The year may only be a few weeks old, but already some massive
corporate mergers have been announced, among them Vodafone’s pounds 38
billion takeover of US company AirTouch, which will create the world’s
largest cellular phones group, and BAe’s pounds 8 billion purchase of
These are just the latest examples of the merger mania that has swept
across the corporate landscape and, according to research from the
corporate finance arm of accountancy firm KPMG, more than 5,000
cross-border mergers and acquisitions were announced in 1998.
UK companies led the way with transactions worth pounds 77 billion -
almost a quarter of the world market, just ahead of takeovers by US
The biggest was the marriage of BP and US firm Amoco to create the UK’s
To this cross-border activity can be added the many purely domestic
Some, such as the BAe and GEC Marconi tie-up, are also sizeable.
Such activity has provided a steady flow of business for larger
financial PR agencies. Brunswick last year handled Bilton’s unsuccessful
fight against takeover by Slough Estates and Argos’s fight against its
eventual takeover by Great Universal Stores, which in turn retained
newcomer Finsbury. This year, Brunswick represented Vodafone in its
acquisition of Airtouch.
In 1998, Shandwick faced Brunswick on behalf of Slough Estates,
represented Kelvin McKenzie in his successful bid for Talk Radio, and
handled financial PR and lobbying for Clear Channel’s successful bid for
More Group. This year, Financial Dynamics is defending the embattled
Mirror Group against predators.
All the indications are that the flow of mega mergers will continue.
Financial Dynamics chief executive Nick Miles says: ’The general trend
in business towards consolidation is happening all over the world.’
Already this year, he adds, the agency is representing French company
IMetal in its bid for English China Clays.
All of this is taking place against a background of great volatility on
the international equity markets. Share price instability has
discouraged many UK companies from seeking a market listing.
What this means for financial PR agencies is that the nature of their
business is changing. They are having to become more international in
their outlook and more adept at handling merger and acquisition
These can be very lucrative: rumour has it that Alan Parker’s Brunswick
has been charging Vodafone pounds 4,000 a day for advice, on top of
which Vodafone also receives advice from Tavistock Communications.
’You have to gear yourself to attract the work,’ says GCI Focus chairman
Rupert Ashe. ’Cross-border work is increasing all the time. In any case,
we’ve always treated flotations as the icing on the cake. But the
situation is bad news for agencies focused on the smaller company
sector. It will come back, though. We’ve seen flotation droughts
Tavistock Communications director Gillian Pattison adds: ’For the PR
industry, a lot of the shortfall from flotations is being taken up by
Factors driving the glut of mergers include cost-cutting because of
recessionary fears, the launch of the euro and the advent of sectoral
European stock analysis.
This last means financial analysts are increasingly looking at companies
on a pan-European basis - thus a company previously perceived as large
domestically may no longer seem as significant when set against a number
of larger European rivals.
This psychological change in status is driving some companies to merge
to make themselves feel like market leaders again. From the PR
standpoint, an interesting element is the rise of the success fee.
Success fees are bonuses paid out if the merger or bid defence works out
as planned. Frequently they are set at a pre-agreed percentage of the
consultancy’s basic fees.
’We’ve seen success fees of up to 100 per cent, but also as little as 20
per cent,’ says Miles. ’History shows us that, particularly in the cases
of vanity defences, there have been occasions of win at any cost.’
Success fees have become part of the scene, but another agency director
worries that they can sometimes act as a ’huge disincentive’ in
circumstances where agencies don’t think the deal is going their way and
therefore ’don’t fight it out to the last minute’.
On the other hand, some consultancies may be tempted to over-service
accounts in bid situations in the hope that the payment of a success fee
will more than recompense them for their efforts. The danger here, of
course, is that the deal may go awry and the success fee vanish in a
puff of smoke.
The growth of cross-border deals and global investment has led some
financial agencies to build up an international presence. Others,
however, believe that this is not essential for business success.
Says one agency head: ’In the big deals, the merchant bank quite often
brings in a PR agency they know can make a difference - so you don’t
need offices everywhere.’
In the current market circumstances, merger and acquisition specialists
are at a premium, and the larger agencies, particularly those with
cross-border expertise, will benefit. But with a simultaneous drop in
flotation work, smaller agencies may suffer.