by Rick Gould, CPA, JD
Private equity has become a hot topic this election season. As it will continue to be one well into the general election, I feel compelled to express my personal perspective and insights.
To put my ruminations in context, I should disclose that I have been extensively involved with private equity firms and investment banking during the past year. This first-hand involvement will continue throughout 2012 in relation to a major transaction in the works.
In a nutshell, Private Equity (PE) has transformed business in the U.S. PE firms are a vital and positive force in stimulating our economy. Many PE acquisitions are “investments” in companies that are on the verge of bankruptcy or are consistently unprofitable. Companies in desperate need of capital infusion often find renewed life in this manner.
A PE firm typically invests in struggling or stagnating companies needing financial support, management expertise and creative thinking. This investment strategy includes both high risk and high potential reward.
PE firms reorganize companies with the goal of creating value and profitability. Additionally, jobs are saved that would otherwise be lost if the company went south. Jobs are even ultimately created if PE firms turnaround and/or grow the company. In many cases jobs are trimmed to cut costs, and then the organization is rebuilt with many more jobs in place than when the company was acquired. Human capital is generated with the goal of long-term, sustainable value.
Investors in private equity firms can include college endowment funds and teachers’ pension funds, which, in turn, represent ordinary people. This area is not necessarily as out of reach from the general public as some might think.
Creating value drives our capitalistic free-market economy, which does indeed have far-reaching impact on ordinary people. Many successful mainstream companies - Sports Authority, Staples, Duane Reade, Domino’s Pizza and Seely Mattress (all from Mitt Romney’s Bain Capital) are perfect examples. And what about Target, Macy’s, Federated, Hertz, Dunkin Donuts, Home Depot? All name brands that have been launched and funded by private equity firms.
And in the realm of premier PR firms, the same labor-intensive and expensive process of selecting target firms, performing due diligence, executing audits and negotiating lengthy legal contracts should be followed as in the PE arena. Even in the PR agency industry, this same discipline is imperative if the goal of making the firm profitable for investors is to be achieved. Bain Capital- Blackstone Group, Carlyle Group, KKR, TPG, Apollo, CVC Capital Partners may be in different industries than PR, but they all go through a structured investment analysis process to ensure that risk is mitigated and potential reward is maximized.
PE firms do inevitably have some unprofitable investments…. but isn’t the “L” in P&L reserved for firms “losing” money? Whether private equity is backed or independent, some firms will lose money. That is the truth of capitalism.
PE firms only make money when the firms they have acquired are profitable, unless they are taking out large management fees that are the ultimate cause of losses. Losses due to management fees should not happen if the PE firms do it right. Management fees should be reduced or deferred until a profitable turnaround of the firm occurs.
In thinking this through further, private equity firms should ultimately generate more jobs with higher wages in the long-term. Jobs may need to be cut in the short-term, though. Being in the financial arena I fully grasp the concept of “operational change”.
I am a true believer in the position that any service business should and can realistically have 20%+ of operating profit. PE firms promote this. They monitor results against benchmarks that are realistic and attainable. If certain line items don’t come close to the pre-determined benchmark, then the red flag goes up and the reason for the difference can and should be analyzed, explained and corrected.
As mentioned earlier, a typical private equity investment is in an undermanaged or poorly managed company. The PE firm acquires the company (often financed through substantial debt) for less than calculated value. The hope is to sell the company down the road, when it is healthy, for a substantially higher price than the PE firm paid for it.
It is then, at the liquidating event, that the PE firm gets their return-on-investment. Buying low and selling high is the goal, as it should be. PE firms take all the risk. They went through the pain of transforming the acquired company and deserve the reward.
In conclusion of my discourse on the subject, I make a case that capitalism works. Free enterprise works. From my perspective, private equity firms are a positive and permanent part of our free-enterprise system.
Thursday, March 15, 2012
Tuesday, January 31, 2012
Margin Call & The Bankers
by Rick Gould, CPA, JD
I saw the movie “Margin Call” a couple of weeks back. It hit home for me for two reasons:
1. It took place in the StevensGouldPincus office building in NYC, One Penn Plaza.
2. It was reminiscent of the financial crash of 2008 (the downfall of Lehman, AIG & Merrill Lynch) as well as the recent implosion and bankruptcy of MF Global.
