Change of fortunes

With success split between a few large hostile bids and many small AIM listings, it has been a year of extremes for financial PR, says Richard Carpenter

It’s been something of a strange year for the financial PR industry, which has witnessed a three-way split in fortunes. PRWeek’s financial league table rankings for 2004 shows business has been good at the bottom, good at the top, but a bit middling to average for those agencies stuck between the two poles.

Agencies specialising in advising smaller companies have generally had a bumper year as record numbers of their clients listed via AIM, the London Stock Exchange’s small-cap market. At the other end of the scale, a select group of M&A specialists have also done very well, advising on the few hostile deals that dominated the headlines.

Unfortunately, the vast majority of agencies fall between these two extremes and have been forced to survive on calendar work with the odd agreed deal thrown in from time to time.

‘The M&A market has certainly been fairly quiet,’ says Gavin Anderson managing director Byron Ousey. ‘Unless you acted for one or other side in Marks & Spencer versus Philip Green, there hasn’t been that much going on.’ But he adds: ‘The first quarter of next year looks much more

interesting.’

This year’s tables of financial PR agency activity provide a neat summary of these mixed fortunes. IPOs are more numerous than last year – but most of them are very small indeed. Hostile bids are an even rarer commodity than they were last year with just two or three high-profile deals.

Based on data provided by M&A information database Zephyr, the tables rank financial PR agencies according to the number and value of deals that they advised on between 1 September 2003 and 1 August 2004. All the deals included in the rankings have a UK-based bidder, vendor or target – a point worth stressing given the increasing international diversification of many of the agencies covered.

The main Top 25 tables relate to all types of deals including M&A work, initial public offerings, buy-ins, buy-outs and more. The rankings are then split into work on hostile bids, private-equity-related deals and IPOs to provide further analysis.

Change at the top

The faltering market means there have been changes in the top five agencies for the first time in three years of this ranking. When ranked according to the value of the deals worked upon, Brunswick Group still leads the pack but Tulchan Communications has leapt up to second place from 11th in last year’s rankings. Finsbury moves up a notch to take third place, while Smithfield Financial also accelerates up the rankings from 12th in 2003 to fourth this year. Financial Dynamics (FD) stands at number five, with Citigate pushed down to seventh from second place last year.

Further analysis shows the top three ranked agencies have broken away from the pack to form their own mini-advisory league. Brunswick Group advised on some £84.1bn worth of UK deals during the time period, an increase of over 70 per cent on its deal value of £49bn from the previous year.

This time around its average deal size is £636.9m, compared to just £442m last year. Key deals that boosted those values include advising Safeway on its £4.1bn sale to Wm Morrison and for Amersham on its acquisition by GEC.

Tulchan has seen its deal value jump to £72.1bn this year, while its average deal value was £1.5bn, up from just £260m in 2003. Working for M&S on the successful £9.1bn defence against Green buoyed Tulchan’s standing considerably, as did advising Silvestor UK Properties in its bid for Canary Wharf.

Finsbury is the third member of this elite group, having advised on £61.7bn worth of deals over the period in 2004 compared to just £25.7bn the year before. Finsbury also benefited from the M&S fight, advising Philip Green’s side of the equation. Also in the retail l sector, it worked for Sainsbury on its £1.4bn acquisition of Shaw’s.

FD slides down the rankings-by-value table from third last year to fifth in 2004. Despite this drop, the total value of its deals only fell slightly from £27bn to £26.5bn. The Maitland Consultancy also held fairly steady in sixth place – down from fifth position last year – with deals worth £1.5bn less at £23.2bn. Meanwhile, Citigate took a greater tumble, moving down from second last year to seventh this year and seeing the value of the deals that it advised on dropping from £27.7bn in 2002/3 to just under £21bn in 2004. The Hogarth Partnership, on the other hand, moved in the opposite direction: up from 13th in 2002/3 to eighth this year with a £7bn rise in deal value to £10.4bn.

Bell Pottinger Corporate & Financial just managed to retain its top-ten ranking, but it did see its deal value halved from £13.2bn last year to £6.5bn in this year’s table. And elsewhere, last year’s number 14 in the rankings, M:Communications, now sits at number 21, advising on 12 deals, worth £2bn.

The rest of the top 25 by deal value shows a few surprises, with several new names and some jostling for position. CardewChancery moves up six places to 12th, thanks to advising on more than £5bn worth of deals. Names making an appearance for the first time include Gainsborough Communications with advisory work on 11 deals.

The Global Consulting Group and Du Plessis Associates from South Africa also manage to jump onto the list due to working on two big deals each. Meanwhile, Bankside Consultants just sneaks into the top 25 by deal value at number 24.

