FEATURE: Financial PR strikes gold

The past year brought major deals for the big financial agencies. Alex Black looks at a thriving sector.

The last 12 months have been an exciting time to be in financial PR. The deals – be they global or local – keep coming, and the war chests of both private and institutional investors show little sign of emptying.

A glance at the five tables here show the usual big names – Brunswick, ­Finsbury, FD (in both pre and post-take­over form) and Citigate – are sucking up the big deals, but there is plenty of room for the successful second tier and boutique agencies too.

Our last financial league tables (PRWeek, 24 November 2006) looked at the period from October 2005 to September 2006. Direct comparisons ­between those tables and these figures (which focus on deals conducted from May 2006 to the end of April this year) would be misleading, but it is hard to ­ignore Brunswick’s total deal value of £120.4bn.

The agency’s work on deals such as the proposed £40bn Barclays merger with ABN AMRO has given it a deal value £47bn higher than the £73bn rec­orded by last November’s table-topper Finsbury, and £52bn more than it recorded in the 12 months last September.

And all this has been achieved ­despite only doing three more deals in the 12 months to the end of April than it did in the 12 months up to last November.

Testing the waters
Unlike PRWeek’s other sector league tables, which are compiled using data submitted by agencies for the annual Top 150 table, the financial league tables are compiled from ­market data collected by independent research company Zephus.

Prior to publication, PRWeek gave a sneak preview of the tables to some senior financial PR figures to gauge market reaction to the previous 12 months. However, many were unclear about how the tables were compiled, and others claimed the data did not match up with their own interpretation of their performance.

With this in mind, it is worth spending a couple of minutes explaining how these five tables were put together.

Firstly, Zephus’ ‘Zephyr’ database only features deals where shares are being acquired in another company, division of a company or a major brand name. In other words, the data in these tables only feature formally announ­ced and completed mergers, acquisitions, minority stakes, capital increases, venture capital/development capital deals and IPOs (when the shares actually start trading).

The tables will not cover share buybacks, joint ventures, marketing/strategic agreements or planned IPOs. They only cover bond issues if those bonds are convertible into company shares, and do not include debt refinancings, loans, licensing deals, mortgage portfolios, customer accounts or insurance policies. The only property deals covered are hotels and nursing homes. Deals where the target is a retail unit, commercial premises, land, oil/gas fields or ships are excluded

These tables only feature UK deals, where at least one of the bidders, vendors or targets is a registered UK ­company. If a UK parent company completes a deal through its US subsidiary, this deal will not count in the tables.

It is worth noting that these tables count the number of deals, not number of clients. If an agency advises both the bidder and target in a deal, the PR agency will only be credited for one deal.

The deal value is calculated by using the enterprise value, not market capitalisation. The only exception to this is if an unusual, complex and high profile deal comes along, in which case a call is made by Zephus and PRWeek (see An 'Unusual Deal', below).

Finally, only formally announced or formally completed deals feature. If an RNS announcement talks of a ‘proposal’, an ‘intention to bid’ or that a company is ‘planning’ an IPO, it will be classed as a ‘rumour’ or pre-formal offer. The deal will only register as being ‘announced’ when and if a formal offer is made. IPOs will only feature when they start trading their shares.

M&A at a peak
One thing that has stood out over the past year is the rise in M&A activity. Whether it is the big agencies scooping the mega-deals or the boutique agencies picking up the specialist work, PR agencies make a lot of money from M&A. Given that many agencies now rely on around a 50:50 split between retained clients and M&A projects, this translates into a healthy bottom line for financial PR agencies.

‘Record levels of M&A over the last year reflect continuing consolidation in many sectors and the impact of the private equity players,’ explains Hudson Sandler CEOAndrew Hayes.

‘This is being driven by the low costof debt and buoyant equity markets. We expect this to continue into the foreseeable future and are recruiting into our team accordingly.’

But while the M&A market is still healthy and ‘awash with liquidity’, a new driving force has emerged since the beginning of 2007, says FD group CEO Charles Watson.

But while the M&A market is still healthy and ‘awash with liquidity’, a new driving force has emerged since the beginning of 2007, says FD group CEO Charles Watson.

‘We are starting to see some major strategic consolidations,’ he explains. ‘The Tata/Corus deal has created a major steel company; the merger between RUSAL, SUAL Group and Glencore created the world’s biggest aluminium company; and the ABN/Barclays proposal is clearly a strategic banking deal. We can expect to see more of this.’

Watson also oversaw one of the biggest stories in the last 12 months in the agency sector when FD was snapped up by US management consultant FTI Consulting (PRWeek, 12 September 2006). Watson admits that the negotiations behind the deal, like those in 2003 when FD underwent an MBO, were ‘something of a distraction’, but says the completion means he and his senior team are now able to focus 100 per cent on FD’s business.

Bigger balance
In the private equity sector, the three agencies at the top – FD, Brunswick and Citigate – all recorded average deal values of well over £400m. Though it worked on fewer deals than some of its competitors, deals by heavyweight ­clients gave Finsbury a ­total deal value of more than £28bn in the IBO sector – pushing its average deal value above £2bn.

‘It is an interesting market for private equity outfits – particularly in ­Europe,’ believes Shona Prendergast (r), a partner on Penrose Financial’s private equity team. ‘Companies are seeing a lot of deals and are getting in on them earlier and earlier.’

‘The private equity industry in both the UK and US markets has really come to the fore in the last 12 months,’ adds Finsbury associate partner James Wyatt-Tilby, something the press is picking up on.

'As deal sizes get ever larger and major consumer brands are taken private, the media’s interest has increased dramatically.’

Interestingly, when it comes to private equity, the role of communications disciplines outside pure financial and corporate comms has never been more important.

The impact of private equity players has been controversial in the world outside of the City, with unions and the mainstream press sniffing around for the human interest stories generated by talk of mass redundancies.

Hudson Sandler’s Hayes adds that public affairs is becoming an increasingly crucial part of this mix. ‘We came together with [PA shop] Quiller last October (PRWeek, 27 October 2006).

‘This means we can help clients manage all the stakeholders they need to consider to get deals done as well as protecting their reputations.’

The industry appears confident about the next 12 months, but the consensus is that Russia and emerging countries such as India and China will only get stronger.

If strategic consolidations on a global scale are where the big deals are likely to be made, we can expect to see more offices overseas with UK ­financial PR firms’ names above the door.

AN 'UNUSUAL DEAL'

In March, German travel group TUI announced plans for the merger of its tourism unit with British rival First Choice. It was an unusual deal. A holding company called CopperEagle is absorbing First Choice, which is in turn merging with TUI’s tourism division.

In addition, the nature of this deal meant no consideration was being paid. The PRWeek financial league tables focus on consideration paid, as opposed to press reports, which outline what the deal is ‘worth’. This left some agencies without a credit for one of the most high-profile deals of the last 12 months.

After consultation with PRWeek, Zephus’ head of research Ed Mount­ifield agreed to use the market capit­alisation of First Choice to calculate an estimated deal value.

The deal is now split into three on Zephus’ system, giving £1.5bn as a value for Copper­Eagle’s purchase of First Choice, £1.62bn for CopperEagle’s purchase of TUI’s tourism division, and £1.5bn for the restructuring merger of First Choice and TUI’s tourism division.

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