‘Massive restructuring is underway’: Experts predict more agency mergers to follow Burson-C&W tie-up
WPP’s decision to merge heavyweights Burson-Marsteller and Cohn & Wolfe into a top three PR firm has shaken up the agency landscape, and experts warn other holding companies are likely to follow suit with their own shops.
“It makes sense that all of the businesses WPP operates would be subject to this,” says Pivotal Research analyst Brian Wieser. “It has been looking for efficiencies where possible, and so where agency brands are not sufficiently differentiated, holding companies are looking at combining them and finding ways to create walls or otherwise satisfy client concerns about conflicts.”
Alex DeGroote, media analyst at Cenkos Securities in London, expects more PR agency consolidation within the holding company giants.
“Investors are worried about all of the big holding companies. Their share prices have been under intense pressure,” he says. “We think this will continue.”
With Facebook, Apple, Amazon, Netflix, and Google transforming the way clients spend marketing dollars across disciplines, “there is no growth, so massive restructuring is underway,” DeGroote adds.
“It’s all about cost savings. PR is WPP’s smallest division, but its revenue trends have been negative and North America is a real concern. So change is needed,” he says. “Can PR demonstrate ROI for clients in 2018? That is the challenge.”
Major agency CEOs say they were surprised at WPP’s decision, adding that meshing the two agencies’ cultures will be newly minted Burson Cohn & Wolfe CEO Donna Imperato’s biggest challenge.
“The news came as a big surprise, I think, to all of us,” says Karen van Bergen, CEO of Omnicom Public Relations Group, whose agencies include FleishmanHillard, Ketchum, and Porter Novelli. “It’s going to be very interesting to see how they are going to successfully merge two very different cultures. But I have a lot of respect for Donna Imperato and [Burson Cohn & Wolfe chairman] Don Baer.”
Gary Rudnick, Golin co-CEO, warns that “a change like this will potentially put many great clients and talent in a state of limbo.” He notes that while some will embrace the changes, “others may not, conflicts could arise, and perceived redundancies could also emerge among talent. Those dynamics could certainly benefit other agencies.”
“Perhaps the merger will spur the combined entity to more success, but that is hard to predict or assume right now,” says Rudnick. “These are two very different agencies with vastly different histories, structures, and leadership teams. Just putting them together isn’t an assurance of success.”
The CEO of the second-largest PR firm in the world agrees.
“I know first-hand that combining firms with distinctly different cultures is a challenge, and I think it will require some focus and time to pull together the right team and try to build something that is competitive,” says Weber Shandwick chief executive Andy Polansky.
By the numbers
Although significantly smaller than Burson, Imperato’s Cohn & Wolfe has been a consistent bright spot among WPP’s PR firms, routinely winning plaudits from holding company CEO Martin Sorrell on quarterly earnings calls. (London-based WPP is due to report its Q4 and full-year 2017 earnings on Thursday morning). C&W ranked as the 11th-largest PR firm in the world in PRWeek’s 2017 Agency Business Report with revenue of $218 million in 2016.
Burson was the world’s sixth-largest agency with an estimated $450 million in revenue that year, but has struggled to find growth over the past few years. Reflecting on its 2016 numbers, Baer said last year, “We held steady in 2016, but did not grow overall.”
Imperato told PRWeek on Tuesday that with the combination of the two agencies, Cohn & Wolfe will add strength in public affairs and corporate communications. C&W’s wheelhouse has been consumer, healthcare, and technology PR.
The size and scope of the new entity has turned the heads of agency leaders, including Edelman CEO Richard Edelman. “This makes Burson Cohn & Wolfe a global, multi-skilled competitor with strengths across corporate and brand,” he says, via email.
Newly minted Ketchum CEO Barri Rafferty concurs, while also conceding that integration will be a challenge.
“Combining Burson-Marsteller and Cohn & Wolfe is a bold move and one that continues the streak of changes happening in our industry. The key is whether these two cultures can be married successfully and offer clients services across both, or if tension will ensue,” she says. “The potential is strong, and they will be a formidable competitor to watch.”
End of an era
Many agency leaders expressed sadness at the end of the Burson-Marsteller brand, long one of the premiere names in the PR agency world. The firm was founded in 1952 by one of the public relations industry’s “founding fathers,” Harold Burson.
“I feel terrible for Harold Burson; it is really sad,” says one agency leader, who contended it would have made more sense for WPP to merge Burson with Hill+Knowlton Strategies.
“This is purely a financial move by WPP,” says WE Communications president of international Alan VanderMolen. “It is to try and save money and resurrect a failing brand, which unfortunately is Burson-Marsteller. But why would they take a very fast-growing mid-sized agency in Cohn & Wolfe and throw a very large anchor around its neck in Burson is beyond me.”
He predicts a stream of talent and client exits from the newly formed agency, calling it “a great day for mid-sized agencies and independents.”
“But I think it is a terrible day for employees of Burson-Marsteller,” he adds.
Yet agency leaders say if anyone can bring together the two disparate agency cultures, it is Imperato, who they call a smart, driven executive with a terrific track record and reputation. She is also the second woman to be named CEO of a top five PR agency in the past four months, following Rafferty’s appointment at Ketchum.
“It is great to see yet another woman lead the c-suite in our industry,” says APCO Worldwide founder and executive chairman Margery Kraus. “Donna is a gifted leader and has done a great job with Cohn & Wolfe. I am sure she will bring a new perspective and lots of good energy to Burson’s traditional offer.”
Citing other agency leaders such as Rafferty, Text100’s Aedhmar Hynes, and WE Communications’ Melissa Waggener Zorkin, Kraus says, “The industry looks very different than when I started at APCO.”