Mergers and Acquisitions: Agencies are feeding at the merger trough - The recent flurry of mergers and acquisitions has created lucrative opportunities for financial PR agencies, as long as they are able to bring some international expertise to bear

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 GEC Marconi.

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

GEC Marconi.



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

companies.



The biggest was the marriage of BP and US firm Amoco to create the UK’s

largest firm.



To this cross-border activity can be added the many purely domestic

deals.



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

assignments.



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

before.’



Tavistock Communications director Gillian Pattison adds: ’For the PR

industry, a lot of the shortfall from flotations is being taken up by

bids.’



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.



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