Paul Holmes 02 Jan 2014 // 9:18AM GMT
The news that China’s Blue Focus Group has acquired a majority stake in UK-based We Are Social came just before most people took off for their Christmas holidays, so the reaction to what might just be the most interesting PR industry acquisition of 2013 was a little muted. But what reaction there was—notably from some of the western holding companies that had themselves cast an eye over the fast-growing social media specialist—might generously be classified as surprise, not at the strategy but at the price. Blue Focus is already one of the world’s 20 largest public relations firms, with fees rapidly closing in on $100 million, and is just beginning to flex its muscles on the international stage—having taken a 20 percent stake in Huntsworth earlier in 2013—but this move is the clearest statement yet of its intent to become a global player. We Are Social, meanwhile, reported 2012 fee income of around £12 million, but has been growing at a very healthy pace (fee income for financial 2013 was closer to £20 million). That makes the £22 million valuation implied by the Blue Focus deal slightly higher than the PR industry standard but not particularly excessive by the standards of other digital deals. Certainly, there’s nothing in the public numbers to justify the suggestion—offered by one western holding company executive—that Blue Focus was “naïve” for paying such a premium. Anyone who has spent time with the Chinese firm’s chief executive Oscar Zhao would find that charge preposterous, and it’s not difficult to discern either sour grapes (at best) or xenophobia (at worst) in that reaction to the deal. The reality, though, is that We Are Social is probably worth more to Blue Focus than it would have been to one of the giant UK or US holding companies for a number of reasons. For one thing, it fits perfectly with Zhao’s strategy, which is to focus increasingly on digital and social—to the extent that the Blue Focus PR unit of the Group is now operating as Blue Digital, and to establish an international footprint as quickly as possible. For another, it provides the firm with much-needed critical mass in the two major western markets: the UK, where We Are Social is headquarters, and the US, where it has a growing New York office. The firm also has operations in Paris, Milan, Munich, Singapore, Sydney and São Paulo. There are not many acquisition targets—mainstream or digitally-focused—that can offer either the size or geographic reach of We Are Social. The We Are Social brand and client list may be just as important, providing Blue Focus with a name that has built considerable equity in western markets and with access to iconic clients including adidas, BBC, Cadbury, HSBC, Heinz, Nestle, Red Bull, Reebok and Unilever. (The firms already share clients including Lenovo, Land Rover, and Cisco.) Finally, it’s worth remembering that for Blue Focus this is not a particularly big gamble. The firm floated on the Shenzhen stock exchange in 2010 and now has a market capitalization of $3.7 billion (with a B). It has, in other words, the resources to match its ambitions. Zhao has said he wants to grow the firm to 10 times its current size in the next 10 years; Blue Focus will need to make a number of deals just as big and as bold as this one if it is going to make that happen.