EDITORIAL: Sale prices are a sign of the times

If evidence were needed of how depressed the PR market is, two deals that came to fruition this week underline the collapse in valuations for PR firms.

On the tech side, Caraline Brown of Midnight Communications has retaken control of her agency from the AIM-quoted BV Group for ten per cent of the sale price of two years ago.

Meanwhile, Lord Chadlington's Huntsworth Group has paid a mere £2.6m for hatch-group, the acquisition vehicle founded by his Shandwick protege Michael Murphy in mid-2001. It does not take a particularly keen observer to spot that this is less than half the price Murphy was at one stage prepared to pay for hatch's founding subsidiary MacLaurin, in mid-2001.

Moreover, 60 per cent is in Huntsworth shares, the rest the assumption of seven-figure bank debt.

Although there is sport in analysing the winners and losers of such a market, the reasons for it are rational. The listed markets are off between a third and a half since the peak three years ago. As a result, those buying privately-owned firms will pay less for them. Huntsworth's own share price is a good example of this, down by a half in two years, despite steady profits and a fulfilled acquisition spree.

As markets return to strength, the judgement may be that Chadlington bought hatch at the bottom of a business trough, just as Brown has wisely reasserted control as the tech sector reached its nadir. But that will only happen if the root cause of low valuations - lack of profitability and invisible growth potential - are remedied. That is the challenge ahead.

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