That Shandwick has been in talks with the likes of True North about
a possible sale of part or all of its stock is the big news story of the
PR year so far. But it is no real surprise.
Shandwick is the last independent among the first rank global PR groups
- all the others in the top tier are already part of bigger marketing
services groups. And in the last couple of years the pressure from these
wealthy and acquisitive conglomerates has been growing.
To compete with them on a global scale, independent PR agencies need to
muster sufficient financial clout for investment and expansion from the
markets or from the balance sheet. The only real alternative is to find
a partner and do a deal.
John Graham, CEO of Omnicom’s PR division Communications Consulting
Worldwide, and head of Fleishman-Hillard since 1974, sold his firm to
Omnicom last year. CCW, which includes both F-H and Omnicom’s other main
PR business, Porter Novelli International, is now the world’s largest PR
group. Graham believes the pressures to sell are inescapable if agencies
want to compete globally.
’There are so many clients that want their agencies to serve them
throughout the world,’ says Graham. ’Agencies are therefore under
increasing pressure to grow, and grow very fast. It’s easier to make
acquisitions when you’re part of a publicly-quoted company.’
With 94 offices in 25 markets, Shandwick already has an extensive global
network. It is now in the process of integrating its offices effectively
to offer a seamless service to global clients. And it has been investing
heavily in the technological infrastructure to back this up.
In the same vein, Shandwick UK announced a reorganisation last week
which will help to integrate the seven UK businesses. They will be
brought together under the Shandwick name, except for Paragon, which
will keep its identity and take on business that could conflict with
Shandwick’s other clients.
But the competition from ad agency-owned rivals with deeper pockets is
likely to increase rather than decrease in the years ahead. For
independent PR agencies wanting to raise the kind of capital needed for
further expansion and investment, the alternative to selling out is to
go to the financial markets.
This was how Shandwick funded its original acquisitions - by listing on
the London Stock Exchange in 1986. But although it enabled the agency to
grow quickly, it also left it with a mountain of debt and earn-out
The debt is now firmly under control at pounds 40 million and falling
and the earn-outs are almost finished, but at times the financial
pressures have been acute. It has also proved fiendishly difficult to
impress the City.
Part of the problem is a generic one for PR companies. Both Shandwick
and the other large PR agency listed in London, Sir Tim Bell’s Chime
Communications, have seen their shares being consistently undervalued.
Some analysts now value Shandwick’s shares at 70p, although they stand
at just over 50p.
’In the 1980s the market gave PR companies a high enough rating to make
it worth while, but stand-alone PR companies are not trading at a
premium,’ says Lorna Tilbian, a media analyst at stockbroker Panmure
The problem is that people businesses tend to be viewed with suspicion
by the City which regards them as volatile. And PR, because of its
intangible nature, is less well understood even than advertising. What’s
more, businesses the size of Shandwick are relatively small in
comparison to the giant ad agency groups - making it hard to raise
excitement levels among investors.
Nevertheless, quoted PR companies are under pressure to return higher
levels of shareholder value.
It is this as much as good business sense which has prompted Shandwick
into negotiations with potential purchasers. The same need for greater
size and visibility was behind Chime’s purchase of advertising agency
HHCL last year and the simultaneous sale of a minority stake to WPP.
If Shandwick sells, some feel it will represent the passing of an
According to James Maxwell, chief executive Omnicom-owned Scope Ketchum
and a former Shandwick employee, the institutionalisation of PR has
begun, and industry stars, such as Shandwick chairman Lord Chadlington
and Chime’s Sir Tim Bell, may be the last of their kind.
’The PR business was built by the enterprise and energy of some very
high profile figures, none more high profile than Chadlington,’ says
’I don’t think we’ll see his like again.’
If Shandwick does sell, all eyes will then be on Edelman PR Worldwide to
see whether the family-owned firm (and second-largest independent) will
resist the pressures that have made five of the most successful British
and US firms sell to larger advertising and media groups in 1997.
Richard Edelman, worldwide president and chief executive officer of the
firm founded by his father Daniel Edelman, rejects industry speculation
that he is getting ready to sell within the next three years.
’We believe in being independent, certainly of an advertising agency,’
says Edelman. He claims listed advertising agencies buy PR firms to keep
their share price up and their shareholders happy. Ad agency profits
tend to be lower than the ten to 15 per cent expected of successful PR
’Advertising agencies aren’t in a growth business PR agencies are,’ he
says. ’Our industry is selling itself short by selling out to