A different view

Take a look at the rankings by volume of deals instead of value and you get a slightly different picture. This year, Brunswick tops both ranking tables, just stealing the ‘by-volume’ first place from FD, which has led the way in recent years. Brunswick advised on 132 deals during the period, compared to FD’s 128. College Hill takes third place by volume with 92 deals, pipping Buchanan Communications into fourth place by virtue of a higher deal value.

FD’s slip into second place by volume is symptomatic of a relatively slow year for the agency compared to some of its peers. It notched up an impressive 128 deals during the period but even that number is slightly down on the 130 it managed last year. The key point is that its deal value remained virtually static – £26.5bn compared to £27bn in 2003 – while many of its competitors soared ahead.

College Hill fared a lot better in that regard. Its by-volume numbers were up – 92 compared to 82 – as were the total value of those deals. Last year it advised on just £1.6bn worth of deals; this year that had quadrupled to £6.7bn. Notable advisory roles included working with Punch Taverns on its acquisition of Pubmistress and for Wembley in its sale to BLB Investors.

Buchanan Communications, though, had a year than most others. Its by-volume numbers and ranking remained relatively high – 92 deals compared to 106 last year – but its deal value collapsed from £9.3bn in 2002/3 to just £4bn this time around. The reason behind this is that last year’s figures included its work for NTL on the £6.6bn restructuring programme. This time, Buchanan’s deal flow was much more along its normal lines of small to mid-cap IPOs and M&A work.

Bar a few notable exceptions, the remainder of the top 25 by deal volume are the usual suspects. Finsbury had a healthy year and jumped up a few places to fifth with 66 deals compared to 57 last year. Citigate, Weber Shandwick, Maitland and Bell Pottinger all pitch in with respectable deal numbers – most steady or slightly down on last year. The rising names include Bankside Consultants and Beattie Communications – both of which are covered in more detail under IPOs, as that is what contributed to their bumper years. Hansard Communications and Fishburn Hedges also nudged their way onto the list this year. Names pushed out of the top 25 as a result of the newcomers include Haggie Financial and Redleaf Communications.

However, take a look at the IPO tables and it is clear where Buchanan’s strength lies. The consultancy easily leads the ‘by-number’ IPO rankings, having advised 17 companies on their admission to the market during the period – which is more than four times as many IPOs as it advised on in the previous year.

Looking back at the 2003 IPO tables demonstrates just how poor the market had become. In 2003, Buchanan led the IPO rankings with four deals. In 2002, Brunswick led it with six. Only three other agencies in last year’s top ten by IPO deal number make it into this year’s top ten: Tavistock Communications, College Hill and Brunswick. The reason for the change? The success of AIM.

A look at Buchanan’s deal flow of IPOs gives a better idea of why it has achieved these results. The vast majority of these were small deals worth a total value of just £409m, and an average deal size of under £25m.

They include AIM listings such as Reflexions Cosmetics, Civica and Floors 2 Go, all of which are small companies keen to find an exit point for private-equity investors.

The AIM option

AIM’s success has catapulted several less-famous agency names up the IPO rankings this year. Bankside Consultants and Beattie Communications, for example, manage to make it into the overall top 25 ranking for number of deals, based largely on their AIM IPO work.

‘Our success over the past year is probably a reflection of the success of the AIM market,’ admits Bankside Consultants senior consultant Susan Scott, who advised on seven IPOs during the period. ‘We have a growing market share within a successful marketplace and a reputation as a niche player. We’ve built a following among smaller cap analysts and fund managers.’ Bankside’s advisory roles catapulted it up to tenth in the overall deal rankings by number and allows it to sneak into the top 25 ‘by-value’ deal rankings, too, at number 24. The latter placing is due largely to working alongside the parent company of Trinitybrook plc in its acquisition of New Look.

Fitting in

Beattie Communications (formerly Beattie Media) has also done well from AIM’s success, with IPOs for BBI Holdings and Pixology, to name just two of its seven deals. Acquisition work for Angliss International, Zoo Digital, and Peerless Technology has also boosted the business during the period.

CEO Gordon Beattie points out that it is not just a matter of bringing the companies to market – they tend to be small, fast-growing companies and that means lots of acquisition-related advice too. The small-cap niche seemed like the obvious place to fit into the market when he started the business back in 1999.

‘Most of the industry was feeding off the FTSE 100 to mid-size companies. We had to go for a market that was not so populated,’ he says. He also believes there is room for further growth in AIM through 2005.

