Will KPMG's purchase of investor relations firm Makinson Cowell start a trend?

Following KPMG's acquisition of investor relations firm Makinson Cowell, Alex Benady looks at whether it could start a trend and the implications for the wider PR industry.

KPMG buys investor relations firm
KPMG buys investor relations firm

In pure financial terms, KPMG's £15m acquisition of investor relations specialist Makinson Cowell last month is not even peanuts. It is the crumbs at the bottom of the bag. KPMG turns over £23bn a year and employs 152,000 people, while 70-strong Makinson Cowell made profits last year of £130,000 on sales of £10.6m.

But, according to KPMG's UK chairman Simon Collins, the acquisition is the fulfilment of a long-held ambition to provide a full capital markets advice service on both the debt and equity sides.

'At a time when companies are increasingly looking to ensure advice is independent from the underlying sources of finance, the combination of KPMG's debt advisory business with the equity services provided by Makinson Cowell will create a market leading independent capital advisory business,' he says.

Preserving the brand

Meanwhile Bob Cowell, who co-founded Makinson Cowell in 1989, says paradoxically that selling his company is the best way to guarantee its independence: 'For our clients, this move will underwrite the independent model that has characterised our business from the outset and preserve our brand for the future.'

But what are the implications of the deal for the rest of the PR industry? Is this a one-off or does it mark a significant trend? And if so, will PR firms profit? Or will the KPMGs of this world be stealing their lunch?

One thing is certain, this is not an isolated buy. Most commentators agree the KPMG-Makinson Cowell deal will not be the last investor relations acquisition. It is a sign that the management consultancies and auditors are reconfiguring their businesses in response to client demand, says Alan Leaman, chief executive of the Management Consulting Association.

'We are seeing the maturing of the professional services sector as a whole to enable firms to offer a wider range of services to their clients. This has been driven in part by the financial crisis and the need for improved governance and greater transparency, as well as advances in social media,' he says.

Integrated offering

The effect has been to put much of the high-margin 'upstream' work of the PR industry in the sights of auditors and management consultancies. 'Reputation management, business strategy, public affairs and investor relations have a lot of overlap and a number of clients want to bring the best capabilities together in an integrated offering,' says Leaman.

It is worth remembering this expansion is not limited to comms. As one wag pointed out, chief executives often have a longer relationship with their auditor than with their wives, so auditors in particular are trying to monetise these relationships. That is why PricewaterhouseCoopers (PWC) is currently negotiating to buy German management consultancy Roland Berger, and three years ago Deloitte acquired chartered surveyor Drivers.

According to an analysis by Beaton Capital, the Big Four auditors alone made 73 different acquisitions in 2010-11 in areas ranging from actuarial services to sustainability.

In the comms division, Ed Reilly, CEO of FTI Consulting, which acquired financial comms consultancy Financial Dynamics four years ago, also predicts more acquisitions. 'Increasingly clients face complex comms issues so effective comms are a huge strategic asset, especially at high risk moments and events that can be disclosed, like mergers, acquisitions and restatement of earnings,' he says.

Tapping a trend?

But most commentators agree it is unlikely that this will turn into a gold rush for the owners of upstream comms advisers - whether they are selling investor relations, reputation management or strategy. Nor is it likely to lead to the opposite - a spate of bankruptcies as companies like McKinsey and PWC grab a fat slice of the profitable action.

Claire Mason, MD of Man Bites Dog, which works for a large number of management consultancies, does not expect to see a major trend of these businesses acquiring comms agencies - if only because they are not profitable enough and the projects are too small. Management consultants and auditors often make margins of up to 30 per cent. Comms businesses generally make between ten and 20 per cent, so they are likely to be looking at other sectors.

'Why would they bother?' she asks. 'Management consultants are often the smartest guys and girls in the room. Wouldn't they be more likely to look at highly profitable areas like law that would align more closely with their other service offerings and board-level relationships?'

The trouble with PR is that not only is it insufficiently profitable, it is insufficiently scaleable to be of much interest to the major integrated services firms, she argues. 'There is a creative X factor in comms that is challenging to turn into a process - and without process you can't scale up to the size of major services firms.'

In addition, there is the inevitable danger that when service providers become too broad, they start running into conflict issues. 'Auditing firms that provide both audit and consulting services are perceived in some quarters as enabling a better overall service, and in others as presenting a conflict of interest. Comms could fall into the same category, particularly in relation to corporate governance issues,' says Mason.

Wrong skill-set

Loss of status and margin for PR companies is a far more likely outcome than PR companies going bust, predict others. 'You can argue that if the likes of McKinsey take the high-margin strategy work, all that would be left for PR companies is low-margin implementation. However the Big Four definitely can't do that. They don't have the empathy and emotional intelligence that we do,' says Tony Langham, CEO of Lansons Communications.

It sounds then as if the KPMG takeover of Makinson Cowell is all potential downside. But Langham can see the positives buried among the negatives and he identifies one reason why the move is good for everyone in the industry.

It is just possible that the arrival of the Big Four and other consultancies will galvanise the PR industry into raising its game.

'Overall I'm optimistic,' says Langham. 'If KPMG starts taking PR seriously it will be very good news. It is likely to raise professional standards as companies seek to defend their businesses. And if we raise our professional standing we will be able to raise our fees.'

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