Sir Martin Sorrell On Integration, Acquisitions And Brexit
Charting the future of public relations
Holmes Report

Sir Martin Sorrell On Integration, Acquisitions And Brexit

WPP CEO addresses the integrated marketing moves of his PR firms and explains why the Leave campaign "galvanised emotions."

Arun Sudhaman

Sir Martin Sorrell On Integration, Acquisitions And Brexit

Sir Martin Sorrell sat down with the Holmes Report in Cannes yesterday to discuss a number of issues. In particular the WPP CEO explored PR agency efforts to take on a broader, more integrated positioning because of budget trends, and whether this might compromise their identity — "if you become more general, you lose your focus."

He also responded to questions on the increasing influence of private equity in agency acquisitions, noting that it remains the "most expensive source of capital."

In addition, Sorrell — a prominent Remain voice — addressed the Leave campaign's ability to 'galvanise emotions', just hours before the UK voted to quit the European Union.

How would you characterise the performance of your PR agencies?

Reasonable performance. It’s the usual — more driven by social media and new media, content and data. Increasingly the PR agencies and public affairs agencies are becoming more integrated. They are trying to present themselves as integrated marketing agencies that place PR at the heart of everything. 

How do you feel about that?  

If they do that, they might lose their identity, in a sense, and they become more similar to other agencies. Trying to get a balance is always difficult. You almost see them morphing into general agencies. The fashion is to talk about integrated marketing and for the differences and the lines between a media agency, a creative agency, a public relations agency  — not a data agency — to blur. The net result is that people talk about integrated, or try to talk about it in a much more sophisticated way. So it broadens the nature of what they do.

Do you think they might lose that PR ability that has made them what they are?

If you become more general, you lose your focus. I’m not saying it’s necessarily the wrong thing to do. I'm observing it as a trend. Maybe it is something to do with the scramble to try and generate revenues and generate growth, that people say 'OK we will present ourselves as an integrated platform in order to that'. If you look at the PR agencies as part of, hopefully, a sophisticated group like ourselves, they have that offer within the group. The question is how do they deliver it in an effective way.

They don't need to do it all themselves.

You don’t want to reinvent the wheel. It can be quite expensive and it might be very difficult to reinvent a large number of wheels. If it's difficult to do one or two. To do three, four or five is very difficult.

The research we've done suggests that corporate communications budgets are not growing at a fast rate. PR agencies are looking to access CMO budgets

There's a corporate communication budget. Then there are divisional PR budgets. What are you seeing on the brand PR budgets?

In general, many of the PR agencies we speak to, whether they are big or small, including WPP agencies — are very focused on accessing marketing budgets rather than communications budgets.

I hear what you say. But consumer PR is not necessarily executed in a corporate communication budget. It's part of a marketing budget but in a division, or a country or a category. So I'm not sure I agree with that. You'd be right if all the agencies you're talking about were corporate communications agencies. But they aren't. They do pharmaceutical PR, consumer PR — which goes well beyond corporate communications.

If the budget is held at the centre of the company, you'd be right. But it isn't, and also, as you well know, PR budgets are local. One of the issues for the PR industry is, why is it that there aren't more global PR budgets? To run a good PR agency you need very good local people. There isn't as much global decision-making because people tend to think of public relations as being much more local.

Are you seeing more growth from your consumer-focused PR agencies compared to your corporate agencies?

I would say that consumer has been more vibrant. Pharmaceutical has been strong.

Do you have any specific reasons as to why corporate is perhaps not growing as well as consumer?

I don't think you can generalise. Companies have different opportunities and different challenges. The general environment is low growth, low inflation, little pricing power therefore pressure on cost. Therefore you would say that, generally, there’s an approach to budgets which is less expansive than if the economy was growing at four, five or six percent.

Does that mean agencies are looking for other budgets they can access?

What that reflects is, there’s not much topline growth, therefore the capability of companies to expand their budgets is limited. It's exactly what we were talking about before. If a PR agency thinks that it can access other budgets by calling itself an integrated marketing agency — with public relations at the core — maybe that’s what’s going on. An agency that’s been a corporate communications agency says 'I haven't accessed all these consumer budgets or these pharmaceutical budgets or these divisional budgets or these regional budgets'. The way I can do it is by broadening my positioning. 

