COMMENT: Editorial - As indie, Edelman is in catbird seat

A lot has changed in the last three years in PR. The dollars 75 million sale of Cunningham Communication, a dollars 23 million hi-tech shop, to a very bullish Incepta is further evidence of this. Yet it was only three years ago that Omnicom bought Fleishman-Hillard for only dollars 120 million. What would Fleishman, now the largest agency in the US, be worth today?

A lot has changed in the last three years in PR. The dollars 75 million sale of Cunningham Communication, a dollars 23 million hi-tech shop, to a very bullish Incepta is further evidence of this. Yet it was only three years ago that Omnicom bought Fleishman-Hillard for only dollars 120 million. What would Fleishman, now the largest agency in the US, be worth today?

A lot has changed in the last three years in PR. The dollars 75

million sale of Cunningham Communication, a dollars 23 million hi-tech

shop, to a very bullish Incepta is further evidence of this. Yet it was

only three years ago that Omnicom bought Fleishman-Hillard for only

dollars 120 million. What would Fleishman, now the largest agency in the

US, be worth today?



According to PRWeek’s back-of-the-envelope calculations - and assuming

the same 18% pre-tax profit margins that it currently produces -

Cunningham Citigate will need to grow 26% every year for the next 13

years before Incepta will see a residual value from the acquisition. In

other words, it will need to be a dollars 450 million firm in 2013. Food

for thought.



And what about Edelman? The sole remaining top 10 independent, Edelman

doesn’t need to build a global empire - it already has one. And the

family doesn’t exactly need the money. These two strengths have enabled

Edelman to remain steadfast in the wake of a procession of offers from

ad agencies desperate for more bulk, growth, profit and PR

firepower.



Now we learn that CEO Richard Edelman is looking at a possible IPO to

convert stock into cash for loyal executives (see analysis, p11). The

problem he’s got is that no IPO will come up with the multiple of a

straight sale.



Whatever the solution, Edelman is in the fortunate situation where, at

least for the time being, it doesn’t need to do anything. Ad stocks have

peaked, while dot-coms have dived in droves. In the meantime, the

independence of Edelman remains a unique selling point, both for

employees and clients. And in a world where it gets harder and harder to

differentiate the offerings of the major agencies, that may be no bad

thing.





Cunningham needs staying power



Part of the complex equation to figure out with the dollars 75 million

purchase of Cunningham is how to keep hold of the staff who will need to

meet those profit goals that the agency must hit in order for earnouts

to kick in.



Andy Cunningham has no doubts that the agency will meet its profit

targets; after all, the targets are based upon numbers that were

crunched a year ago. But to get that payback, Cunningham needs to keep

her trusted lieutenants by her side as Citigate Cunningham makes forays

into new tech markets worldwide. And under Cunningham’s stock option

plan, the agency’s option holders are now fully vested in their new

Incepta shares and have no obligation to stay. None, that is, besides

the lure of future riches and their loyalty to the boss.



’If she’s not sharing the wealth, people will leave,’ remarked one

industry veteran. So what’s to stop people from cashing out now? In a

word: Andy.



Not only is it in her best interests, but it’s ’in her nature’ to be

generous to employees, according to the owner of a hi-tech shop who

formerly worked at Cunningham.



Cunningham knows what’s at stake. ’If everybody helps the team go

forward, they get more money,’ she said, adding that all of her senior

people have been around at least five years. In hi-tech today, few stars

stay with one team for five years. But then, none of them have Andy

Cunningham at the helm.



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