The words ‘flotation’ and ‘acquisition’ are not often heard in PR these
days. Unless of course you happen to be talking to David Wright, chief
executive of Citigate
High on the seventh floor of his agency’s Finsbury Square offices, David
Wright talks a game rarely heard in the 1990s world of public relations:
acquisition, growth and Stock Market flotation.
His latest deal, revealed last week, will be his biggest to date, the
acquisition of the pounds 4.5 million fee income advertising and PR
businesses of the US group AFGL International. When papers are signed
early next year, AFGL will take a 20 per cent stake in Citigate Group.
In return, Wright will get businesses in New York and San Francisco and
his seventh deal in a year will be complete.
Apart from Sir Tim Bell’s Chime Communications, Citigate is virtually
the only agency that has been out shopping this year. With a 1997
flotation in sight, Wright’s strategy is to build a ‘broadly based
international communications group’. In other words, a company covering
PR, advertising, design and publishing, under the Citigate name in
Whatever your view of communications businesses and the Stock Market,
there is no disputing that Wright has stuck rigidly to this strategy. He
is not a PR man, but he is a full-time business manager: he does the
deals and he makes the decisions. This has been a busy 12 months.
He acquired the Scottish agency Dunseath Stephen last November, then
crossed the Irish Sea and snapped up Northern Ireland’s Alan Burnside
Associates. By the summer he was heading to South Africa, where he
bought the IR and PR firm, Greg Kukard Corporate Services and the
design, print and advertising agency Campaign Communications.
All deals were funded from cash flow, bank reserves and shares in
Citigate Group, although the Northern Ireland and South African
purchases were both earn-out linked.
Group fees to September, which Wright says do not fully reflect
acquisitions because many were completed late in the group’s financial
year, stood at pounds 12 million, up 14 per cent on the previous year
and pre-tax profits were pounds 1.65 million. Annual income is around
pounds 15 million on a staff of 256.
The engine for growth is the desire to get a listing. This, says Wright,
was always the game plan. ‘From day one in January 1988, flotation was
always our objective. I thought we’d be a more attractive investment
vehicle if we built a diversified, international group. Nothing has
convinced me I’m wrong.
‘Brunswick and Financial Dynamics have been more successful in their
core business in the UK, but they’re realising there’s a limit to UK
growth and are beginning to look elsewhere,’ he says.
Market perception of Citigate lags behind reality. It is seen as a
financial PR firm with lots of small clients that isn’t quite up there
in the big league: ironically it is handling Granada’s pounds 3.3
billion hostile bid for Forte and making a pretty impressive job of it.
But eight years after launch, Citigate cannot be described simply as a
PR firm; only half its income comes from PR work, the rest from
advertising, publishing and design.
Wright wants to float Citigate when pre-tax profits reach pounds 4
million, a target he estimates will be achieved by 1997. The only way he
is likely to meet that target is by further acquisitions.
The need for steep revenue growth was the logic around a rumoured deal
with Dewe Rogerson earlier this year. Both parties denied that talks had
taken place and given Roddy Dewe’s opposition to the idea of floating PR
companies, such a deal always seemed highly unlikely.
So with next year’s income target set ambitiously at pounds 25 million
and pre-tax profits at pounds 3.5 million, Wright is preparing for
another year on the acquisition trail. His sights are on Singapore and
On paper the numbers stack up, but when it comes to flotation, track
record will be under scrutiny and the success of some of Citigate’s pre
1994 acquisitions is questionable.
In July 1991, Wright paid pounds 1.3 million for Reggie Watts
Associates, encumbered with hefty debts, but with a good name in the
business. Wright put in Geoffrey Morgan as managing director and the
agency was eventually merged into Citigate Corporate.
Some observers say Wright risks overstretching himself and warn of the
inherent dangers of earn-out payments that need to be funded further
down the line. One says: ‘Instead of a rush for scale, he may be better
off going for a trade sale, but he’d be unlikely to get as much for his
While staff share schemes are seen as a good way to retain staff until
flotation (around 90 employees have a stake in the business) once the
agency joins the Stock Market, many are likely to want to cash in their
holdings and move on. Wright himself holds a 13 per cent stake.
But just how concerned the investment community will be is hard to
judge. Asked what the key criteria for assessing the investment
potential of a PR firm considering flotation, one media analyst says:
‘I’d look for steady turnover growth, good operating margins, not too
much debt and a broadly-based client list.’
If Wright can deliver the numbers through careful acquisition and
without borrowing too much, he will probably be able to satisfy most of