Today's NY Times' Dealbook covered the first acquisition by Mark Penn's Stagwell Group, staked by Steve Ballmer, the former Microsoft executive and current owner of the Los Angeles Clippers.
According to the Times, Balmer capitalized Stagwell Group by providing the bulk of the $250 million capitalization of the firm and the acquisition price for SKDKnikerbocker. Prior to taking a very high strategic advisory position to Ballmer at Microsoft, Penn was CEO of PR giant Burson Marsteller. SKDKnickerbocker, a firm well known for high profile political clients, had annual revenues of $50 million.
Does this latest deal portend an acquisition spree in the PR industry and related field?
In the last few months there have been several transactions, including:
• Edelman's acquisition of Smithfield Consultants in the U.K.
• MWWPR acquiring a majority stake in sports/entertainment firm Berk Communications and Marketing Group
• Finn Partners acquiring the SF/NY based tech agency Horn Group
• Didit acquiring N.Y. based consumer shop J.B. Cumberland
So as the M&A pendulum swings toward more deals should sellers start to prepare for a possible event? And what are buyers looking for, in addition to quality infrastructure, steady growth and around 20 percent recasted operating profit?
Here are a few tips and key questions for sellers to keep in mind:
1. The Brand. Does seller have a quality reputation? Is the company considered a thought leader?
2. The People. Would the leadership and firm work well in a larger environment? How strong is the second tier of management? Is a succession plan in place? Is the buyer entrepreneurial? In addition to the CEO, are there other rainmakers in the fold?
3. The Clients. Are they brand names? Are their fees in line? Are there additional services that the larger organization can offer your clients that you cannot provide?
4. Strengths and weaknesses? You have to take a clear-eyed approach, especially for the latter.
5. Who is the competition? Is there available talent to grow in their location if not in a major city?
6. Expectations. What are the seller’s expectations as to its future role, compensation, price and name of the firm?
And here are some tips for sellers:
1. The culture of the buyer ultimately is more important than the price.
2. The acquisition model. Is it a fixed price? A percent of net revenues? Or, an earn-out model based on future performance?
3. What value is the buyer putting on the firm? It is very important that buyer and seller agree to today's valuation?
4. What are the buyer's expectations? Does the buyer have an allegiance to the new company? What role do partners play in the transaction? Who would they report to?
5. What is the compensation package proposed? This encompasses salary, bonus program and benefits, for example.
6. Talent. What is the buyer plan for the seller's key people?
7. Administration. Will buyer take over the back office?
The above are just some relevant points that that both buyers and sellers consider. Buying and selling PR agencies is a complicated process. There are many moving parts and no two deals are exactly alike, but the lists enumerated above provide a decent roadmap to make sure your deal is successful for both sides of the table.
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