The movie is about 24 hours in the life of a bank modeled after Lehman- fancy offices, great view, young brokers that believed they had the world in the palm of their hands. Fancy sports cars, posh apartments, getaway weekends in Paris. Kevin Spacey, Demi Moore, Stanley Tucci and Jeremy Irons did a great job portraying very successful executives. They saw their careers implode and their firm on the brink of failure as a result of the liquidation of its mortgage backed securities, in an attempt to raise cash to meet its required reserve margins- the “Margin Call”.
We saw the futile attempt to sell off toxic assets, the midnight board meeting, and the mass firing of traders and staff the next morning. What the events in the movie clearly showed, very reminiscent of the Lehman debacle, was that the bankers placed way too much faith in Ivy League MBA’s who functioned using complicated analytics, spreadsheets and mathematics.
Their Board of Directors was comprised of multi-degreed entrepreneurs, attorneys and accountants, all supported by very smart economists. But few of them fully understood the complexities of their business models and the risks these models created. Conservatism was not in their philosophy.
What was needed in the movie, and in the Lehman scandal, was the ability to interpret, to benchmark, and to predict what was in store, as well as how to protect vital assets and make the inevitable “margin call” survivable.
In both the movie and the real-life scenarios, the bankers did not have a clue what was “really” going on. Honest, hard-working people are now paying the price for the ignorance and arrogance of these secure, high salaried bankers.
In my opinion, these “masters of the universe” did not have enough skin in the game to protect investors from losing most, if not all, of their “safe” investments. The bankers did not have enough to lose personally. If they did, they would have hedged against the worst possible result.
American society has always embraced scholars for these positions, especially those from the top biz schools who populate the highest echelons of major investment banks. My preference would be to embrace the down-to-earth, self-made entrepreneurs who run the most successful and profitable PR/communications firms. These executives are smart, savvy and creative. They learn by doing, by trial and error, by rolling up their sleeves and by starting out in the trenches at the bottom.
These successful communications executives learned that keeping the client and all stakeholders in mind when making business decisions is not only smart, but also essential to sustained profitability. Especially for those who have patience and dedication, and who take the time and make the effort to master the business end of their business, the street smarts and communication skills needed to make cautious and correct decisions can be learned.
I saw the movie “Margin Call” a couple of weeks back. It hit home for me for two reasons:
1. It took place in the StevensGouldPincus office building in NYC, One Penn Plaza.
2. It was reminiscent of the financial crash of 2008 (the downfall of Lehman, AIG & Merrill Lynch) as well as the recent implosion and bankruptcy of MF Global.
The movie is about 24 hours in the life of a bank modeled after Lehman- fancy offices, great view, young brokers that believed they had the world in the palm of their hands. Fancy sports cars, posh apartments, getaway weekends in Paris. Kevin Spacey, Demi Moore, Stanley Tucci and Jeremy Irons did a great job portraying very successful executives. They saw their careers implode and their firm on the brink of failure as a result of the liquidation of its mortgage backed securities, in an attempt to raise cash to meet its required reserve margins- the “Margin Call”.
We saw the futile attempt to sell off toxic assets, the midnight board meeting, and the mass firing of traders and staff the next morning. What the events in the movie clearly showed, very reminiscent of the Lehman debacle, was that the bankers placed way too much faith in Ivy League MBA’s who functioned using complicated analytics, spreadsheets and mathematics.
Their Board of Directors was comprised of multi-degreed entrepreneurs, attorneys and accountants, all supported by very smart economists. But few of them fully understood the complexities of their business models and the risks these models created. Conservatism was not in their philosophy.
What was needed in the movie, and in the Lehman scandal, was the ability to interpret, to benchmark, and to predict what was in store, as well as how to protect vital assets and make the inevitable “margin call” survivable.
In both the movie and the real-life scenarios, the bankers did not have a clue what was “really” going on. Honest, hard-working people are now paying the price for the ignorance and arrogance of these secure, high salaried bankers.
In my opinion, these “masters of the universe” did not have enough skin in the game to protect investors from losing most, if not all, of their “safe” investments. The bankers did not have enough to lose personally. If they did, they would have hedged against the worst possible result.
American society has always embraced scholars for these positions, especially those from the top biz schools who populate the highest echelons of major investment banks. My preference would be to embrace the down-to-earth, self-made entrepreneurs who run the most successful and profitable PR/communications firms. These executives are smart, savvy and creative. They learn by doing, by trial and error, by rolling up their sleeves and by starting out in the trenches at the bottom.
