GLOBAL RANKINGS 2000: USA - Stakes are high. The US has spawned a PR industry of extraordinary power and profitability. It has also led to a dangerous shortage of staff. Adam Leyland and John Frank report

The US dominates the PR agency scene like no other nation. The industry is nearly ten times the size of the UK's, the world's second biggest market.

The US dominates the PR agency scene like no other nation. The industry is nearly ten times the size of the UK's, the world's second biggest market.

On the global stage, all of the top 10 agencies in the world are US-based.

And of the 25 agencies with global capabilities (see pX-XI), all but five are American. No other country has been so predatory and so aggressive in its colonization of global PR markets.

There are two primary reasons for this, and, to take a page from Bill Clinton, both can be summed up in the phrase 'It's the economy, stupid.' The current bull market is the longest in American history. Jet-propelling this charge are a pack of hi-tech superpowers and businesses registered on the Nasdaq. No matter how much other nations talk about the impact of the internet, they are all playing catch-up with America.

On the global stage, the reasons for this domination are equally determined by the economy. Nine of the top 10 brands in the world are American (source: Interbrand).

It's to support such brands, and global expansion by American companies generally, that the US PR industry has evolved. And as global trade barriers continue to erode (the latest, following a trade agreement, involving China), it's American companies that are chiefly benefiting.

For a market that's supposedly mature, the level of PR growth in the US is simply staggering. In 1998, the industry reported 24 per cent growth in domestic fee income. In 1999 the PR Week US Agency Rankings (May 2000) showed growth still higher, up 28 per cent from dollars 2.1 billion to dollars 2.7 billion.

Rick Gould, CEO at New York CPA consulting firm Gould Eisele Crombie, who has specialised in the PR industry for two decades, believes that 1999 was comfortably the most profitable year ever. 'Both revenues and profitability have increased in record multiples,' he says.

Global PR in the US

On the global stage US agencies enjoyed a similarly impressive year. The top 20 global PR agencies saw global revenues leap by 28 per cent, from dollars 2 billion to dollars 2.6 billion - and together, these powerhouses are worth as much as the entire US industry. International offices, which accounted for 37 per cent of revenues, grew by 27 per cent from dollars 766 million to dollars 974 million.

Of course, some of this growth can be attributed to the extraordinary period of acquisition and consolidation at the top end of the business. The 100-plus deals consummated in 1999 could be matched if not surpassed by the pace set this year. By early September, PR Week US had reported 68 deals.

PR Week US estimates that organic growth in the US is at a more conservative 13-15 per cent. That is still an extremely strong performance, however, ahead of the three per cent growth in the economy and significantly ahead of the eight per cent growth shown by the advertising agencies (source: Advertising Age).

What's driving this growth?

Not surprisingly the multinational advertising and communications giants are helping to fuel the expansion. The first to embrace PR firms were WPP, Omnicom, Interpublic, True North and Grey. These groups have continued to be busy, not least WPP, which earlier this year consumed Young and Rubicam.

The union brings with it the mouth-watering prospect of the world's leading PR agency - Burson-Marsteller - working side by side with arch rival Hill and Knowlton, not to mention Cohn and Wolfe.

Omnicom, after a spate of acquisitions in the last three years, has been relatively quiet, although it did pick up Boston-based cause-related marketing specialist Cone Communications in a deal worth dollars 12-15 million.

Interpublic (whose PR agencies include Shandwick, Weber and Golin/Harris) was also relatively quiet in the US, focusing its attention on a little bit of housekeeping, with Larry Weber promoted to head IPG's Allied Communications Group (ACG), a dollars 1.3 billion division that encompasses holdings in PR, research and management consulting.

The reorganisation announced last week (PR Week, 22 September), will essentially result in the merger of Shandwick and Weber to create the world's largest PR agency, with income of dollars 300 million globally. Golin/Harris will benefit from the addition of certain former Weber brands, such as TSI and Weber McGinn.

Europeans in the US

In the last 18 months a number of new players have entered the American stage. Some are old-timers, including European communications giants such as Havas/Euro RSCG, Publicis and Cordiant.

Havas-owned Euro RSCG grabbed New York-based dollars 11 million hi-tech agency Middleberg and Associates as the centerpiece of a North American expansion.

And in June, Havas-owned New York generalist Creamer Dickson Basford bought IR agency Kratz and Jensen and hi-tech VC shop Capstone Communications to form a dollars 30 million agency called Magnet Communications.

At Publicis Dialog, president and COO Andy Hopson last year extended the French giant's geographic reach, buying LobsenzStevens (New York), Purdom PR (San Francisco) and Selz/Seabolt Communications (Chicago), to add to its offices in Dallas, Seattle, Salt Lake City, Indianapolis and Boise.

One European firm that has made a particular splash in the US is Incepta.

Earlier this year, the company bought dollars 14 million IR specialist Sard Verbinnen to provide greater New York/US coverage in the increasingly interlinked global equities marketplace. What grabbed the headlines was the dollars 150 million price tag - an initial dollars 58 million, plus up to dollars 92 million in executive bonuses.

