A whopping 68% of the $3 billion in revenues generated by the firms measured in this year's rankings were from the top 20, meaning nearly 7% of the agencies produced almost 70% of the income. Illustrating their might even further is the fact that the top 10 took care of 52% of the revenues, with the top five rustling up 35% by themselves.These figures certainly support the argument that the PR industry is consolidating, and the gap between big and small is as wide as ever. Acquisition activity in 2001 was fairly even between acquiring geographical presence and gaining expertise in practice areas such as investor relations or healthcare. This indicates that the market is not yet at its saturation point - when all that is left to do is squash similar agencies together to make a bigger one.
There is still much talk of scale, however. A large portion of the industry consolidation - especially at the parent company level - has been driven in no small part by the demands of clients that want scale and its resultant economies, global coverage and consistency of message.
However, this argument is for the Fortune 500 clients and the agencies with $100 million or more in billings. In 2001, only one of the big M&A deals on the agency side was on the grand scale - the merger of Weber Shandwick Worldwide with BSMG as a result of Interpublic's acquisition of True North Communications. At the other end of the spectrum, the smaller agencies are still servicing the smaller clients in the same way they have been - and they are highly successful at it too.
Indeed, it would appear that the pace of consolidation slowed in 2001.
The proportion of revenues posted by the top 20 firms, though still huge, is slightly smaller this year than the 71% recorded in 2000. That's not altogether surprising when looking at the intense M&A activity in the heady tech environment of that year, and the subsequent crash in 2001.
So while PR industry revenues are down as a whole, many smaller agencies are reporting at worst a flat performance (as opposed to the almost universal decline among the big players). In fact, looking down the rankings table to the lower numbers, one starts to see double-digit growth for a good many firms. Granted, a $2 million agency with a 25% increase in revenue is still small by anyone's standards, but that growth can represent just a small handful of clients.
Following the aggressive M&A period of 2000, a lot of relationships between smaller clients and their agencies were changed beyond their control - for example, conflicts with clients held by the agency's new siblings or a new group relationship pressuring the agency to resign the business altogether. Whatever the circumstance, there were a number of clients that hired a small, local agency, and by default suddenly had a shop that was part of a larger network with group relationships, new overhead and changed fiscal responsibilities.
It's these clients that have fed the coffers of the small shops, even allowing a healthy market for agency launches and buybacks. Last December, for example, Christine Barney bought back RBB Public Relations from WSW in Miami, when the network could no longer invest in the outpost but her local clients wanted her services. At the time, Jack Bergen, then the president of the Council of PR Firms, commented that the larger agencies had a higher threshold of account size. "They're not going to pick up the local bank or local car dealer as a client,
he explained. "The larger agencies are going after the regional headquarters of the car company, not the local dealer."
The situation was echoed throughout the US last year, when the big agencies were shuttering offices in loss-making markets - Cohn & Wolfe in Atlanta, Chicago, DC and Austin, TX, The Weber Group in San Francisco and so on - leaving the local independent agencies to swoop in on the leftover clients.
For a year that appears at first glance to have been difficult for the industry as a whole, significant growth can be seen for these mom-and-pop shops - especially while the big get bigger.