These successful communications executives learned that keeping the client and all stakeholders in mind when making business decisions is not only smart, but also essential to sustained profitability. Especially for those who have patience and dedication, and who take the time and make the effort to master the business end of their business, the street smarts and communication skills needed to make cautious and correct decisions can be learned.
Thursday, December 1, 2011
Is Mediation A Viable Option for Partners Disputes?
By Rick Gould, CPA, JD
When partners do not agree on major business issues, such as compensation or equity percent, it is emotionally draining and counterproductive to the firms’ health, profitability and success. Any type of dispute can be potentially destructive.
What options exist to move partners from conflict to resolution? This discovery process should start with an honest conversation (ideally an in-person one), or an email or letter. It would then evolve into a negotiation. However, if this doesn’t work what is next?
Ending the business or pursuing litigation as a means to achieve resolution are costly and time-consuming options. I’ve seen these options to be mostly ineffective. All parties end up losing out exponentially more, both from a financial and emotional perspective, than if other resolution options had been pursued. And there is usually an implosion of the brand that results, especially in this day and age where conflict is so easily detailed in social and traditional media outlets. Reputations get undoubtedly tarnished, no matter who is perceived to be right or wrong. In my experiences, litigation should be an absolute last resort and it is to be avoided.
The best option, especially among partners, is honest negotiation through mediation. The partners will control the process, the time-frame and the overall cost. But to be effective, negotiation must lead to a final conclusion that all partners can agree to. This is often not doable, especially when a partner (or partners) allow themselves to be controlled by ego and emotion.
The middle and higher-ground, the better option, is to take the ego and emotion out of the mix and to mediate. Binding arbitration can also be pursued if mediation does not achieve a mutually agreeable outcome.
In mediation, a third party acts as a facilitator in negotiation between the partners. The mediator is trained to take emotion out of the dispute. He/she is tasked to come up with tangible solutions and an overall equitable resolution. The mediator may end up fully agreeing with one partner, or he/she may conclude that a compromise is in order. Either way, a fresh and outside perspective is critical to infusing clarity (and sanity) into the situation. Partners must recognize their managerial and personal limitations, and a mediator is just the one to provide that insight.
The mediator’s recommendation is not binding. However, it will often bring about a resolution, especially if outsiders, or even other partners, are eagerly watching. The mediator attempts to break the impasse to allow all parties and the firm to successfully move forward. Mediation is far less expensive than litigation.
A skilled and experienced mediator uses processes and techniques that lead to a successful outcome. And an ethical mediator will agree up front that, if not successful, he/she may not represent either party in an ensuing litigation. This incentivizes the mediator to resolve the conflict quickly and effectively.
Before you opt for mediation, be sure that all partners are honestly committed to achieving a resolution. Each partner should ultimately want to resolve the dispute from both a business and a personal perspective.
When partners do not agree on major business issues, such as compensation or equity percent, it is emotionally draining and counterproductive to the firms’ health, profitability and success. Any type of dispute can be potentially destructive.
What options exist to move partners from conflict to resolution? This discovery process should start with an honest conversation (ideally an in-person one), or an email or letter. It would then evolve into a negotiation. However, if this doesn’t work what is next?
Ending the business or pursuing litigation as a means to achieve resolution are costly and time-consuming options. I’ve seen these options to be mostly ineffective. All parties end up losing out exponentially more, both from a financial and emotional perspective, than if other resolution options had been pursued. And there is usually an implosion of the brand that results, especially in this day and age where conflict is so easily detailed in social and traditional media outlets. Reputations get undoubtedly tarnished, no matter who is perceived to be right or wrong. In my experiences, litigation should be an absolute last resort and it is to be avoided.
The best option, especially among partners, is honest negotiation through mediation. The partners will control the process, the time-frame and the overall cost. But to be effective, negotiation must lead to a final conclusion that all partners can agree to. This is often not doable, especially when a partner (or partners) allow themselves to be controlled by ego and emotion.
The middle and higher-ground, the better option, is to take the ego and emotion out of the mix and to mediate. Binding arbitration can also be pursued if mediation does not achieve a mutually agreeable outcome.
In mediation, a third party acts as a facilitator in negotiation between the partners. The mediator is trained to take emotion out of the dispute. He/she is tasked to come up with tangible solutions and an overall equitable resolution. The mediator may end up fully agreeing with one partner, or he/she may conclude that a compromise is in order. Either way, a fresh and outside perspective is critical to infusing clarity (and sanity) into the situation. Partners must recognize their managerial and personal limitations, and a mediator is just the one to provide that insight.
