Writing exclusively for Influence online Keith Hunt, Managing Partner at business management consultancy Results International, discusses new research into mergers and acquisitions in the public relations sector.
Our latest research showed that last year was a very strong one for mergers and acquisitions involving PR agencies: there were 75 deals globally, in line with the equally active 76 seen in 2014. PR businesses also comprised 8% of the 979 deals seen during 2015 for the entire marcomms sector, making it the third most active sub-sector after digital and integrated agencies. In Q4 alone there were 22 PR deals out of the 250 marcomms transactions recorded worldwide.
So the market’s been strong for a few years now and it continues to look that way. In particular, what’s hot right now are the high-end firms that tend to deal with the C-suite and have a strong ‘consultancy’ positioning with a focus on reputation work. It was this that made Blue Rubicon very attractive to its recent acquirer Teneo.
In addition, quality content and online/social media skills are hugely important and in demand. Though for the future, we’d expect to see a bit more integration taking place so that PRs are not quite as isolated as they have tended to be. Instinctif, for example, is one of those players that has broadened its offering away from pure-play PR and towards more engagement with the whole communications process.
And that approach makes sense. In days of old, where the agency world was neatly carved up into different disciplines (advertising, DM, SP, design, website/digital etc.) the whole landscape was quite siloed. But now the mantra of ‘the customer journey’ has changed all of that – the entire marcomms sector is much more integrated and disciplines often merge into each other.
The PR companies likely to attract most buyer interest are therefore those who deal with the C-suite and produce quality content and digital work, perhaps taking a more integrated approach. But beyond that, acquirers are looking for companies with strong financials that show growth as well as margin – and scale too, £5 million revenue plus. The healthcare PR sector is particularly attractive, and while London agencies tend to be the focus of M&A activity, in the regions we see more mergers/coming together of smaller businesses.
The truth is that globally, UK PR skills are highly sought after – we are considered a centre of excellence, particularly for reputation management and C-suite-level communications strategies.
And when it comes to future M&A activity there are undoubtedly some interesting players to watch. Private equity (PE) houses are increasingly getting involved, with Instinctif backed by Vitruvian and Four Communications backed by BGF. Chime is also worth watching; it sold the majority of its interest in Bell Pottinger a while ago, but has still got Good Relations and its backers are encouraging Chime to be acquisitive. Plus the recent Edelman-3 Monkeys deal shows that the major networks will always happily acquire more businesses if they want a bigger UK footprint.
In fact, there’s global interest in the UK PR sector from buyers both within and outside the traditional marcomms space. US-based Teneo Holdings bought Blue Rubicon and is still interested in high-end consulting businesses; another US buyer, Finn Partners, bought Horn Group in the US and is looking for further acquisitions. We’ll probably also see a bit more action from Asian buyers, either Korean or Chinese. So far we’ve only really seen Huntsworth investor BlueFocus getting involved (and it may yet do more), but there are other Asian groups in the wings looking and passing slide rules over UK PR businesses.
There could also be selling activity while the market is strong. The PE-backed businesses like Four and Instinctif will at some point try to do an exit transaction – but in all honesty probably not this year. Still, if the right buyer comes along, there’s no doubt that PE backers will sell.
What’s clear is that it’s a strong market right now across all of marcomms, including PR, but who knows how long that will last. If your business is in a position to be attractive to buyers, now is a good time to do a deal.