Of course, not all agencies have been so dependent on the AIM listings. Citigate’s position at number two in the IPO rankings is down to eight deals with a much higher average value of £298m, while last year it did not appear in this table.

The IPOs it has worked on include advisory roles on bigger stories such as Premier Foods and Eircom. FD, College Hill and Brunswick also managed much healthier average deal values worth £178m, £111m and £92.8m, respectively. Elsewhere, Tavistock Communications turned out an average deal value of £8m in 2004, compared with £1.15m in last year’s rankings.

IPO business may have returned to some small degree this year, but the type of hostile bids that dominated the late 1990s are still few and far between.

‘A lot of companies have been paying back cash to shareholders rather than embarking on acquisitions,’ says Smithfield Financial director John Kiely, noting that shareholders are still bruised by the deal frenzy of the boom times.

‘A lot of executives are also still feeling quite conservative owing to the geopolitical situation,’ he adds.

In fact, this year’s ranking table for hostile bids reveals that there were even slimmer pickings in 2003/4 than there were in the previous year.

Brunswick only managed to clock up two advisory roles on hostile bids during the period, compared to four in the same timeframe last year.

The Maitland Consultancy joins Brunswick in the number one slot, while College Hill leapfrogs many of its rivals into the third position, having advised on three hostile deals during the period.

The paucity of deals available means that many of the better-known names, such as Citigate, FD and Finsbury have dropped out of the top-ten hostile bid rankings altogether. When each agency only has a couple of deals to its name, one deal here or there can make all the difference as to whether they make the top ten or not.

The difference is that this year’s few hostile deals have tended to be slightly meatier than those during 2002/3, with the M&S versus Green fight leading the way. Tulchan made significant gains by advising Stuart Rose and the board of M&S.

‘We had a disproportionately high level of market share at one point in early 2004, particularly as it’s still been a bit of a patchy market,’ notes Tulchan chief executive Andrew Grant.

‘I think the M&S deal showed that a small but good team of people can handle the major-league stuff. Generally speaking, we’re not in boom times again and I don’t think that sort of market will come back. It’s steadier – with occasional excitement.’

Venture-capital success

Last year’s big story was the number of venture capital deals. In fact, they kept many financial PR agencies ticking over, while the market hit

a low point in the more traditional deal areas.

The venture-capital highs of last year have fallen away slightly this year, but there remain a good number of private-equity-related deals around for willing agencies.

Brunswick has managed to pip FD to the leading position in the venture capital tables this year. It notched up advisory roles on 18 private-equity deals worth a combined £9.7bn. That compares to FD’s 16 deals worth £9.4bn to gain second place in the ranking table. However, last year, FD advised on 49 deals during the same period.

Finsbury has leapt into third place in the 2004 venture-capital rankings, a considerable jump from its 21st position last year. The key difference in the positions between the two years can be explained by the fact that this year saw financial PR consultancies required to advise on considerably fewer deals in order to gain a high position. For example, last year’s third place in these tables fell to College Hill with 35 deals, yet this time Finsbury only worked on 13 to gain the same position.

College Hill and Weber Shandwick have both fallen out of the top ten this year, despite their third and fourth-place positions in 2003.

Other agencies that have disappeared out of the venture-capital rankings are Bell Pottinger and Binns & Co. Those that have benefited are the Hogarth Partnership, Tulchan, Fishburn Hedges and Merlin.

Buchanan drops down from first place last year – with 50 deals – to ninth this time around, having worked on eight deals. Gavin Anderson just managed to cling on in the top ten having advised on six venture-capital deals during the period.

This time last year financial PR practitioners were predicting a growing trickle of smaller deals but few big M&A deals reminiscent of the 1990s. As M:Communications founder Nick Miles told PRWeek in October 2003 : ‘I just don’t see a massive pick-up in standard M&A work as being likely.’

More of the same

Miles, and others in the industry, have largely been proved right – and most financial PR practitioners expect more of the same kind of pattern to continue into 2005.

‘The mood is still a little bit cautious but I guess it’s slightly rosier than it has been in recent years,’ adds Kiely. He and others point to AIM and private-equity deals as still providing the main green shoots of recovery for the financial PR shops.

Ousey is slightly more upbeat about future business, but places most of his bets for growth outside of the UK – in continental Europe and beyond. Nevertheless, he believes that some deals are beginning to emerge but only if the price is right.

‘There are some indications that CEOs are looking at growth options – it’s all a question of price and valuations, however,’ he says.

‘There has been growing interest in the media sector and lots of activity in energy. It’s a difficult one to call but I’m quite confident for the next year.’ There is still a cautious mood, but 2005 will be an interesting year

to watch.

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