The earnings multiple on the deal had more to do with how private firms give out their bonuses than it did with market multiples, according to Incepta CEO David Wright. But even if the multiple was the adjusted eight times earnings that Wright says, it still puts it at the high end of the five-to-eight times earnings multiple the industry has been accustomed to in recent years.

Some agency chiefs believe these multiples show the market to be out of control. 'Four times fees means this agency is worth a billion dollars. That's when it's time to go into the tennis court business,' says Richard Edelman, Edelman president and CEO.

Undeterred, Incepta has since gone on to complete another high multiple deal, landing dollars 23 million hi-tech powerhouse Cunningham Communications in a deal worth up to dollars 75 million. According to PR Week US estimates, Cunningham will need to grow by 20 per cent on an annual basis until 2013 before Incepta makes a profit on the deal.

Canada's Maxxcom is also looking to move more deeply into US PR through acquisitions. Maxxcom moved south of the border last year to pick up Fletcher Martin Associates in Atlanta and Margeotes/Fertita in New York.

New players

And then there are the new players. The most notorious is the Lighthouse Global Network, a firm that started with private equity backing in Chicago, quickly gobbled up 17 companies around the world - including London-based financial PR shop Financial Dynamics and New York-based IR firm Morgen-Walke - and almost as quickly sold out to London-based Cordiant in a dollars 592 million package of stock and debt assumption.

The Lighthouse deal gave credence to the theory held by many PR pros - namely that new VC-based integrated firms are just building communications networks to sell them off and realise quick returns for their initial investors.

A Midwest VC-backed firm, Future-Source, came to life in late 1999 with plans to spend between dollars 100 million and dollars 200 million on acquisitions.

Like most other potential buyers, it was looking at middle market firms in the dollars 7-10 million range as possible takeover targets, including PR firms.

Finally there's BCOM3, the unusually named result of a merger between The MacManus Group (owners of Manning, Selvage and Lee) and Leo Burnett.

MS&L bought Agnew Carter McCarthy in Boston last year, and has added acquisitions in Atlanta and Latin America this year.

In this frantic market, the old world order is being changed. The most symbolic evidence of this is the emergence of Fleishman-Hillard as the number one agency in the US, overtaking longtime leader Burson-Marsteller.

Under the leadership of CEO John Graham, St Louis-based Fleishman-Hillard has quietly focused its attention on the national market, buying up local and specialist firms while its rivals grappled with the vagaries of a global business (and notably, in the case of Burson, the recession in Asia).

Graham's strategy included regional buys such as Watt, Roop and Co. in Cleveland (Graham says the Cleveland deal has netted the company worldwide business it would never have attracted without a Cleveland presence) and even international ones, including CPR Worldwide, a London-based firm that gave F-H a healthcare presence across Europe; and Vallun Wilkins in South Africa, another geographic expansion.

But his primary focus was on hi-tech firms, including Meltzer and Martin Public Relations, Synapse Public Relations and UpStart Communications in 1999; and in 2000, LP&P, Upstream Consulting, High Road Communications and KVO. Combined with its existing hi-tech business, the firm now has a dollars 100 million global hi-tech practice, big enough almost to put it in the top 10 on hi-tech revenue alone.

It's fair to say that the explosion in hi-tech income caught a number of big firms by surprise and spawned an opportunity for many smaller agencies to create a name for themselves, and for those who have now sold out (among them New York-based Middleberg and San Francisco's Benjamin Group, Blanc and Otus and Cunningham), a small fortune to boot.

Burson-Marsteller CEO Chris Komisarjevsky admits that he dropped the ball on this one. Still the largest agency in the world, Burson has been working to up its presence in the sector and had 150 internet clients at the last count. But acquisitions in this field have been limited to a small San Francisco practice, HartCoopers, so progress has been slower.

H&K has had greater success playing catch-up. After buying dollars 11 million San Francisco shop Blanc and Otus in 1999, it has followed up with Socket Public Relations in Atlanta and The Rockey Company of Seattle.

Public affairs

The biggest acquisition of 1999 belonged to Shandwick. Shandwick's takeover of the Washington, DC-based Cassidy Companies propelled the agency from a promising public affairs operation to a global resource.

'This is all about growth,' says Gerald Cassidy, the Cassidy Companies' founder. And Shandwick added still more to its capabilities in April, when it bought DC political ad shop Murphy Pintak.

But Shandwick was not the only firm focusing on the political realm. Last year, Porter Novelli bought two prestigious California public affairs operations, Goddard Claussen and Nelson; and GCI bought Kamer Singer.

This year, Edelman boosted its public affairs capabilities with Callahan, a New York-based political creative shop that it renamed Blue. Having lost out on potential clients - not to mention losing 50 per cent of its dollars 1 million public affairs business with Microsoft - Edelman was not prepared to lose out again for want of this increasingly vital PR component.

Investor relations

One of the hottest targets for acquisitions has been the investor relations sector.

After BSMG's early 1999 completion of a dollars 40 million deal to buy Chicago-based Financial Relations Board, three further significant IR buys - this time in New York- came this year, with the dollars 25 million acquisition of Morgen-Walke by Lighthouse Global Network, the dollars 58 million acquisition of Sard Verbinnen by UK-based advertising group Incepta Group and Y&R's purchase of Robinson Lerer and Montgomery.

