ANALYSIS: CONSULTANCY DEALS: Specialists prosper in a seller’s market

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

A taste for takeovers has returned to the PR consultancies market, but

this time both buyers and sellers are more cautious than their 1980s


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


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


‘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


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


‘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


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


‘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.’

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