There are several trends fueling the increase in transactions among professional services firms and PR agencies, in particular.
Build or buy?
The overriding and most important trend, of course, is the ongoing transition to digital PR and marketing, from traditional media channels, which is causing firms of all sizes to reinvent their business model.
PR agency owners can ill afford to stand still. When you consider the furious pace of change in marketing communications, indecision could lead to so-called “growth gridlock,” whereby firms get stuck in their ability to grow revenues and profitability. They get caught in the middle, and get squeezed.
Seldom has the age-old question whether to grow organically or via acquisition been so top of mind among agency owners and senior managers.
Indeed, the onus increasingly is on owners to decide whether they’re going to invest in new digital services/online tools internally or acquire such services via buying other firms and inserting them into the fold.
PR agency owners also need to bolster their social media messaging efforts and monetize their social channels, which has proven elusive for many firms.
The marketplace begs owners the question: Build or buy?
Part of the issue is generational. Many current PR agency owners now are in their late 40s and 50s and have been conditioned on traditional PR disciplines, such as crisis communications and media relations. Some of them prefer to sell out and begin a new chapter in their lives.
However, a growing number of second-tier managers grew up with the Web, digital PR and social media messaging and are eager to monetize those marketing vehicles.
That’s why it’s critical that PR agency owners strongly cultivate their deputies because it’s those executives who will be responsible for driving profitability once the original owners cash out.
Another accelerating trend for PR agency owners to consider: the growing influence of private equity on the PR landscape.
In the last few years private equity players have jumped into the market with a vengeance, and now compete head-on with strategic firms to acquire traditional PR and advertising shops, as well as digital and social media agencies.
Take the Stagwell Group. The investment group, headed by former WPP and Burson Marsteller executive Mark Penn, has been on a purchasing spree for nearly a year.
In January, Stagwell acquired a majority stake in digital agency Code and Theory. That deal followed Stagwell’s purchase in late 2015 of public relations firm SKDKnickerbocker as well as the National Research Group, from Nielsen.
Private equity has also been involved in other transactions.
Global PR agencies are in the hunt to extend their services, too.
The global shops also are on the constant lookout for “bolt-on” transactions, or digitally driven agencies that dovetail with existing practices.
A few years ago the CEO of a major global agency told us that it’s a “jump ball” among professional services firms.
That sentiment is even more pronounced these days, as PR firms now have access to marketing budgets that were previously off limits.
But in order to serve large brands, PR firms must bring an entire suite of products to the table and offer clients one-stop shopping.
Taken together, the trends are sparking more and more secular changes throughout PR precincts. Some firms continue to cultivate their social media services in-house and hire nontraditional employees well versed in online analytics and event programming, for example.
However, other firms will have to acquire additional services, while still others will have to sell their firms to even bigger firms that have the digital infrastructure and resources that the selling company lacks.
Whatever the situation, market changes are forcing the hand of agency owners to bust a move one way or another.
The window to commit to a “build or buy” strategy is fast closing. Firms that continue to waver may be a left outside in the cold.
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Rick Gould is managing partner of Gould+Partners and author of “Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger or Acquisition.” He can be reached at email@example.com or 212/896-1909.