NEW YORK: Despite its acquisition last week of Mitchell Communications Group, the Dentsu Network has a long way to go before it becomes a major player in the US PR industry, agency leaders tell PRWeek.
The acquisition is the Japanese company's first step in building out a PR network of its own. Dentsu holds a dominant position in Japan's advertising and media markets and has begun to expand globally on a bigger scale. But it lags behind other holding companies in entering the PR business, agency executives say.
“Dentsu is very late to the global party like many Japanese service businesses, which were satisfied for a long time in simply servicing Japan-based companies,” says Dave Senay, president and global CEO of Fleishman-Hillard. “What I see Dentsu doing here is making a statement that they want to get serious about world-class public relations.”
A slowdown in Japan's domestic economy has driven Dentsu to extend its global reach, but the company has faced challenges in doing so. While Dentsu successfully acquired New York-based ad agency Mcgarrybowen in 2008, the following year it failed at its attempt to purchase digital shop Razorfish, which was instead sold to Publicis Groupe for $530 million. Last year, Publicis bought back Dentsu's minority stake in the French holding company, ending a decade-long alliance.
“[Dentsu] was one of the communications holdings that could have become a truly global group, but for some reason they have struggled,” says Olivier Fleurot, CEO of Publicis-owned PR network MSLGroup.
The tide appeared to turn last year when Dentsu agreed to purchase UK media giant Aegis for $5.1 billion, one of the largest-ever acquisitions of a marketing services agency. Last week, Dentsu Network CEO Tim Andree cited that deal as a driving factor behind the Mitchell acquisition, saying the holding company could not buy Aegis without being able to offer PR and strategic communications services.
“A company like Dentsu that is interested in becoming dominant globally is going to have to incorporate some of the firms focused on the earned and shared media space. They're filling that gap,” explains Jim Weiss, chairman and CEO of W2O Group.
Yet some agency leaders are expressing surprise at Dentsu's choice of Mitchell because of the Arkansas-based firm's size. Mitchell's 2011 revenue was more than $11 million. Mitchell told PRWeek last week that her firm "saw this as a great opportunity to continue to get better at doing what we do and to be able to really build out on a national and global scale."
“It's not a big coup in the PR industry at the moment,” Fleurot says.
Mitchell's work with big-name brands such as Walmart Stores, Hilton Hotels & Resorts, and Procter & Gamble also likely influenced Dentsu's decision, Weiss says.
“[Dentsu] is probably trying to be strategic about clients they want to get in the fold – they want access to large, global clients that will help them grow,” he adds.
While Mitchell will retain its 75 full-time staffers and 28 project-based employees, the Dentsu deal could change the firm's tight-knit corporate culture, some agency leaders say. President and CEO Elise Mitchell will also take on the role of CEO of Dentsu's global PR network that she will help to build.
“It appears that Dentsu is going to give [Elise Mitchell] a lot of responsibility in building a global network. That alone will be a huge challenge for someone who has run a single office for $11 million, but if anyone can do it, it's Elise,” Senay says.
Agency executives predict more PR acquisitions from Dentsu in the coming months and years as it attempts to become a bigger player in the US market.
“They will have to compete by acquisition. They can't create [a PR network] from scratch because it would take them so long,” Fleurot says. “They're so strong in Japan that things come naturally to them and they don't have much competition locally, but they have to learn how to operate in a much more competitive environment and with different practices and methodologies.”
Agency leaders also say they welcome competition from Dentsu, calling the Mitchell acquisition a good indicator of the health of the PR industry.
“It's showing that PR is at the forefront of thought leadership, marketing, and building brands and businesses,” says Jim Joseph, president for North America at Cohn & Wolfe. “It's a very positive sign for our industry.”