Agency Business Report 2012: The dawn of the $1b agency

Considered a pipe dream not long ago, the 10-digit mark has become a realistic goal for some firms.

Considered a pipe dream not long ago, the 10-digit mark has become a realistic goal for some firms.

Cast your mind back 10 years and the idea of a $1 billion PR firm would seem laughable. Still emerging dazed and bruised from the dot-com era, the industry was regrouping in the wake of the bursting of a tech bubble many thought had changed business forever.

Today's market leader and 800-pound gorilla – Richard Edelman's eponymous firm – was a mere number five in the US rankings, and number six globally, with revenues of $150 million and $223 million respectively. This year, it posted revenues of $383 million in the US and $615 million globally.

Edelman and the number two and three agencies in this year's rankings, Fleishman-Hillard and Weber Shandwick, are now vying to become the first PR outfit to hit the $1 billion milestone, looking at a mixture of organic growth fueled by new digital and social media assignments, acquisitions, the rise of integrated marketing, globalization, and an increased focus on corporate and external reputation taking root in boardrooms across the globe.

"$1 billion is now a realistic aspiration," says Edelman, "but not for another 10 years or so," he cautions.

Edelman has put the organizational and management structure in place for the next phase of growth at his firm, shuffling Matt Harrington, Mark Hass, and Alan VanderMolen into new, meatier roles.

He also plans to expand Edelman subsidiary Zeno into an agency that would be his equivalent of GolinHarris at Interpublic Group (IPG). Currently on $14 million in revenues, Edelman wants Zeno to expand to $100 million through a combination of acquisition, organic growth, and hiving off pieces of parent-company business.

Harris Diamond, CEO of Weber and IPG's Constituency Management Group (CMG), which includes its PR and events firms, is also bullish about the PR market. "I absolutely believe agencies will grow dramatically organically," he says. "There are a lot of constraints in terms of client conflicts, but assuming 10% per year average growth, it's easy to see a $1 billion agency within five to 10 years."

Investing in expansion
At Fleishman, CEO Dave Senay's stated ambition is to double the size of the Omnicom agency within five years through partnerships, acquisitions, and organic growth. He claims last year was the best in the firm's history in terms of revenue, profit, margins, and new business, and he is set to embark on an aggressive acquisition drive after being out of the M&A market for a while.

"We secured multimillion-dollar wins against major competition in all major regions of the world last year," says Senay. "It demonstrates the power of having one brand at Fleishman and pushing toward a fully integrated proposition."

Publicis' MSLGroup is also actively targeting more acquisitions. It achieved organic global growth of 9% in 2011, 6% in the US, with the latter figure rising to double digits when acquired companies are included, according to CEO Olivier Fleurot, who claims the group is now the number four global PR network.

"These are exciting times," he says. "We have the full support of Publicis Groupe, and this strategy has allowed us to grow, acquire, and develop. It's now about what clients really want and how we organize our skill sets for the new environment."

Good news in 2011 wasn't confined to big firms. The top 50 agencies that reported US revenues in the annual PRWeek Agency Rankings grew an average of 10%, with some up by as much as 40%.

The growth drivers are similar across the board. Margi Booth, CEO of M Booth, says: "We're transforming ourselves into a more integrated marketing offering, rather than just doing PR. We saw a lot of organic growth among our key clients and a lot of new business – our digital business really grew."

The Next Fifteen Communications Group firm posted 22% year-on-year growth, despite losing client JCPenney, pushing its revenues above $14 million. It picked up work for Disney Consumer Products, GE, and consumer tech clients such as Foursquare, OpenTable, and CafePress.

Booth notes that every brief now contains social media, whether it is content creation for Evenflo's breast-pump brand Ameda, word-of-mouth marketing or brand ambassadorial work for Keurig's K-Cup coffee brand, or analytics and custom dashboards.

Midsize independent Padilla Speer Beardsley grew more steadily as it invested in its New York operation. Up 4% to $17.8 million, the agency weathered macroeconomic woes because it diversified a decade ago after the dot-com bust, explains CEO Lynn Casey.

"If we had all our eggs in the Midwestern market and traditional manufacturing-based industries, we would have struggled," she admits. About two-thirds of Padilla's revenue now comes from outside its regional roots of Minneapolis. Two out of three clients are b-to-b, but it has hired a creative director to develop and expand its consumer work.

Another indie plowing money back into the agency rather than taking the profits is Waggener Edstrom, which invested heavily in digital, global, people, and infrastructure, according to president and CEO Melissa Waggener Zorkin. "We had a good, foundational year, but not excellent," says Zorkin. "We finished just shy of our business plan."

She reiterates that firms must not let the needs of the client get lost in the wider desire to build a business: "We're building our infrastructure to have a real impact for clients. Agencies need to make sure it's the customer and what they want that's at the center of the process."

WPP's largest global PR brand, Burson-Marsteller, launched a Global Corporate Reputation Index earlier this year that also speaks to the needs of the modern client. It highlighted a trend for tech companies to look beyond a pure focus on product to embrace citizenship, worker safety, and supply-chain issues – all familiar topics for industries such as oil and pharma, but relatively new to the still maturing tech sector.

Full-spectrum services
Global CEO Mark Penn explains: "Customers are demanding very high standards, and that enhances the role PR firms can play in helping tech companies get ahead on this."

It's a sweet spot Penn has seen Burson exploit across the board, from top-level strategy to crisis communications for companies ranging from Sony to Carnival Cruise Lines' Costa Crociere. "By offering PR, research, and strategy in one unit, we can provide the high-level consultancy that can handle such crises," says Penn. "And companies such as Johnson & Johnson are turning to us for that kind of work. It combines the top-level talent associated with a boutique firm with a full-service global offering. "All this helped contribute to annual profits of $90 million at Burson.

Whether the $1 billion agency is on the horizon or not, one thing everyone agrees on is that this is the most exciting time to be working in PR. As CMG's Diamond says: "There are more opportunities in our business now than there have ever been. The limitations that used to exist are no longer in place. Today's world plays to all our strengths. We're in a great place – and it's a great place for young people to come into."

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