They’re dropping like flies. Independent healthcare PR agencies, that is. What happened? Was it a spring of discontent, a little gastric upset in the constitution? Perhaps a diet not rich enough?
Starting with Chamberlain Communications Group in February this year, then Dorland Health in March; next the UK’s Santé Communications in June; to just last week the granddaddy of Rx indies, Chandler Chicco Agency, an unusually hefty crop of leading health agencies has been harvested by international, conglomerate holding companies.
I’ve weathered takeovers earlier in my career, working for health groups that had sold to Shandwick, WPP and the organization then called DMB&B (D’Arcy, McManus, Benton & Bowles), now part of Publicis Groupe.
It wasn’t always pretty for the people at these firms. I can’t say that client work and people didn’t suffer, because they did.
Not long after the DMB&B deal 12 years ago, I left that organization to launch Spectrum Science Communications. Today, Spectrum ranks as one of the top three independent health only public relations firms in the US. We also stand as the largest health care communications operation in the nation’s capital.
Each of the above former counterpart agencies once proclaimed the virtues of independence: greater focus on their people and their clients in ways they knew that only an O&O (owned and operated) operation could. Forsaking the O&O world, the newly adopted firms are just beginning to experience joys of the E-O, or earn-out. As they now begin to tout the benefits of being owned by somebody else.
The price tag for CCA, $65 million, doesn’t sound like a lot of money – it is a lot of money! But people at a recently acquired firm who think that their new landlord has wheeled in a barrow of cash to liquidate the former owners and invest in the new firm had better think again. That’s not the way that E-Os work. Most of the money paid in the earn-out flows not from Fleet Street or Wall Street financiers but sits on paper, waiting to be squeezed out of ever-greater efficiencies from employees and clients.
Bear in mind that cost-effectiveness for the new owner doesn’t necessarily confer benefits to the acquired agency’s current staff or clients. From my experience, efficiency ala E-Os equals grinding increased revenues out of fewer, cheaper workers toiling longer hours for more clients. The formula works, but only particularly well for the new owner. Hoping the stock price grows as they’ve just augmented the holding company’s bottom line, the new owners bank on riding a tide of current and hopefully growing revenues. Employees caught up in the shift best like it or lump it, those who aren’t laid off during the early belt-tightening. By the time clients discover their agency people and results are waning, it’s often late in the game. Account people get the blame, are fired or quit in frustration, and are soon replaced by a steady and willing supply of fresh-faced juniors.
Independence mattered when these other firms were independent. It was a mark of distinction, a selling-point in their press releases. Now, some firms claim that they’ll remain autonomous and that the new owners won’t meddle in operations. That sounds nice and could be true in the near term, but only during the E-O period if at all. The pressure on continued growth for the holding company and its share price will mandate the kind of economies that can’t help but creep beyond core administrative functions (HR, accounting, office management) into client services and staff compensation.
What I find amusing with each of these recent acquisitions is how the new ownership claims that current clients will benefit from “synergies” and allied or integrated services from the other various companies already in the fold. But in the next breath company principals hasten to explain how no conflicts will exist because sibling companies under the same umbrella parent, and oftentimes same address, can maintain firewalls. In my book, you can’t have it both ways. It’s all about the people. For instance, a team in place representing a breast cancer therapy at the acquired firm encounters a conflict of interest if the acquiring firm works for another pharmaceutical marketer in the same category. Where does synergy cease and conflict begin in a given therapeutic category? More likely, it’s cloudy at best and the only referees are on the payroll.
Independent communications firms offer clients a real choice and value, too. In the good old days when General Motors sat atop the auto industry, no savvy consumer really thought he or she was comparing different choices by kicking the tires at Chevrolet, Buick or Pontiac dealerships, all selling GM brands. What incentive motivates a company to undercut the competition in a scenario in which there are few bona fide competitors? The same is true in shopping for public relations services, especially now in the health care communications domain.
Clients should closely investigate current ownership, potential conflicts and real value before they continue with or assign new work to their PR firms. Corporate strategic sourcing and product managers should carefully examine these types of acquisitions and ask tough questions. Make choices, but carefully qualify the choices.
The plan at Spectrum Science Communications is based on a pledge to remain independent, dedicated to our clients and staff, and committed to extensive and fruitful relations with each. I believe that independence makes a difference, naturally.
-John Seng, Founder and President
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