An industry-wide boom
The Strategic Communications sector has seen a level of consolidation over the last three years that few could have predicted.
The unprecedented challenges of the early 2020s, marked by a global pandemic, increased global conflicts, climate change, and a heightened risk of cyber-attacks, have emphasised the critical need for crisis preparedness. According to PwC's 2023 Crisis Resilience Survey, 91% of companies faced disruptions in 2023, a significant increase from the 69% reported between 2014 and 2019 (excluding the pandemic).
This era of crises and uncertainty has underlined the importance of having a well-defined crisis plan and a reliable partner for reputation management. PwC's 2021 study revealed that 39% of US respondents had a crisis management plan in 2021. By 2023, a separate study demonstrated that this figure had risen to 49%, with an additional 28% having an informal crisis comms plan in place. In PwC’s 2023 survey, 86% of respondents are set to invest in crisis management in the coming two years. Consequently, strategic communications specialists, particularly those with a specialism in crisis comms, have experienced massive growth.
In addition to the crisis environment, the ever-evolving complexities of the social media landscape have heightened the significance of reputation management. The old Warren Buffet adage of ‘It takes 20 years to build a reputation, and five minutes to ruin it’ resonates now more than ever. The court of public opinion has become more influential and vocal, emphasising the need for a dedicated team or adviser to help navigate these challenging waters.
The industry consolidation
This heightened demand for advisors’ services created a boom in industry profits for crisis & strategic communications specialists. This has in turn triggered a wave of industry consolidation through M&A. We have seen both a rise in deal volume and in industry multiples over this period.
From 2021, there were several notable acquisitions from industry leaders. Brunswick sold a minority stake to BDT Capital Partners, Finsbury Glover Hering and Sard Verbinnen merged to form FGS, and Havas acquired Cicero. In 2022, SI Partners advised Mexico’s Another Company on a majority stake sale to SEC Newgate as the newer, often PE-backed challenger agencies looked to take on the traditional holding companies.
In January 2023, SI Partners also sold Hume Brophy to Penta, backed by Falfurrias Capital. This was followed on shortly afterwards by Teneo acquiring Tulchan Communications.
As Winter turned to Spring, KKR invested in the part WPP-owned FGS at a reported 15x multiple, valuing the company at $1.4bn; Camarco sold to APCO Worldwide; and Stagwell purchased Jasper Advisers.
In the Autumn, Powerscourt, another SI Partners client, sold to Morrow Sodali, while Farner announced the acquisition of UK consultancy Lansons.
The pace of activity has been relentless; blink, and you might miss a deal.
Our view going into 2024
Recent discussions with buyers highlight a sustained desire to capitalise on this red-hot market and there are no signs of that slowing going into 2024.
For those independents who have not yet sold, many may now be conscious of the challenges of remaining independent, going head-to-head against these supercharged, PE-backed players. Many will be weighing that against the potential to capitalise on acquirers’ appetites and the potential premiums on offer.
As well as a high value and differentiated consultancy offer, sellers will need to showcase a robust client roster; a capable management team; a strong history of growth & margin; and a solid new business pipeline. If they can do so, there is likely to be considerable interest from both strategic buyers as well as more PE funds that are being attracted by recent activity.
