A taste for takeovers has returned to the PR consultancies market, but
this time both buyers and sellers are more cautious than their 1980s
counterparts
In burying a 1980s time capsule the most appropriate image would
arguably be a clip of Michael Douglas in Wall Street playing the
archetypal corporate adventurer Gordon Gekko.
The decade’s business environment was characterised by a wave of mergers
and acquisitons and the PR sector was no exception.
Although the mid-1990s PR community has yet to come down with full-blown
M&A fever, there are signs of a small outbreak of the takeover virus.
This year saw advertising giant Abbott Mead Vickers take a renewed
interest in the sector acquiring Freud Communications and Fishburn
Hedges, while the world’s second largest communications group Omnicom
has added Ketchum, Smythe Dorward Lambert and a minority stake in A Plus
to a portfolio that already includes Countrywide Porter Novelli.
Last week’s PR Week reported that Ketchum is independently on the
takeover trail, as are several others in the market. So what is driving
this appetite for acquisition?
John Williams, managing director of Fishburn Hedges believes the current
trend reflects economic buoyancy.
‘At the beginning of the 1990s, agencies were struggling to make
margins. Now, top agencies are up by an average of 15 per cent,’ he
says.
Paragon’s chairman Julia Thorn was at the centre of the takeover melee
in the 1980s when the company acquired a network of regional
consultancies, only to be itself taken over by Shandwick in 1990. She
believes the merger locomotive is fuelled by an increasingly mature
market.
‘Overall client spend is not increasing, so the only way for agencies to
grow is to pinch market share - either organically or through
acquisition. There is pressure to grow by double figures and the bigger
the agency, the more difficult that is to achieve organically,’ she
says.
Thorn also points out that bigger agencies are competing increasingly
with smaller niche agencies. An obvious answer would be to buy them.
This is exactly what Omnicom did with ‘organisational communications’
specialist Smythe Dorward Lambert in October.
SDL’s managing director Colette Dorward says: ‘Companies like ourselves
are attractive propositions as our speciality is at the start of a huge
growth period.’
Dorward recognises the polarisation of the marketing services sector
into larger generalist organisations and the smaller specialist
boutiques.
‘There is consolidation among the big one-stop shops who need other
consulting disciplines to develop their range of services to clients,’
she says.
Abbott Mead Vickers talks of putting together integrated ‘dream teams’
for client briefs which are becoming increasingly specialised. Omnicom’s
managing director for Diversified Agency Services (DAS), Michael Birkin
says the ability to integrate specialist agencies is a factor but it
takes second place.
‘The main driver is that we want the best agencies in various
specialisms as they will win the most business,’ he says:
Of course deals are a two way process and apart from the obvious
injection of funds, acquired companies can also realise strategic aims.
For specialist agencies, organic growth can be difficult without client
conflict, and particularly on an international scale.
A Plus’ managing director Jonathan Simnett explains the value of the
Omnicom deal: ‘Mainly we wanted to achieve our international ambitions.’
Simnett believes technology is forcing a globalisation of PR programmes
as companies quickly launch products onto an international market. A
Plus can now take advantage of Omnicom’s two large US hi-tech agencies -
Brodeur Porter Novelli and Copithorne and Bellows.
Dorward had similar strategic aims. ‘As we grew and increasingly worked
in North America and the Pacific, we realised we had to link up with
someone. An organisation like Omnicom can take the brand worldwide,’ she
says.
Naturally acquisitions can also have their flipside. The Rowland Company
went through a very difficult time in the early 1990s, after its
takeover by the Cordiant advertising group. Some believe that
generalists’ acquisition of specialist players may also end in tears if
they don’t understand what they are buying.
Thorn believes the buyer must understand its target in order to add
value. ‘In the 1980s takeovers were often too hasty and the acquirer got
very little. In the 1990s PR agencies are not so cash-rich so it’s a lot
more measured,’ she says.
The indications are that advertising groups also are more empathetic
towards PR and better able to develop an inspired portfolio of agencies
- Abbott Mead Vickers is a case in point. Apart from cultural ‘fit’,
Simnett recognises that the key to a successful deal can be more
prosaic.
‘The purchase has to be the right amount of money to keep and
incentivise key staff. For them it should be the beginning of a new
career,’ he says.
Indeed takeover success may ultimately come down to financial detail -
the length of an earn-out period or bonuses offered against targets. PR
is a people business. The acquirer is not buying clients but the people
who service those accounts and these individuals must be kept on board.
Williams sums up: ‘In a takeover staff will have hopes and fears for
change. It’s all about managing expectations.’
