Certainly the serious entry of the Australia-listed Photon Group into the market this week is a significant development in a surging domestic PR market.
Photon augments the ranks of UK-listed groups such as Huntsworth, Chime and Next Fifteen – along with the global giants WPP, Omnicom and Interpublic – as potential suitors for outstanding agencies such as Frank, and the still independent Cakes and Blue Rubicons of this world.
In addition, the Chancellor’s announcement last week of the reduction in ‘taper relief’ on Capital Gains Tax (CGT) could be an even bigger factor.
From April 2008, PR agency principals who sell their agencies will have to pay CGT at 18 per cent, rather than the current ten per cent, which in theory could lead to a swathe of agencies selling up in the next six months.
But, on the flipside, potential buyers will recognise this and may feel they can offer lower prices for agencies.
And, as most deals include a deferred payment – or ‘earnout’ – to tie in the agency principals for several years, a large chunk of the money may still be affected.
Another factor that may limit the amount of agency acquisitions is a slight loss of confidence by some of the marketing services groups. One senses that firms such as Huntsworth and Creston, whose share prices are hardly booming, are now a bit less acquisitive than they were at the beginning of this year.
They may also feel that if they buy now they are moving at the top of the market and may be better waiting another year to see what happens.
As ever it is impossible to predict exactly how this free market for talent will pan out.
But, on balance, we should probably expect the CGT changes to force some people into making big decisions that they have been hitherto putting off.
danny.rogers@haymarket.com