IR is one of the few sectors where the concept of a global market applies, and further acquisitions are expected, with Abernathy MacGregor understood to be the latest target, again for WPP.


One of the more intriguing focuses for PR firms have been Hollywood publicity shops: intriguing because they have been widely held in the past to be a big no-no. Interpublic, which already owns Rogers and Cowan (a Shandwick business), last year added Pat Kingsley's star-studded celebrity agency PMK through Momentum Worldwide, an event-marketing arm of McCann-Erickson.

This year other firms have followed suit: GCI bought Baker/ Winokur/ Ryder, an entertainment PR shop. Talent shop Creative Artists Agency took a 40 per cent stake in Shepardson Stern and Kaminsky (the first time a talent agency had put money into a PR firm). Meanwhile, Ketchum promised to start a Tinseltown operation. And even hi-tech specialist Brodeur announced a tie-in with a Hollywood agency.


With all these acquisitions, industry observers are questioning the scope for further US acquisition. Is there anything left? Harris Diamond, BSMG Worldwide chairman and CEO, says his firm won't be looking aggressively for acquisitions in the US this year, feeling that his agency has filled in its practice area needs. 'But we're going to be very aggressive internationally,' he promises.

But there are plenty of smaller acquisition targets in the US. PR Week has identified more than 5,000 independent agencies - and the buying spree doesn't look likely to end anytime soon.

'I think you're going to see more of the same,' says Dick Truitt, an industry M&A consultant. 'Larger firms will be going after specialties that we haven't talked about in recent years, such as change management and internal communications.'

And the more deals announced, the more that are likely to follow: 'Stories about acquisitions stimulate deals,' Truitt says.

Gould believes there will not be a squeeze on mid-size firms. 'They are profitable and growing. There are more clients than the present PR firms can handle. The squeeze is not on medium-sized firms or even boutique firms. The squeeze is on the industry as a whole to find enough competent staff for all the work.' (In fact that's one of the simplest reasons why firms are buying each other: to acquire staff.)

While the strong economy and easy access to stock help big firms in their buying sprees, however, they are less helpful to smaller and medium-sized firms.

Technology has become a must for PR firms of all sizes today. There's also a growing need for greater access to research and measurement tools - which the ad giants often have easy access to. At the same time, the tight job market is sending salaries higher while everything from office space to paper clips costs more and more.

'If you're running a firm nowadays, the cost of doing business is just outrageous,' says Chuck Werle, a Chicago PR who last year sold his firm to Cushman/Amberg. He faced a doubling of his rent before deciding to sell.

Changing client needs are also behind some of the major deals of the past two years. People running medium-sized shops realise their clients increasingly want national and global reach. As a result, they're willing to consider selling to companies that want them to stay on board so they can continue finding new business opportunities.

By and large, the sellers of today aren't thinking retirement; they're thinking new opportunities in a changing business world that spells changing PR needs. 'People are looking for more than a great deal,' says Jack Bergen president of The Council of PR Firms. 'What is different today is that they're not just looking to cash out. They want a wealth-creation opportunity.'

Hi-tech and public affairs have been the hot acquisition areas in the past 18 months. The most obvious deals to follow next year will likely come in healthcare, financial and employee communications.

'The publicly traded companies still have strong currency to play with,' says Abe Jones, managing director of Ad Media Partners, an investment banking firm specialising in advertising and communications.

As the number of mid-size agencies dwindle, one interesting solution is provided by the agency, Qorvis. Following his very public dismissal by Shandwick, Michael Petruzzello brought together expertise in public affairs, grass-roots PR, entertainment work and IR - a mix that is about as 'trendy' as you can get -to create this new DC shop in September.

But of course, no story about PR in the US can be complete without a last mention of the internet, and the importance of PR to help clients deliver net services to clients.

'The whole field of internet services will spawn acquisitions by and of PR firms,' says Bergen. We are still waiting for the first big internet service acquisition by a large agency, but it can only be a matter of time.


RANK  AGENCY NAME                        USA INCOME (DOLLARS)          %

99                                              99            98  CHANGE

1     Fleishman-Hillard                181,152,000   136,272,000      33

2     Burson-Marsteller                164,850,000   142,815,000      15

3     Shandwick                        153,429,000    81,887,000      87

4     Hill and Knowlton                138,140,000   113,000,000      22

5     Edelman                          128,174,735   101,868,218      26

6     Ketchum                          123,630,000   101,485,000      22

7     BSMG                             122,082,663   109,537,000      11

8     Porter Novelli                   106,606,000    79,522,000      34

9     Ogilvy                            92,220,200    54,457,700      69

10    GCI Group/APCO                    65,511,851    44,539,245      47

11    Manning Selvage and Lee           62,628,000    50,173,000      25

12    Weber                             55,985,451    57,866,543   -3.25

13    Golin/Harris                      55,100,751    48,500,000      14

14    Ruder-Finn                        53,408,000    45,601,000      17

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