The whispers of recession in PR are growing louder and the
'streamlining' of PR firms after frenzied hiring is well underway. But
until now there has been little hard evidence of how the people running
UK consultancies feel about the state of the industry, and their
expectations of income, profits and staff numbers in the years
The Madsen Clark PR Economic Barometer of 59 consultancy bosses from
within the PRWeek Top 150 appears to reveal what is really going on in
the industry, since it is done on an anonymous basis. It's not all doom
and gloom, and some bullishness remains, but respondents with downbeat
views of their firm's health are more plentiful than might be
Most striking is that the amount of consolidation in the industry during
the past couple of years is not about to slow down soon. Almost half (49
per cent) of those surveyed said they were very or quite likely to
consider leading a merger or being merged with another company in the
next 12 months.
This is good news for Madsen Clark, which brokers mergers, acquisitions,
MBOs and MBIs for PR companies, but may be worrying for the industry:
that's a great deal of companies not feeling strong enough to stand
alone into 2002.
According to non-exec Alastair Gornall, it isn't all negative: 'We're
seeing six to ten agencies a week that are "interested in exploring
strategic options". Some want to talk because they are nervous, others
see the current climate as an opportunity to go for market share, so
they're in a position to be bought in three to five years.'
Other agency heads speak of the 'clustering' of PR consultancies,
particularly small to medium-sized businesses: 'In a recession people
don't like standing on their own too much. Mergers allow restructuring
and allow companies to get back into profitability and cash flow and a
more solid footing,' says one.
There is a view that no giant mergers of the sort seen in 2001 are on
the horizon: 'I would like to see how deep the pockets of the big
players are in the current climate - many are still working out the cost
benefits of all the agencies they bought during the past couple of
Expectations of income or profit during the next year point to
polarisation in the industry. There is a fairly even split between those
who expect year-end profits to be up (53 per cent) and those who expect
them to go down (34 per cent) or be the same (13 per cent). Half the
industry seeing profits declining or stagnating is hard evidence to back
up stories of redundancies across the industry.
The average PR firm makes margins of something like 12 to 15 per cent.
As Gornall says: 'It doesn't take a big drop to wipe that out'. Most
agencies have also been affected by clients freezing their spend in the
wake of 11 September, which added to a pre-existing slowdown.
'The conversations I've had with people show many are trading in a
break-even situation. If agencies have a strong balance sheet and have
been prudent they can sustain that for a while. If they haven't, they
can't. I suspect many companies are under-capitalised and will feel
exposed,' says Gornall.
Other agency bosses agree, but suggest that getting through the
recession depends on being strong in a few key areas. There are plenty
of comms challenges in the corporate arena as firms downsize, merge or
restructure. More bleakly, some areas of healthcare will require work
tackling stress, depression and the associated illnesses that go with
uncertainty and redundancy.
Weber Shandwick Worldwide joint CEO David Brain remains upbeat. 'We
shouldn't lose sight of the fact we are in the right industry at the
right time. We just have to be good managers over the next year. The
economic conditions will weed out those bosses who are simply good at
PR, rather than good at managing a company.'
It is no surprise, given half the industry expects growth to end, that
many consultancies are either not hiring, or are letting people go.
There have already been a number of high-profile culls as the
enthusiastic recruitment of last year proves unsustainable.
Although 41 per cent insist they plan to take on more people, increasing
numbers by an average 13 per cent, a further 35 per cent say staff
numbers will stay the same. Nearly a quarter of firms plan on
redundancies in the next 12 months, reducing headcount by an average 16
Even the leading lights in the industry may not stick around: 24 per
cent of respondents said they were not sure they would be in PR in three
years. But Gornall isn't surprised: 'It's difficult running an agency in
a recession. A lot of people have been through it before and are asking
themselves if they want to carry on. Many are thinking that if they are
able to sell in a few years they will have a chance for another career
in their 40s, and for many people that's exciting.'
Madsen Clark plans to repeat the survey every six months, and Gornall
says he expects the picture to be a good deal worse come the spring. His
prediction is that the number of firms saying income and profits will
fall will be greater, and fewer will be planning to increase staff.
It looks like the worst is yet to come.