Doing it the Right Way

Richard Goldstein

This month I’m writing about “Doing it the right way.” What do I mean by this? It’s the title of new book by Rick Gould, managing partner of Gould + Partners. Gould’s book discusses the steps necessary for a successful PR agency merger or acquisition.

Why is this book important? How does the market look for 2016 and beyond? Rick’s book is important to every PR agency thinking of acquiring or selling. In 117 pages it gives you solid information on what’s necessary if you’re considering a sale or purchase.

Where is the market heading?

According to Rick, the marketplace is active and robust. There are more buyers and sellers than ever before. There are new buyers who know they can capitalize on pricing and intellectual capital. (Point of information: intellectual capital does not appear on your balance sheet, but it is truly your most important asset.) If you can’t perform to the highest standard of a customer’s expectations, you won’t have a client for long.

2015 was the biggest year for mergers and acquisitions on record, with more than $5 trillion in transactions (including all industries, not just PR). 2015 was a busy year for independent PR agencies.

New York-based Finn Partners acquired Seigenthaler PR and DVL in Nashville and combined the two firms to create the largest firm in Nashville and a dominant force in the Southeast. They also acquired New York-based The Horn Group.

Long Island and NYC based Didit acquired Bridge Global and J.B. Cumberland.

In April 2016, National Public Relations, the largest PR firm in Canada, acquired Boston-based Shift Communications, an integrated communications firm known for its thought leadership, innovation and robust technology practice, data driven PR, and Google Analytics Certified Partner distinction.

It seems to me that future PR agencies will need to take on a greater role in providing integrated communications and marketing services. Customers of your agency will be looking to you to provide strategies and solutions involving a more integrated approach. By integrated communications/marketing I mean an approach to creating a unified and seamless experience for consumers to interact with the brand/enterprise; it attempts to meld all aspects of marketing communication such as advertising, sales/service promotion, public relations, direct marketing and social media through their respective mix of tactics, methods, channels, media and activities, so that all work together as a unified force. It’s a process designed to ensure that all messaging and communications strategies are consistent across all channels and centered on the customer.

Why the spike in 2015?

Why are new buyers evolving? Strategic acquisitions are the new norm. Buyers are acquiring to improve specialties, locations, quality of staff (intellectual capital, if you will), clients, name brands and an integrated marketing strategy.

Who are the new buyers? Many are one-office firms acquiring other firms in locations that will facilitate and improve service and firm depth. They recognize a need for niche specialties. They realize that integrated marketing services are the wave of the future.

Firms are starting to realize that bigger is better. With size, there are economies of scale, and these economies go straight to the bottom line.

Why are firms selling?

Sellers pools have increased. There are many quality firms available to be sold. Owners are looking to monetize their years of sweat equity. They want relief from back-office distractions. They need regional and/or international reach. They desire expansion of brain trust and depth of staff needs to grow. Owners want to practice PR versus building and managing the firm. They see many efficiencies of scale by sharing labor and operational expenses, among other reasons. Also, smaller firms are losing pitches that they could have won if they were bigger. Financial resources and the intellectual capital of the buyer is a huge advantage in winning and retaining clients.

The “age factor” as a reason to sell

The age factor is now more relevant than ever. The boomer-generation are now at an age where selling makes sense. To retire comfortably, they need to monetize their twenty-to-thirty-year invested asset.

Buyers don’t want to buy firms whose owners are in their late sixties or early seventies, thinking they may not have enough stamina to fulfill an earn-out obligation and stay beyond. Buyers are willing to acquire seller firms with older executives if there is a solid, experienced second tier of management.

Does the size of your firm matter?

The short answer is “yes.” There are certain plateaus in the PR industry/profession. Firms want to reach the next financial plateau: $3 million to $10 million to $15 million and so on. Frankly, I have not seen many firms go from $1 to $10 million in a short time span, but it is possible. I believe firms doing $1 to $3 million should consider $5 to $6 million as a first plateau. The reason: to get to and operate a $5 million or $6 million firm requires a lot more infrastructure and a stronger second tier of management than a $1 million or $2 million firm. In my view, bigger firms have more intellectual capital that can be monetized, not to mention a higher profile customer base.

So you want to sell in two or three years?

Whenever I talk to PR firm principals I always ask if they have plans to sell, buy or merge. I titled this column as “Doing it the right way.” So, what is the right way?

In my view, the very first step is to understand what is takes to have a successful transaction. Rick feels there are 13 steps or keys to a successful transaction. This column will review this and other keys to success in future columns.

For now, however, I leave you with this: the key is value creation; the key is merging cultures; the key is to create a best-place-to-work environment and culture by maximizing the intellectual and creative capacity of both the seller and buyer; the key is to overcome the apparent risks in consolidation and the merging of cultures; and the key is not making your transaction a statistic in the failed-deal column.

Remember, you should not try and sell a distressed firm, such as a fire sale, but a firm that is going growing and profitable, ready to capitalize on a buyer with wider reach in geography, talent, service offerings, and overall depth.

Here’s a good start and a plug for me. Make sure your CPA, lawyer, and management consultants know your industry and have relationships within the industry! If they don’t, switch!

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Richard Goldstein is a partner at Buchbinder Tunick & Company LLP, New York, Certified Public Accountants.