M&A in PR is Heating Up as Buyers Line Up for 2025 Acquisitions

Three of the leading dealmakers in the communications industry shared insights and perspective on M&A, private equity and capital at the CommPRO + CommunicationsMatch™ industry member breakfast Capitalizing Communications on January 30.

Investment banker Reed Phillips, CEO, Oaklins DeSilva+Phillips, who has completed more than 200 transactions; Barri Rafferty, CEO, Sodali & Co, former Global CEO of Ketchum and EVP of Brand and Communications at Wells Fargo, who has worked on a number acquisitions at Solali and through her career; and Brad Schwartzberg, Co-Head of Davis+Gilbert's Corporate and M&A Practices, who has been involved in more than 400 industry transactions; discussed key trends they are seeing in the market.

The conversation and roundtable Q&A provided takeaways for agency owners interested in selling their businesses in 2025 or in the future.

Growth and Consolidation

The critical thing acquirers are looking for in a potential deal is growth. It is the single most important thing. Acquirers need to see the topline growing.

With Omnicom's acquisition of Interpublic a backdrop, consolidation was an omnipresent (pun intended) theme of the discussion. With the expectation that holding companies will continue to acquire agencies in 2025, the speakers noted that mid-sized firms were also looking for strategic acquisitions to drive growth, and that private equity was similarly focused on acquisitions to build saleable businesses by adding skillsets and driving cross-selling opportunities.

More Buyers Looking to Acquire in 2025

Drawing on Davis+Gilbert's annual Public Relations Industry Trends Report and monthly PR M&A Tracker, Brad Schwartzberg shared he expected to see a continuing uptick in mergers and acquisitions activity not just in public relations, but across the industry. Following the rush to complete deals after COVID, market activity has found a new level with the 10% increase in year-over-year transactions in 2024. Schwartzberg’s expectation is for higher deal activity in 2025.

Among the 79 deals in 2024, he noted that 43 were by first time buyers, 35% by private equity, and a significant number of sellers (40%) were firms that had completed transactions in the past to grow their businesses. With more buyers looking at agencies, there's not only interest in firms with revenue in the $25 million range, but in $3-6 million range and below, creating new opportunities for smaller firms.

Private Equity is an Important New Driver of Acquisitions

Reed Phillips highlighted the contrast between the M&A market today compared to a decade ago when private equity was not comfortable with buying businesses where "the assets go up and down in the elevator in the morning at night". With a number of successful and lucrative PE exits - a point seconded by Schwartzberg - he shared that private equity has got comfortable with the agency model. And, that this additional source of buyers is ultimately beneficial to sellers.

Sodali's Barri Rafferty provided the perspective of a private equity investor. Owned by TPG one of the largest PE investors in the U.S., she noted that Sodali's focus was on building around the premise of being at heart of shareholder capital. The company is focused on building a fully-integrated platform by adding capabilities and client relationships through acquisitions.

Agencies Need to Understand the Different Motivations of Buyers

All three panelists made the point that it was important to sellers to understand the different strategic motivations of holding companies, strategic investors and private equity.

Schwartzberg noted that holding companies are focused on buying, building and holding; strategics on buying, building and potentially selling; and private equity, buying, building and selling in a five to seven-year time frame. Phillips, Rafferty and Schwartzberg detailed differences in transaction structure, cash paid at close, and earnout or equity models based on the type of acquirer.

They noted that when agencies are acquired by PE, they are buying into a equity stake in the combined business. As a result, sellers benefit from the potential increase in valuation when the combined entity is sold. Rafferty noted that "incentive, incentive, incentive" is at the root of driving the post-acquisition growth that everyone benefits from. This extends beyond the initial transaction and into rewarding cross-selling.

The panel discussed the importance of the financial discipline PE brings to the table -- and for the leaders of acquired businesses to be prepared for monthly or weekly detailed discussions of revenue and pipelines. Green flags for acquisitions were based on "would leaders be able to play in the same sand box" and their fit with patterns of success TPG has seen before. Red flags were single-person and client risk.

If You are Interested in Being Acquired, Be Prepared

"Agencies are great at servicing clients, awful at preparing for exit," Schwartzberg noted. Agency leaders need to take the time to ensure they are prepared for an acquisition when it comes. Phillips added one way to do this is to make sure accounts are set up on an accrual rather than cash basis which enables apples-to-apples comparisons. "You don't want to do anything that slows down the deal process."

In summarizing, the panel returned to the theme of fit. The idea of buyer beware was connected to the importance of sellers being aware. Buyers may buy frequently, and sellers only sell once, so it is critical to understand the different approaches to transactions, realistic valuations, and deal structures to ensure deals are a good fit. Getting good advice and perspective is key given how much is at stake.