Not long ago, private equity firms used to view investing in public relations agencies and software companies as a volatile industry.
Recently, that’s changed.
Marketing M&A, which includes PR and PR software, grew 2% in 2019 while overall M&A declined 7%, investment bank JEGI Clarity reported, highlighted by deals like Platinum Equity’s acquisition of Cision and CVC Capital Partners’ acquisition of Teneo.
Financial buyers represented 14% of buyers of these firms for the past few years, up from 11% in 2016, said the report.
“It’s a growth industry, and they’re beginning to see that more and more,” said Art Stevens, a mergers and acquisitions specialist that advises on PR agency deals. “They see firms doing rollups and becoming a $100 million business overnight that are 20% profitable at least.”
Stevens cited roll-up vehicles like communications firm W2O Group, which more than tripled its revenue to a projected $350 million in 2020 since taking on investors in 2016.
Firms like financial communications agency ICR have also shown that PR can be a stable business. David Tayeh, head of private equity of North America at Investcorp, which acquired a stake in ICR in 2018, said the agency was attractive because of its diversified revenue streams, consistent year-over-year growth rate, and high cash flow.
“There’s a level of stickiness that is generally underappreciated in the industry, with contractually recurring or recurring revenue that have proven quite resilient,” Tayeh said.
Investcorp is betting ICR is only scratching the surface of its potential as the agency builds out data analytics services and benefits from crisis work as clients seek help defending themselves against social and financial activists, Tayeh said.
Stevens said the coronavirus pandemic hasn’t dampened private equity interest in PR and predicts 2021 will bring a flurry of new deals.
Business Insider identified eight firms that have invested in PR agencies and software companies, using publicly available information and original reporting.