The mediator’s recommendation is not binding. However, it will often bring about a resolution, especially if outsiders, or even other partners, are eagerly watching. The mediator attempts to break the impasse to allow all parties and the firm to successfully move forward. Mediation is far less expensive than litigation.
A skilled and experienced mediator uses processes and techniques that lead to a successful outcome. And an ethical mediator will agree up front that, if not successful, he/she may not represent either party in an ensuing litigation. This incentivizes the mediator to resolve the conflict quickly and effectively.
Before you opt for mediation, be sure that all partners are honestly committed to achieving a resolution. Each partner should ultimately want to resolve the dispute from both a business and a personal perspective.
Monday, August 1, 2011
Profitability, Strong Billing Rates & 90% Productivity
By Rick Gould, CPA, JD
Profitability, Strong Billing Rates & 90% Productivity.... How does your firm compare?
Our 2011 Benchmarking study clearly showed the U.S. PR agency profitability rebounded from a 2009 four year low of 13.5 per cent of revenues back to exactly what it was for 2008, 15.6 percent. This compares to a 13.5 percent in 2009, 15.6 percent in 2008 and a 19.7 percent profit margin in 2007.
The operating profit for the under $3 Million category was 13.1 percent, up from 10.4percent in 2009. The firms in excess of $3 Million up to $10 Million netted 16.2 percent and those in excess of $10 Million up to $25 Million netted a very respectable 17.8 percent and those in excess of $25 Million netted 16.5 percent, also respectable in challenging economic times. All four categories improved from the previous year.
One of the most significant findings of our survey was that the SGP “Model Firms”, the dozen agencies consistently meeting or exceeding the SGP model performance target criteria, continue to remain far above average during these recessionary times. In 2010, they averaged an operating profit margin in excess of 20 percent, partly due to their ability to hold professional staff salaries to under 40 percent of revenues, total labor cost at 50 percent and operating expenses at under 30 percent. This should be the goal for all firms.
A very noteworthy result was that Revenue per professional staff was up to $205,941 from $197,714 last year. Firms in excess of $10 million in net revenues averaged in excess of $230,000. Total overhead averaged 28.4 percent. Firms in excess of $25 million were at 25.0 percent.
For our full report please email me at rgould@stevensgouldpincus.com
Profitability, Strong Billing Rates & 90% Productivity.... How does your firm compare?
Our 2011 Benchmarking study clearly showed the U.S. PR agency profitability rebounded from a 2009 four year low of 13.5 per cent of revenues back to exactly what it was for 2008, 15.6 percent. This compares to a 13.5 percent in 2009, 15.6 percent in 2008 and a 19.7 percent profit margin in 2007.
The operating profit for the under $3 Million category was 13.1 percent, up from 10.4percent in 2009. The firms in excess of $3 Million up to $10 Million netted 16.2 percent and those in excess of $10 Million up to $25 Million netted a very respectable 17.8 percent and those in excess of $25 Million netted 16.5 percent, also respectable in challenging economic times. All four categories improved from the previous year.
One of the most significant findings of our survey was that the SGP “Model Firms”, the dozen agencies consistently meeting or exceeding the SGP model performance target criteria, continue to remain far above average during these recessionary times. In 2010, they averaged an operating profit margin in excess of 20 percent, partly due to their ability to hold professional staff salaries to under 40 percent of revenues, total labor cost at 50 percent and operating expenses at under 30 percent. This should be the goal for all firms.
A very noteworthy result was that Revenue per professional staff was up to $205,941 from $197,714 last year. Firms in excess of $10 million in net revenues averaged in excess of $230,000. Total overhead averaged 28.4 percent. Firms in excess of $25 million were at 25.0 percent.
For our full report please email me at rgould@stevensgouldpincus.com
Friday, May 27, 2011
Market Update: Current Factors Affecting a Decision to Sell Now
By Rick Gould, CPA, JD
1. Capital Gains Taxes are expected to increase.
2. Jeffery Lyons, an operating director of Chicago-based investment bank City Capital, said in INC. Magazine in November: “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire.” (Or maybe just want to monetize their assets and sweat equity.) “That mounting supply could put more downward pressure on valuations for years to come - a sobering message to entrepreneurs nervously waiting for the market to bounce back.”
3. Ten years from now, multiples will go down because the supply of businesses (for sale) will be up and there will be fewer buyers.
