Omnicom eyes buy of PR shop Fleishman

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Omnicom Group is negotiating to acquire St. Louis-based Fleishman Hillard, the world's No. 5 public relations agency.

The two sides have been talking since late last year, said executives familiar with discussions. One involved executive said they are about halfway to a deal.

Omnicom already owns two large PR shops: No. 6 Ketchum PR and No. 7 Porter/Novelli, both New York. The field has been a hot one for acquisitions, with PR agencies generally showing faster growth than ad agencies. Fleishman's revenue jumped 20% last year to $107 million, according to O'Dwyer's Directory of PR Firms.

The world's largest PR shop, Burson-Marsteller, also considered a sale in recent months but decided against it, Advertising Age has learned. Parent Young & Rubicam didn't want to lose some of its ability to serve clients across different marketing disciplines.


Likewise, Omnicom's biggest interest in Fleishman is generating synergy across disciplines with key clients. The PR shop's biggest client, Anheuser-Busch Cos., is also a major client of Omnicom's DDB Needham Worldwide. A-B accounts for about 10% of Fleishman's revenue, according to executives familiar with the shop.

Analysts familiar with Fleishman said its second biggest client is probably SBC Communications, San Antonio, Texas.

Omnicom President-CEO John Wren declined to comment, and Fleishman Chairman-CEO John Graham denied the business is for sale.

Mr. Graham acknowledged retaining investment-banking boutique Cari Capital but said Cari is merely helping Fleishman assess its value in the marketplace.

Last spring, Fleishman managers considered an initial public offering of stock. Executives said that after this plan was abandoned, Cari approached the world's three largest agency holding companies about a sale.

The initial asking price of $100 million apparently scared away WPP Group and Interpublic Group of Cos. Omnicom also thought the price was high but has kept talks going.

Financial executives said $75 million would be a more realistic price for Fleishman. Last year, Omnicom paid between $50 million and $60 million for Ketchum, which has a smaller PR agency but a sizable ad agency.

Some managers at Y&R began pushing for a sale or spin-off of Burson last year as a way to improve the parent company's profit margins in preparation for a planned IPO. Burson's margins have been among the lowest of any Y&R holdings.

"We've certainly thought about the possibility of a divestment of Burson-Marsteller," said Tom Bell, Burson president-CEO. "But we rejected it because it doesn't work for us strategically, and it doesn't work for us economically."

Insiders said the biggest objector was Peter Georgescu, chairman-CEO of Y&R and the man steering the company toward an IPO. Mr. Georgescu has been pushing Y&R to finally realize its decades-old vision of using sister agencies in concert to provide clients with the best available marketing communications.

"Peter feels very strongly that Y&R's differentiation is offering clients integrated marketing services in a way that other companies can't," said one insider.


A sale of Burson would improve Y&R's margins. With $233 million in fee income last year, Burson accounts for roughly 20% of Y&R's revenue.

In 1994 and '95, Burson's pre-tax profit margin hovered between 5% and 7%, said executives familiar with Y&R financial statements. After deducting corporate expenses, Y&R had roughly a 6% margin in '95.

Both the parent company and the PR agency improved margins by about two percentage points last year, insiders said.

But Burson still trails many of its peers in profitability. That, combined with its sheer bulk and high cost structure, would keep a list of potential buyers short--and probably keep the selling price low.

Copyright March 1997, Crain Communications Inc.

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