Strengthened Edelman holding company won't copy ad-focused rivals

NEW YORK: The decision to build out Daniel J. Edelman Inc. into a PR-centric holding company does not mean it or principal agency Edelman are on the verge of a major acquisition or that its firms will regularly compete for business.

NEW YORK: The decision to build out Daniel J. Edelman Inc. into a PR-centric holding company does not mean it or principal agency Edelman is on the verge of a major acquisition or that its firms will regularly compete for business, its executives say. Rather, the holding company wants to expand its specialist shops and bolster the international presence of Zeno Group, explains Richard Edelman, CEO of the eponymous agency and executive chairman of Daniel J. Edelman.

“We're not going to go out and buy a big PR firm or ad agency,” he explains. “We're really going to try to not have our individual units compete for the same money, and that will be the really big difference between us and a WPP.”

Agency holding companies like WPP Group and Interpublic Group generate most of their revenue from their advertising shops, but both have substantial units built around PR. Interpublic, for instance, has Constituency Management Group, which includes PR firms Weber Shandwick, DeVries, and GolinHarris, as well as public affairs, sports and entertainment, and experiential marketing firms. Weber Shandwick CEO Harris Diamond oversees the unit.

Omnicom Group maintains the Diversified Agency Services unit, which includes PR agencies Fleishman-Hillard, Ketchum, and Porter Novelli, as well as sports and event marketing firms, branding and design shops, and direct marketing and CRM firms.

Daniel J. Edelman will contrast with these rivals because of its different focus, explains Chris Stutzman, VP and principal analyst at Forrester Research.

“Brand reputation management means more than ever today; that's a more valued offering [than advertising] if you're an agency,” he says. “Edelman, I think because of its independent status, sees an opportunity to expand its role with clients, in terms of being nimble and responsive in terms of corporate and public reputation.”

Paul Taaffe, former global chairman and CEO of WPP-owned Hill & Knowlton and now the global head of communications at Groupon, adds that the move “is a natural next step for them.”

Edelman hopes to grow the global footprint of specialist shops like research unit StrategyOne, experiential marketing firm Ruth, and sports and entertainment agency Matter, the latter two of which only have US offices. Combined, the three shops account for about 5%, or $35 million, of Edelman's global revenue, which totaled $614 million in the 2011 calendar year, Edelman notes.

“The question is, can we double that 5% or 6% to be 10% or 12%? We think so,” says Edelman.

Alan VanderMolen, recently appointed vice chairman of Daniel J. Edelman with a focus on the specialist agencies, says, “As we look at our different assets, we're focused on two places: rapid growth economies like India, China, Indonesia, and the Middle East, and the markets we'd like to develop further for our diversified brands like the UK, France, Germany, and, to a lesser extent, Canada."

Edelman also plans to scale out Zeno Group beyond its US and Canadian offices. Its global expansion will likely start in the UK and Germany, followed by India and China.

“When you're at our scale, you have to have a sister firm that is large enough to handle global client overlaps. That is the benefit Weber Shandwick has in a GolinHarris in terms of [addressing] client conflicts,” says Edelman. “Our ambition is to scale Zeno to be a $100 million business, because that's when you get to the point an agency can handle global clients.” Zeno Group reported nearly $12.5 million in revenue in 2011 for the PRWeek Agency Business Report.

The potential for client conflict has been an issue for Edelman as of late. Earlier this year, it created the Krispr agency after winning Kellogg's US business to avoid potential client conflicts with PepsiCo Quaker brands.

The holding company's 10-year goal, says Edelman, is for half of its revenue to come from outside the US. Currently, it earns 40% of its revenue from international sources.

“We also hope to have a much more scaled business, so that maybe PR represents 75%, digital 15%, and our diversified business is 10%,” says Edelman.  

Correction: An earlier version of this story misstated Richard Edelman's title at Daniel J. Edelman Inc. He is executive chairman.

It also incorrectly stated the combined revenue of StrategyOne, Ruth, and Matter. Their combined revenue is $35 million.

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