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 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.
Clayton, Dubilier & Rice LLC
Clayton, Dubilier & Rice acquired healthcare marketing and communications holding company Huntsworth in March 2020 for $719 million, betting on strong growth in healthcare, according to Reuters.
Through its healthcare division, Huntsworth owns prominent healthcare communications companies like Evoke and Medistrava Consulting. Its PR division, whose operating profit grew 38% in 2019, contains Grayling, Red, and Citigate Dewe Rogerson, Quiller, and The Creative Engagement Group.
Since the CD&R deal in March, Huntsworth acquired communications and training consultancy Cormis, now part of its 400-person The Creative Engagement Group; and the 800-person medical communications company Nucleus Global.
CVC Capital Partners
PE firm CVC Capital Partners acquired a majority stake in PR powerhouse Teneo in 2019 in a deal that valued it at more than $700 million. Started in 1981, CVC has $109.1 billion in assets under management.
CVC bought out another private equity firm, BC Partners, which acquired a minority stake in Teneo in 2015. Teneo was founded in 2011 by former Clinton advisers Declan Kelly and Doug Band.
With BC's backing, Teneo has more than tripled its headcount to 800 people and acquired a slew of PR firms and other kinds of professional services companies, allowing it to enter new businesses like investment banking and executive recruiting.
Golden Gate Capital
Golden Gate Capital acquired a 40% stake in Sard Verbinnen & Co in 2016, becoming one of the most talked-about deals in the PR industry after several partners refused to accept the terms and exited the agency.
However, a source familiar with Golden Gate said Sard's headcount and revenues are up more than 50% since taking on the investment. It's also opened new offices in Hong Kong and Washington, DC.
With Golden Gate's cash, Sard Verbinnen acquired Oakhill Communications in 2020, cementing its presence as a communications and public affairs powerhouse in the UK and Europe. It also built out its research division by acquiring Arc Research.
The firm launched a governance group called SGA, led by the former head of ISS special situations, as well as a public affairs practice led by chairman Bruce Haynes and vice chair Miriam Sapiro, former acting US trade representative for President Barack Obama.
Investcorp
In March 2018, Investcorp acquired an undisclosed stake in financial communications agency ICR. David Tayeh, head of private equity of North America at Investcorp, and principal Warren Knapp lead the ICR account.
Investcorp's investment helped ICR grow its headcount from about 180 people to 250, launch a governance advisory practice, and acquire Westwicke Partners, a specialist in healthcare investor relations.
CEO Tom Ryan told Business Insider he expects ICR to grow revenue in the area of 15% in 2020. Based on revenue figures it provided to ProvokeMedia, that would put its annual revenue at around $100 million.
New Mountain Capital
New Mountain Capital, with more than $25 billion in assets under management, bought an undisclosed stake in W2O Group in 2019, fueling the healthcare PR agency's skyrocketing growth.
The 1,500-person W2O has more than tripled its revenues and headcount since 2016 and expects to grow revenue 50% to more than $350 million in 2020, CEO Jim Weiss said.
Since the New Mountain deal, W2O has made seven acquisitions in influencer and entertainment marketing and social media analytics, including Arcus Medica, ISO.health, Radius Digital Science, 21Grams, Symplur, Discern Health, and Starpower.
W2O has also used the proceeds of the New Mountain sale to build out its technology platforms and data analytics capabilities, Weiss said.
W2O's previous backer was MountainGate Capital.
Platinum Equity
Platinum Equity, a firm with more than $19 billion in assets under management, acquired software giant Cision in early 2020 in a deal valued at $2.7 billion.
Since then, Cision has attempted to merge with its biggest competitor, Meltwater, which the Department of Justice investigated for antitrust concerns. It's also tried selling its largest acquisition Trendkite, which it bought for $225 million.
Under Platinum Equity, Cision hired a new CEO, Abel Clark; and released new features and products like a relationship management solution to help PR pros reach 1.1 billion influencers and journalists in its database and an analytics dashboard and interactive reports.
With that deal, Platinum bought out Cision's previous owner, GTCR, and took the world's largest PR software company private after trading on the New York Stock Exchange for less than 3 years.
Stagwell Group
Mark Penn founded Stagwell Group in 2015 with a $250 million private equity investment led by former Microsoft CEO Steve Ballmer.
Stagwell and MDC Partners, an ad holding company that Penn also leads, have acquired or invested in a range of PR firms, including corporate heavyweights like Sloane & Company, political firms like SKDKnickerbocker, technology focused firms like Allison + Partners, and Finn Partners.
Stagwell Group is also investing in PR technology, launching an AI tool called PRrophet through MDC subsidiary KWT and an influencer marketing platform called Koalifyed, which is being used by Procter & Gamble.
In June 2020, Stagwell announced it was trying to merge with MDC.
Vista Credit Partners
Vista Credit Partners, the credit-investing arm of Vista Equity Partners, gave PR software giant Meltwater a $175 million cash infusion in March 2019.
Meltwater said the recapitalization allowed it to invest in its products after acquiring a string of companies like social analytics and engagement company Sysomos.
Most recently, Meltwater became a publicly traded company through an IPO on Euronext stock exchange that raised $395 million to pay down debt and pursue revenue growth by acquiring customers and through mergers and acquisitions.