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Why do agencies get acquired?

Most agency owners have at least mused about the possibility of selling their business at some point. After all, who wouldn’t want someone to get a nice fat check for that recognizes their significant professional accomplishment.

But why would someone buy your agency?

That’s the question that Chip and Gini address in this week’s episode. They discuss the recent report published by Agency Leadership Advisors that summarizes PR agency M&A transactions that took place in 2019. The co-hosts look at factors like capabilities, talent, geography, and size — to name just a few.



The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

CHIP: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin,

GINI: and I’m Gini Dietrich,

CHIP: and we’re here today to buy your agency. We’re going to buy all of them. If you’re listening, we are buying your agency. So just the paperwork, and we’ll send you the checks. And yeah, well done.

GINI: If only it were that simple,

CHIP: if only it were that simple, but the reality is selling your agency is very difficult. It is something that a lot of agency owners aspire to, in fact, I would dare say most of the agency owners that I talked to have at least noodled on the idea of selling their business at some point or another. And but the question is, which agencies actually get bought? And that’s the topic of this week’s episode.

GINI: Yeah, I think it’s really it’s a really interesting topic for a couple of reasons. I mean, to your point, a lot of agency owners do have that as the end goal. But you’ve also put together what I think is a really compelling piece on m&a activity for last year, and there I, you know, as I’m looking through it through the data, there are some really interesting things in here that will allow agency owners to plan and plan for the future and plan for time of year as well as you’re thinking about when it would be when it would be the right time to sell if that’s what you if that’s your goal.

CHIP: Yeah, and and so this is a report that I put out recently, and it looks at 2019 mergers and acquisitions in the PR agency space in particular, and NPR is defined fairly broadly. So you know, PR, integrated communications, marketing communications, but would not include advertising agencies and that sort of thing. So a lot of the the general information is still relevant, regardless of the type of agency you have. But that’s, that’s the data set that we use to analyze it. And, you know, I think there are some interesting insights there. The first one, and I think probably the top line number is that there are 62 PR agencies. were sold in 2019.

GINI: That’s a lot. It’s

CHIP: like that’s a lot. It’s a lot. And it’s not at the same time, right? So it’s a lot as far as if you look at it from an external perspective, but if you’re someone who’s interested in selling your agency, and you realize that just 60 were sold in fair in a year, and there are thousands of agencies out there, it’s a relatively small percentage. So, so I think it cuts both ways. I it’s the kind of information that helps you understand it’s it’s not a rarity by any means, you know, they’re barely a week goes by but an agency salesman now and I should say, you know, these are, these are agency sales that, you know, received some press mention of dwyers, homeless report, PR week, those sorts of things, which means that would probably cover just about any deal of any significance, right? It doesn’t, you know, there are certainly some small private transactions that may not take place. We’ve talked in recent show about Aqua hires. Some of some of those small ones may not show up, although on that list, there are some Aqua hires. There

GINI: are Yeah, so I noticed that too.

CHIP: So it is it is something useful for people to think about that, you know, even if you’re a solo and you’re selling your business, it might be the kind of deal that still get some publicity and attention so you can learn things from that. So it is, I think that that it is certainly a healthy amount of m&a activity in the space. And I think it’s when you start drilling into some of the the data a little bit more that you can develop a few more insights about the kinds of businesses in the agency space that are particularly attractive right now.

GINI: So here’s what I found interesting at the start. The cycle of m&a activity mirrors the cycle of client activity. So January is crazy busy April’s crazy busy September, October and November and that means that pretty closely mirrors Especially new business activity, right? When you when clients are like, Hey, I’m ready to spend some money. So I find that fascinating.

CHIP: Yeah, I mean, it is and and of course, this is when deals are announced. So, you know, the January would you would expect a particular spike, because for a lot of deals, if it’s getting towards the end of the year, there’s an incentive to terminate the, or to consummate the transaction at your end because it saves you some on the tax and accounting side. So particularly for smaller deals that can be, you know, a real benefit. But, you know, a lot of it comes down to, you know, folks are busy with these transactions at the same time that all of our clients are busy with their other activities, right? So it makes sense. And August, of course, is the quietest of all times for client activity. And as it turns out for m&a activity as well. So you certainly follow the cycle of the calendar pretty regularly there. I think the other thing that is interesting to note here is that, you know, these none of these deals are are quick. And so you know, as you look through the the media coverage on it, we link a lot of the media coverage over on the the agency leadership website. For each of these deals, you see that a lot of them indicate, you know, we were in talks for a year or two leading up to it. And yeah, you know, and so that’s interesting, man, it’s it’s not a fact point that we could actually do any real data analysis on because nobody says for sure what the, how long they’ve been talking. But these are all communications that have been taking place for at least a number of months, if not years. And so understanding how long it takes to do a deal can also be helpful. And so it means if you’re thinking about selling 235 years down the road, understanding this data today can be very helpful as far as how you position yourself.

