|Art Stevens and Rich Jachetti co-authored this article.|
There’s no denying that COVID-19 has turned the world upside down. Our personal and professional lives are dramatically different now. The pandemic has forced companies in every industry to quickly pivot and reevaluate how they conduct business—and how they can carry on in a smarter, more efficient and resilient manner moving forward.
Global crisis or not, The Stevens Group predicts that 2021 will be a banner year for PR agencies, as well as for mergers and acquisitions.
Despite the devastation COVID-19 and current economic uncertainties have had on many organizations this year, more PR agencies than you may realize have actually had good to outstanding performances in 2020. In fact, several folks in the industry we’ve had conversations with recently say they see increasing opportunities for completing deals in 2021.
A recent SearchEngineLand article stated: “While 2021 still holds some economic uncertainty, digital marketing leaders indicate that their agencies have been remarkably resilient, according to a fall survey of 167 global marketing leaders who use its services. The findings show that most agencies will finish 2020 with higher annual revenues than in 2019.”
Of course, while those PR agencies whose niches are restaurant and travel/tourism took pretty big hits—many of their clients either terminated their relationships, sliced their budgets or went on leave—many report that many of their budgets are returning, and they believe there’s an end to the frustration is in sight.
|This article is featured in O'Dwyer's Jan. '21 Crisis Communications & PR Buyer's Guide Magazine
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The Stevens Groups predicts that airlines, cruise ships, tourist destinations, resorts and other categories are gearing up for a better 2021, particularly during the second half of the year.
So, yes, the pandemic will continue to influence the deal market over the next 12 months. The good news, however, is that we’re observing a surprising level of optimism.
Emerging from the cocoon
In 2020, while there has been a lot of pent-up activity, we expect that many agency clients will begin to come out of their cocoons in 2021 and once again start spending on marketing, PR and branding. As a result, the money will flow as the economy begins to rebound, and agencies will experience a banner year. We believe it could even be much better than 2019 (right before the pandemic hit).
Here are some other trends we expect to see in 2021:
- More clients than ever will turn to PR agencies for the value they generate.
- There will be more acquisitions as PR agency owners start to see the value of becoming part of larger organizations that can help them grow faster than they ever would have on their own. They will also consider this step to help generate business and take administrative and back-office nuisances off their hands.
- Buyers will come from new ranks. For example, mid-size PR agencies that want to expand their bandwidth and services will acquire smaller firms, and the criteria will be to achieve greater critical mass; amass complementary services and niches; represent in markets they’re presently not in; get new and valuable clients; and, recruit new management personnel that will redound to everyone’s benefit.
- New categories of buyers will jump into the world of acquisitions: More and more private equity firms, family offices, consulting practices and ad agencies will be jumping into the world of PR agency acquisition.
- There will be more roll-ups. What does this mean? PR agencies will sell part of their equity to outside investors and, in return, receive the capital to acquire agencies and reach a specific size to have a liquidity event. We believe acquired agencies will also benefit from this “double-dipping.” CEOs of mid-sized agencies will use this mindset to grow their businesses at a faster rate to become an overnight powerhouse.
- PR agency budgets will increase exponentially because of the pent-up inactivity for much of 2020.
- PR firms will continue to diversify to stay in the game. As we noted in a previous article, it’s no longer fashionable to put all of your eggs in one niche. If you’re in the travel space, consider exploring similar niches like consumer products. Those agencies that are more diversified and increase their bandwidth tend to weather a crisis better than niche firms.
- Firms will increase the pace at which they are diversifying their service offerings. For example, earned media will eventually take a back seat to more robust, quantifiable offerings such as paid, searched, owned and inbound, and of course, all things digital. These services will replace earned media as the cash cow that will drive PR agency growth in 2021 and beyond.
The bottom line
Agency leaders must continue their proactive, aggressive efforts in the form of 2021 strategy initiatives and plans—stabilizing and taking care of employees, connecting with clients and providing reassurance to keep vital services going, preserving as much of the current business as possible and observing the competition for opportunities to succeed throughout the pandemic recovery stages.
Ultimately, this approach will help boost their odds of maintaining a better balance and shaping their future as we begin to gradually come out on the other side.
The Stevens Group is deeply involved in helping to establish niche roll-ups and working with private equity firms to accomplish this goal. In fact, we believe we’re taking the lead in bringing more private equity into the PR agency/marketing communications world and educating such firms on the benefits of investing in it. Within five years, you’ll see further consolidation of PR agencies with new players. PR is now considered a growth industry by investors, and we predict that, in time, there will be a scarcity of qualified PR firms available for acquisition.
You heard it here first.
Art Stevens is Managing Partner of The Stevens Group and Rich Jachetti is Senior Partner at The Stevens Group, PR agency mergers and acquisitions consultants and facilitators.