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Last year some Republican practitioners brushed aside the notion of a mergers and acquisitions boom among GOP firms. Now, the right is beginning to see the same M&A activity that’s shaken up the Democratic side of the consulting industry for the past two years.
Starting in fall 2015, Mark Penn’s Stagwell Media LLC went on a buying spree that began with the acquisition of advertising and public affairs firm SKDKnickerbocker.
Penn’s investment firm either purchased or bought stakes in research firms, communication shops and digital marketing agencies — most recently acquiring the entertainment-marketing division of Creative Artists Agency.
Meanwhile in the campaign space, Bully Pulpit Interactive acquired The Incite Agency in another major deal last fall. That deal was backed with private equity money from Svoboda Capital Partners LLC.
Republicans now have their own M&A arms race happening between Majority Strategies and Axiom Strategies.
As part of its growth strategy, Majority Strategies recently merged with Chris Faulkner’s Gridiron Communications — a deal announced in September — and hired a host of state-based practitioners to court regional business beyond its Florida base.
Meanwhile, Missouri-based Axiom has acquired Cannon Research Group, a research firm, and the California-based campaign management shop Revolvis. On Wednesday the firm announced that it had brought digital and traditional media buying in-house with the launch of AxMedia, headed by longtime staffer Sarah Hoeller.
“The market norms do not apply to us. Whatever people are used to charging, we’re not going to pay. Whatever the clients are used to paying, they’re not going to pay [for our services],” Jeff Roe, Axiom’s founder, told C&E. “The media buyers setting commissions is the equivalent of the jewelry industry setting the cost of your engagement ring.”
One roadblock possibly holding back conglomeration on the GOP side of the industry was the size of the firms.
“We’ve looked at a couple of [M&A] opportunities here and there,” Chris Wilson, CEO of Wilson Perkins Allen Research, told C&E last fall. “The challenge that exists is that there’s a lot of 10-person or less firms, and they’re all LLCs.”
But Roe said that wouldn’t stop him acquiring a firm if it had a niche in the market. “I haven’t found LLCs challenging,” he said. “I have and will buy either” an LLC or an S corporation.
Roe, who served as Sen. Ted Cruz’s 2016 campaign manager, likened the firm’s catchall services menu to the way that presidential was run. For Cruz’s race, the campaign opted to hire practitioners as staff instead of consultants, he noted.
“We didn’t have any consultants, we ended up with 178 people on staff. There was no profit motive to make a decision,” he said, adding that some consultants allow strategy to be dictated by financial decisions because of their cyclical revenue model.
“When you take that profit center piece out of a campaign, or create a firm when you’re doing all the voter contact services because your profit will be made wherever you spend the money, you don’t have the big fights that happen in a campaign.”
In fact, Roe sees his firm’s growth strategy as a way of breaking out of the cyclical revenue model that traps many firms.
“We want to spread the revenue across the cycle,” he said. “We’re adding off-year cycle products that our clients, both corporate and political, can utilize.”
He also wants to hire experienced practitioners so clients aren’t serviced by up-and-coming practitioners.
“I’ve prioritized hiring someone with 10-years experience,” he said. “That takes money to do that, that takes asset management. We have a COO, we’re bringing on a CFO.”
Roe predicted the slow demise of the single-service shop. “If you have a single mission firm and you do one small piece of politics, you have to charge so much that it’s hard to survive in the off year,” he said. “It’s like a college bar that makes all their money on homecoming and St. Patrick’s Day. What if it rains on St. Patrick’s Day?”
His firm has used its own cash reserves to fund the acquisitions and it plans to remain on the hunt with additional announcements pending, Roe said.
“We are in a buying posture.”