In PR, the merger and acquisition climate has given way to a new species of deals built on shared values and people - not just the promise of a bottom-line facelift.
"PR firms are service agencies and their value tends to be their employees and their relationships," says Lewis Rubin, a partner with the law firm Davis & Gilbert, New York.
That doesn't mean, however, that you shouldn't negotiate through in-depth face-to-face meetings, legal agreements and careful research to protect your vested interests up front.
Generally, legal pacts with components such as earn-outs and employment contracts make the process smoother. With earn outs, buyers pay a portion of the purchase price at closing and the balance over several years to provide an incentive that rewards earnings growth and high profit margins. And for the seller, employment contracts guarantee jobs once the deal's sealed, according to Rubin and Michael Lasky, another D&G partner.
Mergers and acquisitions can cost $50,000 for the legal counsel alone, says Jim Matthews, CEO and chairman of Matthews/Mark, a marcom house in San Diego that recently underwent a merger.
Assignment number one is to determine whether the two companies involved have shared values. This requires significant legwork because you must analyze everything from how employees are rewarded to how accounts are managed as well as growth forecasts.
The second assignment requires that both parties share sensitive information such as payables and receivables. At that time, independent lawyers for each side draw up a non-disclosure agreement (protecting the data and numbers you share) to avoid balance-sheet surprises.
The Color of M&As
M&As can take on various forms. For example:
Putting People First For Profit's Sake
Nationwide, the part people play in M&As is getting special attention as buyers seek talent and sellers look to protect their workforce.
"It's our belief that a communications company isn't anything without its employees and we put that as No. 1 during [merger] negotiations," says Matthews. "We agreed that we wanted to be able to promise everyone a job for at least six months and we did."
Matthews now is one of the seven owners heading the new Matthews-Mark, which grew out of a complex merger similar to a stock swap. The companies would not disclose financial specifics.
The combined client list now includes Alliance Healthcare Foundation, Barona Casino, Cox Interactive Media and Sony Wireless. Its principals are Matthews and Mark and PR duo Peter James MacCracken and Scott L. McGaugh.
Additionally the merger creates a distinctive PR division within the new company called Matthews-Mark-MacCracken-McGaugh. It is comprised of MacCracken and McGaugh's former 15-person workforce.
Part of the benefit for Matthews-McGraugh was earning PR expertise, but its new partner also had to weigh some important variables.
"In considering the merger, we asked ourselves: 'Would we be going down this path [expanding its services] anyway some day in some way?'" says MacCracken. "And we knew it was 'Yes.'"
The new 71-person company, in fact, is a 1990s case study in business leveraging. Earning its stripes in advertising, it's evolving to claim a major stake in the PR industry. Projected capitalized billings will be $50 million. Last year's billings were about $38 million.
Traditional acquisitions represent another form of business leveraging becoming more common in PR.
In another vein, Saatchi and Saatchi is attempting to re-emerge as a separate brand that was part of a massive reorganization plan initiated by former holding company Cordiant. Part of that transformation involves growing Saatchi & Saatchi, a former advertising giant, into a prime marcom contender through the acquisition of talent at GMG and through other deals that are expected soon.
"With GMG, we're buying a skill set," says Tony Dalton, vice chairman of Saatchi & Saatchi North America.
GMG's leading execs, Mel R. Korn, president and CEO, and Margaret P. Somers, executive VP and COO, were key to the acquisition and will stay on board to help head Saatchi & Saatchi's newly formed Co-Marketing Services branch.
The division will be headquartered in New York with a service office in Philadelphia and emerging field offices. (Davis & Gilbert, 212/468-4800; Saatchi & Saatchi, Tony Dalton, 212/463-2295; Matthews-Mark, 619/238-8511; F-H, 202/828-8818; Ketchum, 212/448-4210; ProMarc, 703/836-9225; RT&E, 302/652-3211)
Acquisition Watch: And They Keep on Coming...
The PR industry continues to witness a tidal wave of acquisitions, partnering and recently we've seen everything from deals struck by major PR networks to unique agreements that bolster smaller firms' brands. For example:
Source: PR News