I think that's what's going on. Public relations agencies — particularly with the growth of digital — where the quantums or absolutes can be less, where people are building content studios, where you're building content which can be what we would traditionally think of as public relations content. Not writing press releases but...editorial or advertorial content. That is throwing up big opportunities.

That’s legitimate blurring. The nature of the content is changing. It's no longer a 30-second TV commercial. It might be a short video clip that you put onto social media. You take Group SJR, it's a classic example. And CEOs and companies are running integrated campaigns, coordinated campaigns, in all those areas.

Some of the holding groups have now put in someone to oversee public relations. We've asked you this question before — is that something you would consider?

We used to with Howard Paster. We still miss Howard in that sense, so I think it is something that makes some sense. In the same way as we have our media business as a sub-holding company called Group M. It does make sense. I'm not sure in Omnicom's case why it was done, what was the motivation.

Is it something you'd call a priority for WPP?

I wouldn't call it a priority, I'd call it a possibility.

How integrated do you want your public relations agencies to be with your ad agencies?

Well you've got Ogilvy PR, which is different to Cohn & Wolfe and Hill+Knowlton and Burson because it's more aligned with the advertising agency. I think the answer is, that’s the wrong question. The right question is what do clients want? Because, after all, they are what we're here for. If clients want the integrated approach, the only way you’re going to be successful, I think, is if you integrate effectively. The answer is it's vital where the client requirement is so.

We looked at acquisitions, and 2015 was the busiest for PR acquisitions since before the recession. Are you seeing any particularly trends in terms of valuations?

You may have seen a number of acquisitions that were called public relations agencies but were more social media agencies. So, careful on definitions. On valuations, it depends where you’re talking about. As far as the internet or social or new media acquisitions, the pricing remains strong. In some markets, it's stronger than strong — China would be a good example.

It’s probably cooled off a bit in some parts of the world, so Brazil is not where it was. India is not where it was, although the Indian market remains very strong. So pricing, I would say, is neutral to up, but not driven by classic PR or public affairs, driven by the link to social and new media. 

Finsbury and Hering Schuppener formed an alliance. What is driving that kind of a move?

You have Hering Schuppener which is the market leader in Germany. You have Finsbury which is one of two market leaders in the UK, and with a strong business in the US. If you think about UK, Germany, the US and maybe after tomorrow, Germany will become even more important, regrettably. It's three strong businesses — when you see Deutsche Bourse/LSE, or you see Bayer/Monsanto, obviously that's telling you something into what may or may not be going on. So I wouldn't say it's global, but it is trying to tap into the corporate and financial PR markets that are becoming more and more important. 

The other trend we noticed in terms of acquisitions is many more are driven by private equity than we've seen in the PR/comms/social media market. What do you think of that as a trend?

Private equity is the most expensive source of capital. [Blackstone CEO] Steve Schwarzman always used to say to me, Martin don't come and ask me for money because I'm the most expensive source of capital. A strategic VC like us is a  much more comfortable partner. I think generally, the people I’ve talked to — who have PR agencies where they brought private equity people in, have appreciated the help, but when they look at the ultimate exits, have said 'why did we do that?' What we gave up, in return for the private equity, was very considerable.

Are you seeing any changes in the way you structure your acquisitions?

No. They are still five-year earn outs, which gives us the opportunity to bed any acquisition or put it into one of our verticals. And gives us a chance to look at the clients, the people, deal with any issues and problems over a decent period. I see one or two things happening that will lead to tears — more upfront, more extravagant pricing — I think that  will lead to tears for the buyer. 

Brexit. How do you feel about the Remain campaign?

I thought it just focused on the economic issue, because the Remain campaign were told to focus on the economic issue until, the quote I heard, 'you think the electorate are sick of hearing about the election'. It should have focused obviously on that, where I think we have won the argument quite well.

But then it should have dealt with sovereignty and immigration. It’s no good running away from those issues. I think a referendum campaign is different to a general election campaign. Here there are major emotional issues surrounding sovereignty and immigration. Certainly, the Leave campaign managed to galvanise the emotions. Maybe it's easier to do an Out campaign, to talk about the history, it's very emotional.

comments powered by Disqus