The agency's revenue grew 20 per cent last year to £16.3m and LDC's involvement will be seen as a catalyst for even faster expansion. A fire sale this is not.

"From where I sit… there's certainly no devaluing of companies," Bloch says. "If you want to acquire a good company, it's a partnership, and it's a long-term partnership. You're not going to get anywhere hammering them down on the fact they might have had a weak year – you're actually looking to give them the confidence that they're not being devalued as a result of it."

Valuations

How do valuations compare to the pre-pandemic period? "It depends very much on the nature of the business," Bloch says. "You get a sense that what acquirers are doing is factoring out the 'blip' year – they are almost skipping [2020], and valuing it on where you were in 2019, where you would be in 2021.

"In the ecommerce space, in the data space, in the performance marketing space – that's where valuations are increasing all the time. It's definitely an inflationary market, especially where you get to a certain size [and] have a bigger footprint." For 'pure-play' PR, he adds, the valuation level is "pretty much where it's always been – I don't see it decline".

Underlying the recent spate of M&A is the generally positive outlook among PR agencies. Research for PRWeek's UK Top 150 Consultancies project found an overwhelming majority were either 'moderately confident' (60 per cent) or 'very confident' (37 per cent) that 2021 will be a strong year of trading for their UK business.

In this sense, we're back where we were: well-funded agencies and holding companies seeking strategic acquisitions to exploit new opportunities, while owner-managed businesses look to private equity to propel their growth. Familiar is not such a bad place to be.

John Harrington recommends

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