GINI: So as you think about that, a few things let’s say that you want to sell in five years, you would need to start thinking about and and approaching souter’s three years from now. You also show in here that the median size of the agency’s was 20 employees, right? So you also want to think about that. Okay, so we want to start thinking about it three years from now, we probably need to have at least 20 employees, we need to have a leadership team that takes on a lot of the client relationship so that it’s not reliant on the owner, we have to have profit, and we have to have show at least three years of sustainable consistent profit. So those are all the things you need to take into account. If if this is what you want to do, and as you plan for an exit,

CHIP: what I think that the size of the agency is a really interesting point here because this is one of the areas where I get a lot of questions from agency owners, you know, how big do I have to get before I can sell things like that? And as you look at the the 62 deals in the report, there are deals of agencies with just a single employee. There are ones where the only It has just contractors working for them. And then there are agencies that are over 500 employees that got sold. So, you know, there is a real mix of these. But as you said, the the median is 20, which means that, you know, 20 would be sort of the sweet spot for an agency looking to be sold. And so if you are in that neighborhood, the you know, the number of suitors is likely going to be larger, because if you if you start getting really small, you know, say, you know, five or less employees, those can be very quick deals to consummate. But in those cases, it’s typically someone with a real specialty that they’re trying to bring on. So it looks more like an aqua hire or, you know, someone just trying to build up a new digital team or I want, you know, an advertising team or creative team or whatever. Or I’m looking to open an office in a new city. So I’m going to acquire for that reason, so the smaller you get, the more that the acquisition is going to be super targeted as you start to get more Larger, then the possibilities increase as far as who the potential suitors might be.

GINI: Yeah. And I mean, speaking of geography, he’s there’s nearly one third of the deals were between two agencies that share a similar geographic area for their headquarters. So that’s interesting as well, when you think about it, be thinking about suiters that would, that would purchase you in your same region. But I find the significant cluster of cell sellers, London, which was surprising because it was it was the number one New York doesn’t surprise me Southern California and other Northern California and Washington DC, the whole middle part of the country. Hello.

CHIP: Well, so I mean, half of the deals are still in other places. Right? Right. But the clusters are in the places that you would typically expect. I think, you know, I London I think is is is interesting, very interesting. You know, there there is a lot of activity that seems to be taking place over there. It’s also interesting in some of the European countries, because there’s a lot more data about those companies, because they even private companies have to make certain information available through public record. And so I, I do, I didn’t look into this. So I don’t really know for sure. But I do wonder if that actually facilitates some of this activity. Because as an outsider, you can glean a lot more information about potential acquisitions, whereas, you know, here in the US, privately held agencies aren’t going to share any information. So you got to call them up and have them give it to you. Right? Whereas if you’re in the UK, I can just, you know, look on a government filing and see, you know, how much did you make last year? Yeah, so, so that, that is a different dynamic. And I don’t know for certain that that impacts m&a activity, but it wouldn’t surprise me.

GINI: No, I wouldn’t surprise me there.

CHIP: If it did. You know, the other thing is, you know, looking at how firms position themselves and we talk a lot about niches and, you know, coming up with a way to target what it is that you’re you know what What your market is that you’re serving the services you’re providing, you know, finding some way to be not just a full service PR and communications firm means nothing.

GINI: differentiation. Yeah. So

CHIP: you need something. And if you look at that, at the report here, you know, some of the areas where there’s a lot of activity, the health is really the big one, right? I mean, if you if you are a health care PR agency, you have likely except for a potential acquirer in the last 12 months. And if you haven’t, frankly, I’d be surprised you probably need to do more to put yourself on the map because if health PR firms are in huge demand, I think sometimes the

GINI: recession proof business Yeah,

CHIP: yeah, but about 20% of the the agencies that were sold last year had health as a sole or primary focus for their activity. And so that’s, that’s something to be aware of, you know, also strong as the digital space. No surprise there. You know, a lot of more traditional agencies are looking to augment their digital capabilities, so they’re picking up digital shops. And then of course, financial services technology. Important, but others that are interesting to me travel and tourism, you know, was a significant target and Public Affairs as well. And there’s a lot of folks who think the public affairs will pick up this year. And I think it’s like, yeah, it being a election year election year in the US, right, you know, that tends to spur a lot of activity, more activity is is kicked off depending on whether there are changes in party power dynamics. So you know, we’ll have to wait and see later in the year, what that may trigger. But, you know, certainly public affairs is likely to be a hot spot here in the US over the next 12 to 18 months from an acquisitions perspective.

