Independent PR shops are in high demand and short supply as M&A competition heats up in the marketing-services arena.
Why the rush? One reason is to complete transactions ahead of new tax rules taking effect. But marketers are also seeing value in earned and owned media—and in some cases, using PR campaigns as a replacement or supplement for traditional advertising. That makes small, indie firms more attractive than ever—not just to the expected PR networks, but also to atypical buyers.
An independent agency leader who wished to remain anonymous told Ad Age that two private-equity companies approached the firm in 2012, both aiming to build a holding-company structure with PR at the core.
Phil Palazzo, founder and president of M&A consultancy Palazzo, said that while marketing-services holding companies were the ones doing most of the acquiring 10 years ago, today they're just one of an array of buyers. "The PR agencies have become very adept at delivering strategic and targeted solutions over multiple channels --varying from experiential to crisis to social media to events -- and for that reason they've been capturing a growing share of marketing dollars."
Mr. Palazzo has observed that in the past eight months, there's been a proliferation of activity and more buyers are trying to position themselves within marketing services.
This heightened activity has indirectly driven more agencies to acquire and build scale to be able to compete with a growing list of players.
Alan VanderMolen, vice chairman of Edelman parent DJE Holdings, said that the network has been assisting its smaller Zeno Group brand in finding a shop to buy that would help it scale and compete with bigger shops. But first it has to find a shop that's willing to sell, and with today's younger owners not looking to exit the business, strategic fit has become just as important as price. "We have a desperate need for scale to be able to compete because a lot of buyers want to have multimarket footprints."
Despite the M&A rush, there are still high-quality shops that remain independent, noted Mr. Palazzo. "We will continue to see an acceleration of M&A activity through 2013," he said. "It will be a stronger year, measured by volume and the number of deals, than 2012."