ANALYSIS: Citigate chief goes on a spending spree

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

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

several markets.



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

Malaysia.



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

stake.’



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

these.



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