I remember not too long ago, it seemed the merger market for PR firms was hot and heavy. I thought this area slowed down. During 2011 there was definitely an uptick in the merger market. It does seem there is still tremendous interest in larger agencies acquiring smaller firms.
Crossing industry lines for a moment – the acquisition of CPA firms is as lucrative as ever. There are more buyers than sellers.
Even more interesting is smaller firms are in great demand. By smaller I mean about $1.5M to $2M in billing. I have even noticed larger firms interested in firms as small as $500,000 in fee billing.
The question is why a merger? For CPA firms I believe it is in part infrastructure, difficulty and cost of attracting new clients.
It is very difficult for a smaller CPA firm to keep up with high rent, especially on the west and east coast, higher malpractice premiums, the competition for talent, both industry and professional regulation, technology changes, and the voluminous changes in the tax laws and accounting pronouncements, especially the potential move to international accounting standards. As overhead started to rise, it became more and more difficult to raise margins to cover costs.
However, there may be an even more significant reason for merger. CPAs that I speak to are concerned with their second tier management being able to sustain firm growth and fund partner retirement. I trust this can also be an issue in the PR industry.