For consultants looking to sell their businesses, their options are often limited by the pool of buyers. Selling to a competitor or one of the industry’s mega firms, for instance, might cap the business’ valuation. Same if the owner or partners decide to sell to a group of employees.
But the group of firm owners behind GP3, an umbrella LLC that last year joined together 10 Republican public affairs, polling, mail and campaign consulting firms, believes it’s solved for the limited buyers problem.
By rolling up their shops, these practitioners believe that they’ve made themselves into a large enough entity that they could attract a major offer from a buyer outside the industry.
The conventional wisdom for many years has been that outside buyers were put off by the nature of political businesses — whether that was potential PR blowback or the cyclical revenue cycle.
But Ray Zaborney of Maverick Strategies said, in fact, it’s not that the political market itself is unattractive to outside investors. It’s just that businesses need to achieve scale to attract the right suitors.
“The Democrats have been more successful at this than Republicans have,” said Pennsylvania-based Zaborney, who’s a partner in GP3. “You look at [SKDK, which is part of Stagwell Inc], you look at other folks who have gotten private equity investments and then ultimately sold in the marketplace.”
He continued: “The folks who buy these businesses, whether they be Deloitte, or WPA, they don’t want to buy $20-million businesses. That’s not in their interest. Their due diligence costs more than that, typically. They want to buy $300- $400- $500-million-dollar businesses.”
Reaching that kind of territory required the firms in GP3 to rollup, he said March 27 at C&E’s Reed Awards & Conference in Las Vegas.
“The way to do an exit is to go to market looking more like that, than looking more like what we look like today. That is where this all came together.”
Zaborney noted that it took GP3, which includes Strategic Partners & Media, Red Maverick Media, Public Opinion Strategies, IMGE, GuidePost Strategies, FLS Connect, Bullpen Strategy Group, Ascent Media, and 76 Group, four to five years to finalize their tie up.
“It’s a test case,” he said. “We think it will be successful. We had immediate private equity interest [from Seidler Equity Partners] before we announced.”
For other firm owners looking to follow in GP3’s footsteps, Zaborney encouraged them to be creative.
“It is one of the biggest challenges of any professional services business,” he said of an exit. “But there will always be a market for businesses that have margins of 30-35 percent … It is all about scale at that point.”