Founder Rocks Industry at Counselors Academy Conference
NEW ORLEANS - For the fist time since launching still-independent Edelman Public Relations Worldwide more than four decades ago, Daniel Edelman publicly admits that he doesn't rule out the possibility of being acquired.
Edelman told 300-plus attendees at last week's annual Counselors Academy conference that PR agencies in a growth mode have to consider several alternatives to survive in today's volatile market. Their choices are to stay independent and grow through acquiring others and launching new services; go public; allow outsiders to buy part of the firm; ESOPs (employee-owned firms) or outright acquisition. The latter is an alternative the maverick Edelman has always bristled against.
Until now.
"In this environment, Edelman can't rule out a possible change in our status. We'd be very poor businessmen if we didn't respond to invitations to talk again to those with whom we've met before or others who now show an interest in our company as an acquisition or public issue," Edelman mused. "...I never dreamt that Interpublic (which acquired Shandwick last year; 7/27/98 PRN) or anyone else would buy at the equivalent of revenues - about $160 million - and assume debt which at last reckoning was about $650 million or perhaps more."
He stopped short of saying his firm is entertaining offers, but told PR NEWS in a private conversation that he is not "ruling out" a sale. His son and the firm's CEO, Richard Edelman, insists that they've yet to be swayed into an acquisition deal.
The Interpublic deal, closed last year, is one of the most-referenced partnerships of late in the PR industry, which continues to be reshaped by M&As. Ironically, despite Edelman's fight (and reputed passion) to remain independent, the chairman told PR NEWS that he owns several hundred shares of stock in Omnicom (owner of Ketchum, Porter Novelli and Fleishman-Hillard), which he said has doubled since he bought it around the time Omnicom bought F-H.
The Future is Survival
Historically, Edelman has predicted that his company would remain independent, but now the war for capital, not just billings, has heated up.
Other giants in the business - Ketchum and Hill and Knowlton to name two - have succumbed to deals since the M&A trend took root more than a decade ago. Etched out by holding companies such as Omnicom and WPP (which made blockbuster profits in advertising when Saatchi and Saatchi was as red-hot as tech IPOs are today), the core of top-10 PR agencies have realized the opportunities that exist with hefty cash infusions and better resources.
Last week's speech seemed a bittersweet moment for Edelman, whose remarks were more anecdotal than compelling as he acknowledged a tide of acquisitions that is impossible to stem. "I don't like it [this era of consolidation]," Edelman said. "I wish it never happened. I wish we were all still independent and had built this on our own."
Around 15 years ago, Edelman acquiesced, allowing Interpublic (also owner of the McCann-Erickson and Weber brands) to assume 5 percent ownership in the firm. Still, the deal had a safety net for Edelman in a clause permitting the agency to pull out of the deal within a year if it wasn't a fit.
Edelman did.
"We felt patronized and couldn't see any practical benefits," Edelman said. Indeed, for Edelman, that remains the conundrum - the fear that being acquired reduces the power of PR. "There isn't a PR executive on the board of Omnicom," Edelman said.
In New Orleans, Edelman arrived at a forum almost unrecognizable from the same event 30 years ago when he chaired the Counselors ection. There are no formal records, but about 90 attended the annual gathering in 1969. This year's event attracted 322 attendees, the highest in the last three years.
Just The Facts
Huge ad companies with billions in revenues have been gobbling up PR firms since the 1980s because ad firm profits run 8-12 percent, compared to a 15 percent margin for PR firms, says Daniel Edelman. But once an acquisition closes, some parent companies want 25 percent pre-tax profits, requiring agencies to deliver earnings as well as revenue growth.
You'll all remember that Burson-Marsteller was intially a combination of a PR firm and ad agency.
In time, Harold Burson's great success in building the larget PR firm in the world far outshined performance of the ad segment.
- Daniel Edelman