Agency Structure: PR pays a high price for global expansion - Industry experts are predicting that a combination of shareholder pressure and competition to build extensive global companies may force the remaining independent PR firms to sell out

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.

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

advertising agencies.’

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