Is consolidation slowing down in the marketing services & communications sector ? Has the birth rate for new consultancies slowed in the challenging economic times of recent ?
The answer to both these questions is an emphatic ‘no’. The sector continues to vigorously re-invent itself, spurred on by the need to put digital at the heart of everything it does. The new-look PR Week magazine[congratulations to the team for a fantastic publication] said in its first issue:
‘What does it take to set up a new PR agency ? Balls, largely. Experience, certainly.’
The fact is that marketing services has always had a relatively low barrier to entry and I believe it is a good thing there is a continuous flow of start-ups by young and not so young entrepreneurs departing established agencies to do their own thing. Add to this the continued need for the large groups to grow by acquisition to fuel earnings and you have a classic chicken and egg situation.
But there are other factors at play. When I bought out the PR firm I was running in Scotland from an advertising agency group in the mid 1980’s, it was thought to be the first business of its kind in the UK to have used private equity money – in this case from 3i – to fund an MBO of a business where, in the final analysis, the assets can walk out of the door.
There have been many other examples since but it has taken until the last five years – certainly in Europe – for the private equity industry to really begin to take the sector seriously. With huge amounts of capital to invest and a shortage of deals, the Private Equity industry is now much more focused on people businesses. The backing of Blue Rubicon and The College Group are two very visible examples in the PR sector and some estimates suggest that as much as a quarter of the 400 or so M&A deals involving marketing services businesses globally in 2012 were backed by private equity or similar type organisations. Less reliance on the larger, publicly listed groups to fuel consolidation and expansion bodes very well for the sector.
Watch this space.