4. It is already a factor that sellers far outweigh niche buyers. Buyers are no longer buying to add critical mass or to increase net revenues. Buyers are buying strategically, looking for a specialty firms in the areas of digital, public affairs, consumer and crisis.
5. Buyers are increasingly more edgy when it comes to the age of owners, the presence of strong second-tier management, the mix of clients and the potential for cross-referrals and growth.
6. Tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence required in the future.
7. The future reality is many sellers of PR agencies will have no one to sell to. They will have little choice but to sell their firms to key staff (for multiples less than they can potentially receive from an outside buyer) or to simply close doors and cease operations.
Only with industry-specific counsel can you decide what timing is right for your firm. These factors to consider are just a small part of what needs to be regularly analyzed in packaging your firm for a sale, whether today or in the distant future. Operate your firm as if you were to be sold tomorrow and you will have a better managed, more profitable firm overall.
1. Capital Gains Taxes are expected to increase.
2. Jeffery Lyons, an operating director of Chicago-based investment bank City Capital, said in INC. Magazine in November: “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire.” (Or maybe just want to monetize their assets and sweat equity.) “That mounting supply could put more downward pressure on valuations for years to come - a sobering message to entrepreneurs nervously waiting for the market to bounce back.”
3. Ten years from now, multiples will go down because the supply of businesses (for sale) will be up and there will be fewer buyers.
4. It is already a factor that sellers far outweigh niche buyers. Buyers are no longer buying to add critical mass or to increase net revenues. Buyers are buying strategically, looking for a specialty firms in the areas of digital, public affairs, consumer and crisis.
5. Buyers are increasingly more edgy when it comes to the age of owners, the presence of strong second-tier management, the mix of clients and the potential for cross-referrals and growth.
6. Tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence required in the future.
7. The future reality is many sellers of PR agencies will have no one to sell to. They will have little choice but to sell their firms to key staff (for multiples less than they can potentially receive from an outside buyer) or to simply close doors and cease operations.
Only with industry-specific counsel can you decide what timing is right for your firm. These factors to consider are just a small part of what needs to be regularly analyzed in packaging your firm for a sale, whether today or in the distant future. Operate your firm as if you were to be sold tomorrow and you will have a better managed, more profitable firm overall.
Saturday, January 1, 2011
Baby Boomer Burnout or Just Smart Business
Reasons to Consider Selling Your PR Agency Now
by Rick Gould, CPA, JD
Jeffrey Lyons, an operating director of Chicago based investment bank City Capital, says in INC. Magazine November 2010 Page 111. “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire” (or maybe just want to monetize their asset, their sweat equity). “That mounting supply could put more downward pressure on valuations for years to come- a sobering message to entrepreneurs nervously waiting for the market to bounce back.”
Lyons adds, “five years from now multiples for small business’ will go down because the supply of businesses (for sale) will be up.”
It is already a factor that sellers far outweigh niche buyers & buyers are no longer buying to add critical mass, to increase net revenues. Buyers are buying strategically, looking for a specialty as digital, public affairs, consumer, crisis etc. And they are certainly much more edgy when it comes to age of owners, strong second tier management, mix of clients and potential for cross referrals and growth. And tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence.
The reality is many sellers of small & mid-size PR agencies will have no one to sell to. They will have NO choice but to sell their firms to key staff for multiples less than they can potentially receive from an outside buyer, a buyer that accumulated a war chest for acquisition during the past couple of years.
Those are reasons to consider selling now or at the minimum begin packaging your firm for a sale. Worst case will be you will have a better managed, more profitable firm, which in itself will add to value.
by Rick Gould, CPA, JD
Jeffrey Lyons, an operating director of Chicago based investment bank City Capital, says in INC. Magazine November 2010 Page 111. “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire” (or maybe just want to monetize their asset, their sweat equity). “That mounting supply could put more downward pressure on valuations for years to come- a sobering message to entrepreneurs nervously waiting for the market to bounce back.”
Lyons adds, “five years from now multiples for small business’ will go down because the supply of businesses (for sale) will be up.”
It is already a factor that sellers far outweigh niche buyers & buyers are no longer buying to add critical mass, to increase net revenues. Buyers are buying strategically, looking for a specialty as digital, public affairs, consumer, crisis etc. And they are certainly much more edgy when it comes to age of owners, strong second tier management, mix of clients and potential for cross referrals and growth. And tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence.
