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Thinking of Merging with or Acquiring Another PR Firm? Proceed with Caution

October 20, 2011

This week’s PRSA International Conference served up a bevy of great sessions, and one of the best ones I attended was delivered by three independent practitioners who shared their business models and some war stories as well. 

We heard from Jennifer Heinly, who has operated for the past 21 years as a sole practitioner with no employees.  Natalie Ghidotti’s model is that of an agency partnership model, where the advertising agency she operated within was her biggest client, but she still had her own client roster as well. But listenting  to Kelly Jackson Davis’s experience in acquiring a local competitor had me on the edge of my seat.  She confirmed in many ways some of my worst fears about treading down that path.  But all things happen for a reason, as they say, and she ended up in a great place after all.

Here’s a recap of her story and some top tips for those looking at acquiring or merging:

1.  Get your business house in order.  This means opening up the checkbook to pay lawyers, accountants, and the acquisition target, of course.  But prior to cutting that check, you need to do your due diligence, draft a letter of intent, understand the tax implications of what you’re about to do, and make sure you’ve looked at that contract from all angles before you give it to the target to sign.  Perhaps the most important thing to consider, according to Kelly, is the people in the company you’re about to acquire.  How well do their personalities, work styles, culture, and skills fit yours?  Do some need to go before you cut your deal, so you don’t end up paying for talent you don’t want or don’t need?  How will you help these folks through the transition so that you can become a crack unit from day one of your arrival?

2.  Make the clients – theirs and yours – feel the love.  In many cases with small firms, the clients are buying YOU, not the company.  There’s something about you that they feel comfortable with, trust, and rely on.  Now you tell them their business is going to be managed by a total stranger?  Yeah, that’s going to go over well.  You and your prospective acquisition need to sit down and work out a strategy so that the two of you can meet personally with each client and make them comfortable about the new situation.  And your existing clients will need reassurance that you’re not going to drop them like hot potatoes when the shiny new clients come on board.

3.  Get non-competes from the team you are acquiring. The hardest lesson Kelly learned was not getting non-compete agreements from the employees at the acquired firm. When one key member left and took three clients with her, it was quite a blow to the newly merged organization.  Kelly was able to hire her own team and grew even after that episode, but she regrets not having had those non-competes and the destabilizing effect the departures had on her business.

While the course of a merger or acquisition is infrequently smooth and hassle free, there’s also lots of upside.  Kelly reported that her deal led to increased visibility for her practice, a better location, and a stronger organization.  Made me feel a lot better and more informed about the M & A process should I elect to go down that path in the next year or two.

On a completely different note, I’m especially grateful to the PRSA Tampa Bay Chapter for awarding me a scholarship.  The conference is pricey but as those of us who went know, it’s worth it.  The funds made it much easier for me – thanks so much!

Contributed by Michelle C. Bauer, president of Common Language.

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