GINI: The The last thing that I found really interesting is that there 10 buyers who were active in purchasing more than one agency and you know, I think we can provide the list of the show the complete list in the show notes. But then partners tops the list, which I find fascinating. So when you think about who might buy you, you know, in terms, not just geography wise, but also look at this list that chips put together because there may be an opportunity there that you have a service or a specialty that that, you know, if in partner may not have, and even though they’re gigantic, that there they may be missing something, especially maybe even particularly on the digital side. So think about that

CHIP: as well. Yeah. It’s been it’s been very, very busy on the health side as well. I mean, that’s really where a lot of their acquisitions were. But the you know, I think the the other interesting thing, as you look at the data of who’s doing the buying, the vast majority are just one independent firm buying another independent firm, which I think is healthy. And and you know, that that shows that this is not, you know, some of that just it’s not pure consolidation like we’ve seen in the past where some of the holding companies are just trying to scoop up as many as they can, in fact, holding companies were in particular, the public ones were we’re not really all that active in the, the PR agency m&a space last year, some of the smaller ones and the upstart ones were involved. So, you know, we saw some activity there. And there are some newcomers who are trying to build small groups or groups of small agencies, I should say, that are coming on the scene. So, you know, some interesting activity there. You know, the one big thing that was was missing that I didn’t see and that was the private equity firms doing acquisitions. And, and then in the P firms have been very active in talking to agencies, and they send they’ve been making minority investments. But at least through the research that I was able to do for 2019, I was not able to find any PE firms straight up buying a PR agency. So so that’s interesting, because it’s, you know, it’s certainly one of the more buzzed about the In the agency m&a space, but you know nothing that’s that seems to be taking place at least on the public radar at the moment.

GINI: Well, it’s a really interesting piece of research that you’ve put together. When you sent it to me, I was like, wow, this is really cool. So if you’re thinking about selling, think the first thing you want to figure out is when you know and then to, you have to have at least three years of consistent stable profitability. So you know, back back that out, and then you have to have at least I would, I would venture to guess two years before you want to sell. So if you want to sell in 10 years, eight years from now, you want to start looking for potential suitors. So you have to start backing all of that out so that you can create a plan to be able to achieve that.

CHIP: Yeah. And I think that you know, the other thing to keep in mind here is that pretty much any agency can be sold, even if you don’t meet some of that criteria. But if you don’t meet that criteria, you’re not going to see anything like the numbers that you are dreaming.

GINI: Yeah, you’re not gonna sell. You’re not gonna sell this For $10 million in three years if you’re making 150 right now, Correct.

CHIP: Correct. And that’s, you know, so I think that you know, if you’re even contemplating the possibility of selling, it’s, it’s useful to get as educated as you can sooner rather than later. There are lots of great resources out there, obviously, this report is one of them and we’ll include a link in the show notes. So if you want a free copy, I’m happy to provide it to you. But you know, it will also be tracking all of the deals that take place over the course of the year as well so you can stay on top of that and see you know, what’s, what’s new and what’s different what state our public affairs firms really as hot as I think they’re going to be, you know, it’s healthcare staying hotter is some other sector popping up and those will all help you in understanding what the potential for your firm is. Because just like anything that you’re selling, you want to sell at the right time. So you know, if you’ve got a healthcare PR firm and you’re thinking about selling now may be the time to think about it, as opposed to waiting five years. You know, if you’ve got a digital shop Your odds are probably better today than they’re going to be in five years, because more and more folks will be smart on digital and they won’t need to bolt it on. So, you know, trying to think about, if there’s a timeliness to your sale that might be relevant. The data can really help you on that

GINI: a men and go build your business, you can sell it.

CHIP: Absolutely.

Or not. I mean,

GINI: yeah, I mean, it could very well be a generational thing, and which is fine.

CHIP: Yeah. And And honestly, just thinking about your business in those terms, as we’ve talked about before on the show will help you if you, if you’re positioning yourself to sell, you’ll have a better business for yourself, regardless of what the outcome is. Absolutely, totally agree. Yes. Think about it from that perspective, and you’ll do better. And that’s why we want to help you do. That’s the whole purpose of that show, to help agencies build better businesses. So with that, we will bring this episode of the agency leadership podcast to a close. I’m Chip Griffin,

GINI: and I’m Gini Dietrich,

CHIP: and it depends

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The Hosts

Chip Griffin is the founder of the Small Agency Growth Alliance (SAGA) where he helps PR & marketing agency owners build the businesses that they want to own. He brings more than two decades of experience as an agency executive and entrepreneur to share the wisdom of his success and lessons of his failures. Follow him on Twitter at @ChipGriffin.


Gini Dietrich is the founder and CEO of Arment Dietrich, an integrated marketing communications firm. She is the author of Spin Sucks, the lead blogger at Spin Sucks, and the host of Spin Sucks the podcast. She also is co-author of Marketing in the Round and co-host of Inside PR. Follow her on Twitter at @GiniDietrich.

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