The reality is many sellers of small & mid-size PR agencies will have no one to sell to. They will have NO choice but to sell their firms to key staff for multiples less than they can potentially receive from an outside buyer, a buyer that accumulated a war chest for acquisition during the past couple of years.
Those are reasons to consider selling now or at the minimum begin packaging your firm for a sale. Worst case will be you will have a better managed, more profitable firm, which in itself will add to value.
Thursday, September 30, 2010
PR Agency M&A Market Poised For Rebound
By Rick Gould, CPA, JD
October 1, 2010
After almost two years in the doldrums, PR agencies are aggressively eyeing strategic acquisition opportunities in North America and beyond.
Our firm currently has 33 agencies looking to buy, compared to 21 that are up for sale.
This compares to a situation that was considerably more bleak at the beginning of 2010. We had no buyers at the beginning of this year, Now, it’s extremely active.
Buoyed by a solid first half of this year acquisition intent began to improve at the start of the third quarter. MDC Partners CEO Miles Nadal set the pace with several acquisitions including rapidly growing Allison & Partners and most recently Kwittken & Co. Nadal recently revealed to The Holmes Report Partner and Managing Editor Arum Sudhaman that he is aiming to spend upwards of $50 million on PR agency purchases.
In terms of capabilities, agencies are particularly interested in adding skills in digital, social media, healthcare, public affairs and crisis management. Next Fifteen recently bought two digital agencies within one week, while Huntsworth Group, MDC Partners and Edelman have all snapped up firms in the past few weeks. Edelman just announced this week the acquisition of Texas powerhouse Vollmer Public Relations. Our firm represented Vollmer as strategic advisors and is working with almost all of the major buyers on strategic acquisitions.
In addition, The Holmes Report disclosed that they are aware of a number of firms seeking acquisitions in continental Europe, the UK and key Asian markets such as China and India.
However, while interest is high, continued caution on the part of buyers is being reflected by length of time it is taking for deals to complete. In the past, buyers did not do enough due diligence. Not anymore. The due diligence is extensive and thorough. When a buyer is paying several hundred thousands or millions of dollars for an acquisition they have every right to know about the financial history, the staff and the clients. Buyers are experienced and savvy at the drill. What we do is facilitate the process by getting the seller ready before this lengthy review begins.
The majority of deals that fail are as a result of the seller believing their firm is worth more than it is.
The key to a successful M&A transaction is for both buyers and sellers to be reasonable and fair and let PR industry precedent dictate the model used for the sale.
October 1, 2010
After almost two years in the doldrums, PR agencies are aggressively eyeing strategic acquisition opportunities in North America and beyond.
Our firm currently has 33 agencies looking to buy, compared to 21 that are up for sale.
This compares to a situation that was considerably more bleak at the beginning of 2010. We had no buyers at the beginning of this year, Now, it’s extremely active.
Buoyed by a solid first half of this year acquisition intent began to improve at the start of the third quarter. MDC Partners CEO Miles Nadal set the pace with several acquisitions including rapidly growing Allison & Partners and most recently Kwittken & Co. Nadal recently revealed to The Holmes Report Partner and Managing Editor Arum Sudhaman that he is aiming to spend upwards of $50 million on PR agency purchases.
In terms of capabilities, agencies are particularly interested in adding skills in digital, social media, healthcare, public affairs and crisis management. Next Fifteen recently bought two digital agencies within one week, while Huntsworth Group, MDC Partners and Edelman have all snapped up firms in the past few weeks. Edelman just announced this week the acquisition of Texas powerhouse Vollmer Public Relations. Our firm represented Vollmer as strategic advisors and is working with almost all of the major buyers on strategic acquisitions.
In addition, The Holmes Report disclosed that they are aware of a number of firms seeking acquisitions in continental Europe, the UK and key Asian markets such as China and India.
However, while interest is high, continued caution on the part of buyers is being reflected by length of time it is taking for deals to complete. In the past, buyers did not do enough due diligence. Not anymore. The due diligence is extensive and thorough. When a buyer is paying several hundred thousands or millions of dollars for an acquisition they have every right to know about the financial history, the staff and the clients. Buyers are experienced and savvy at the drill. What we do is facilitate the process by getting the seller ready before this lengthy review begins.
The majority of deals that fail are as a result of the seller believing their firm is worth more than it is.
The key to a successful M&A transaction is for both buyers and sellers to be reasonable and fair and let PR industry precedent dictate the model used for the sale.
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