Most Independent Firms Expect to Stay That Way
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Most Independent Firms Expect to Stay That Way

The majority of top-tier independent public relations firms have held merger or acquisition discussions in the past 12 months, but only 14 percent consider it even moderately likely that they will sell in the next 12 months.

Paul Holmes

The majority of top-tier independent public relations firms have held merger or acquisition discussions in the past 12 months, but only 14 percent consider it even moderately likely that they will sell in the next 12 months and less than a third (30 percent) expect to give up their independence in the next three years.
 
In an online survey conducted by The Holmes Report, agency principals indicate that money is the biggest motivator when it comes to the decision to sell, but the desire for personal independence and concerns over cultural impact—including reduced standards of client service—are the biggest obstacles.
 
More than 300 of the nation’s top independence public relations firms were invited to participate in the survey, and 86 responded, for a 27 percent response rate.
More than half (54 percent) said they had held discussions about possible mergers or acquisitions within the past 12 months, but only 13 percent characterized those discussions as very serious. Another 15 percent said the discussions were somewhat seriousness, but the largest number (20 percent) characterized them as exploratory. Seven percent said they were “just being polite.”
 
When asked how likely they were to sell their firm in the next 12 months, 51 percent said they were not at all likely, and another 20 percent indicated the prospect was somewhat unlikely. Only 5 percent considered it very likely that they would sell.
 
However, looking out three years, 21 percent considered it very likely they would sell, and another 9 percent considered it somewhat likely. Only 14 percent said it was not at all likely that they would sell at some point over the next three years.
 
Agency principals felt they were more likely to sell to a large public relations firm owned by a publicly traded company, such as Burson-Marsteller, Fleishman-Hillard, or Weber Shandwick. On average, they rated the possibility of selling to a holding company at 2.92 on a scale of one-to-five (one being not at all likely, five being very likely), followed by a large independent public relations firm such as Edelman (2.84). They felt they were less likely to sell directly to a large publicly traded holding company such as Interpublic, Omnicom, or WPP (2.56), to a midsize PR firm (2.40) or to an advertising agency (1.92).
 
When asked how likely they were to sell to individual holding companies, Omnicom was the most popular choice (2.52), despite its widely reported accounting woes. WPP Group came second (2.37), followed by Publicis (2.22), to this point a relatively minor player in the PR acquisitions arena, in a virtual dead heat with Interpublic (2.21).
 
Among PR firms, Fleishman-Hillard (2.67) was the most popular choice of acquirer, by a significant margin. It was followed by another Omnicom agency, Ketchum (2.36) and Manning Selvage & Lee (2.30). Rounding out the top five picks were Hill & Knowlton (2.28) and Porter Novelli (2.27).
 
When asked what was most likely to persuade them to sell, most principals cited personal reasons, with personal financial reward emerging as the biggest reason for selling (4.29), followed by personal exit strategy (4.17) and the opportunity for them to take on more challenges personally (3.36).
 
Enhanced opportunities for employees were also a powerful motivator. Better professional development opportunities for employees (3.22) and enhanced career opportunities for employees (3.15) were both cited.
 
Potential client benefits were less important. Few principals were driven by client demand for new services or practices (2.48), client demand for greater overseas presence (2.48) or client demand for greater coverage of the domestic market (2.30).
 
Asked to comment on the reasons to sell, one respondent said he (or she) thought it was important to sell “before you need to sell, or even before you want to, especially considering when the owner’s age may become an issue to the buyer.” Others cited more specific reasons for considering a sale, including “access to new clients” and being “ready for a change from day-to-day management.”
 
When it came to reasons for not selling, the desire for personal independence (4.30) trumped all other obstacles, even financial ones.
 
In fact, agency principals expressed more concern about cultural issues such as the fear that parent company financial targets would damage the culture (4.04) than over the fact that they had never been offered enough money (3.35).
 
Others expressed skepticism about the financial benefits of selling. Said one, “Most earn outs are made out of your own revenues, so you are in effect paying yourself.”
 
Other respondents cited a variety of reasons for remaining independent, including:
  • “Focus on numbers rather than investing in a long-term strategy.”
  • “Concern over losing key staff who appreciate our independent approach.”
  • “We’re not big enough yet.”
  • “Larger firms do not understand our local market and so almost always fail here as a result.”
  • “We have a very different business model than the big agencies.”
“New owners have unrealistic expectations that create pressure to perform greater for them than you could for yourself.”
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