2023 has been one of those “best of times, worst of times” periods for PR. The arrival of generative AI has taken productivity to a new level for many, reinventing the role as one that engages in more high-level media relations and campaign focus, and less tedious administrative gruntwork. But many comms firms have struggled with acquiring new business in 2023, and as a result, only about half as many have been able to increase revenue or profits this year compared to last year, according to new research from business law firm Davis+Gilbert.
The firms that did boost their revenue became top performers by expanding services, embracing AI, nurturing client relationships and focusing on their best and brightest talent, the firm’s 11th annual Public Relations Industry Trends Report finds in a survey that generated the most response ever, with 182 global participants.
The report also provides details on this year’s merger and acquisition trends, reflecting an M+A landscape that overwhelmingly focuses on acquisitions of smaller agencies by a more diverse set of buyers.
A high percentage of respondents describe their firms as “integrated/full service.” Interestingly though, it was the specialty firms, such as healthcare, public affairs and corporate/financial, that reported the most financial success this year. Across the board, PR firms showed resilience as they faced economic challenges by adopting a variety of tactics, such as staff right-sizing strategies and client management training, to support business growth.
The survey shows that firms were nearly evenly divided between increasing and decreasing revenue in the first eight months of 2023. About 42 percent said they increased revenue during that time, down from 81 percent in the previous two years. On the profit side, 31 percent of the firms reported an increase in profit in the first part of the year, down from 61 percent in 2022 and 67 percent in 2021. Nearly half said they decreased profit, a nearly two-fold increase from the previous two years.
“Coming after two years of unprecedented growth, it’s not surprising that the PR industry needed to readjust this year,” said Davis+Gilbert Public Relations practice group Chair Michael Lasky, in a news release. “Many firms were still able to keep the momentum going by taking proactive measures to push through the strong macroeconomic headwinds. For some firms, ‘flat’ is the new ‘up’ in terms of revenue or profit—but many firms ambitiously refused to get caught standing still.”
Key findings from the report:
Just over a third of the firms reported spending more than 60 percent of net revenue on compensation, a significant increase from 28 percent both last year and in 2021. More than two-thirds of the firms said they managed out weaker performers to right-size staff. However, firms that increased revenues or profits by more than 10 percent did so without layoffs.
For the first time, the survey asked firms about AI use. Nearly half the firms said they use AI for written content creation and 37 percent report using AI for ideation. Most noteworthy is that three quarters of the firms that enviably increased revenue or profit by 10 percent or more say they are currently using AI for a wide range of tasks.
Firms that increased revenue or profit by more than 10 percent did so without curtailing their DEI programs or practices. In fact, 59 percent increased the number of employees from historically underrepresented groups this year over last year.
Earned media was the top revenue-generating client service for the first eight months of 2023. The area of client service that firms plan to expand the most next year is social and content creation.
Not surprisingly, only half the firms felt optimistic about 2024–-a sharp decline from 2/3 feeling optimistic last year. In addition, the number of firms that felt “anxious” about the year ahead doubled over last year.
PR industry mergers & acquisitions
The PR M&A market witnessed 78 deals completed as of Oct. 31—14 more deals than during the same time last year. Different this year is that the increase in PR M&A activity was the result of smaller transactions.
“The data shows us that this was the year of the small deal. This is what we would have expected since smaller transactions tend to be less leveraged and, accordingly, are less affected by higher interest rates,” said Davis+Gilbert Corporate + Transactions practice group Co-Chair Brad Schwartzberg, in the release.
Smaller and mid-sized firms are attractive to larger firms looking to increase revenue and profits by expanding client service offerings or by gaining key clients or specialties. Indeed, nearly half the survey respondents said they had already acquired another firm at some time. Another significant trend is the increase in the number of buyers, with 65 different buyers involved in the 78 transactions.
The survey serves as a crucial compass for understanding the industry’s prevailing trends and obstacles and identifying solutions. “Above all else, we’re seeing that firms are being resilient and strategic. This adaptability shows that there are many paths forward through uncertainty,” Lasky added.