Rights issue fees worth millions to PR

The flood of rights issues launched in the UK during 2009 has generated millions of pounds for City PR, a senior investment banking source has told PRWeek.

Fundraising: Arsenal has been tipped to join the growing list of UK companies launching rights issues
Fundraising: Arsenal has been tipped to join the growing list of UK companies launching rights issues

This week Independent News & Media and Arsenal FC were tipped to join the growing raft of companies launching rights issues.

Dealogic data shows that UK firms have so far raised £30.8bn this year, the highest since Dealogic's records began in 1995. The City has been starved of lucrative M&A activity, but the loss to UK financial PR has been significantly mitigated by fees from these equity market transactions.

A market insider told PRWeek a benchmark of 0.05 per cent of rights issue funds raised had emerged as a typical fee for PR agency involvement.

Therefore, helping launch a £100m rights issue would typically net a City PR firm £50,000 on a project basis.

With more than £30bn raised in the UK equity markets this year, that would represent £15m in fee income for the likely to be lower, given that the overall total is skewed by HSBC's vast £12bn issue - a project brief for which retained adviser Maitland did not net the 0.05 per cent that the mid-cap market typically sees.

Agency bosses broadly backed up the 0.05 per cent figure, but one noted there was a ceiling at the £150,000 to £200,000 level for a rights issue that is rarely breached, regardless of the amount raised.

Nevertheless, rights issues have become a significant source of income for finnancial agencies. And the industry has a vital role in supporting the process - from managing the announcement, to drafting documentation and rehearsing roadshows.

Andrew Hayes, CEO at Hudson Sandler, which oversaw a £176m issue for Marston's brewery in June, said: ‘Markets and invvestor sentiment remain volatile and communications have to be sensitive to the current issues. Investors are being aggressive on dilutive pricing discounts as well as paying particularly close attention to use of proceeds, timing and strategic coherence. Ensuring key messages survivethe legal verification process is an important area where clients value our support.'

John Kiely, MD at Smithfield Consultants, which helped launch a £375m issue for Punch Taverns last month, said: ‘Fundraisings have definitely been a welcome form of corporate activity. But they do not replicate the type of fees agencies can charge for an IPO or M&A deal.'

How I see it

Angus Maitland, executive chairman, Maitland

Businesses have found themselves going into a recession with stretched balance sheets, so it is no surprise that the rights issue market has come back in a big way. There is a key role for PR agencies to deliver the equity story to the media and deal with any issues that arise - but these are not generally high-fee projects.

Rights issues do provide welcome fees, but some retainers may already accommodate these events. I am also not sure the amount raised determines the fee - a large company raising significant funds may generate less in fees than a smaller but more difficult rights issue.

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