Thoughts of recession seem a long way off for most sectors in the
UK and few politicians believed it to be a major issue during the
election campaign. But a chill wind is blowing through one area of the
economy as the slowdown in the stock market begins to bite.
Several City institutions have announced significant job cuts in recent
weeks as they react to a collapse in the number of corporate deals
during the last few months, and as the chart below shows, M&A activity
in Europe has mirrored the economic slowdown in the US over the past 12
to 18 months.
And latest figures for April/May 2001 show just 554 completed deals
worth pounds 150bn. The stock market's lacklustre performance has put
off companies from listing and called a virtual halt to hostile bids -
two areas where investment banks reap lucrative fees for their
They are also two of the most profitable areas for financial PR
agencies, and several have been forced to do some belt tightening in
We may be at the very early stages of recessionary talk, but there's
already been a marked impact on the financial PR world.
Some agencies are turning more of their attention to other competencies,
such as corporate PR, while others suggest that strategic financial PR
advice really comes into its own during a downturn. After all, if
companies are in a hole then they need help getting out. Few agencies
will openly admit that cost-cutting is necessary - yet.
'There are fewer M&A (mergers and acquisitions) deals around,' admits
Grandfield chairman Charles Cook. 'And particularly fewer hostile bids,
which is really where financial PR earns its best project fees. A
slowdown like this reduces the "cream on the cake", but it doesn't cut
into the cake itself as far as we're concerned.'
Similar sentiments emerge from other agencies, with most jostling to
position their businesses as not being reliant on advisory fees from the
cream on the cake deals. But they are also anxious to point out that
they are perfectly capable of providing such advisory services, should
the need arise.
'It clearly depends on how significant M&A and IPO work is to your
business,' says Maitland Consultancy founder Angus Maitland, who gives
the impression that his consultancy is built on much more solid
foundations than such a fly-by-night business. But he does point out
that the agency advised on the Mannesmann/Vodafone, Olivetti/Telecom
Italia and NatWest/ Royal Bank of Scotland deals.
Edelman London head of financial PR Stephen Benzikie says there is no
need for doom and gloom - yet: 'Sure the IPO market appears to have
dried up, but there's still very healthy institutional liquidity out
there with many private equity and venture capitalist firms looking for
an exit (from their investments).
'There's certainly no shortage of firms looking for pre-IPO positioning
advice. They want to warm the market up and also get to know the key
journalists and analysts. They may be delaying the big project fees but
are not stopping them completely,' he adds.
Benzikie also reports that M&A work has not dried up completely; it's
just the hostile bids that tend to fall by the wayside along with a
falling market: 'Unfortunately, many of the agreed bids and
restructuring deals tend to be fairly dull from a financial PR point of
view.' The fees aren't as exciting, either.
'We're more than making up for the one area we really expected to be
quiet, which was technology IPOs,' reports an upbeat Marc Popiolek,
Gavin Anderson London chief executive. 'We're still seeing a good amount
of M&A activity but mostly from our existing client base. We've seen no
real evidence of people cutting back on existing projects, although some
of the higher profile deals have probably been deferred.'
Marks & Spencer has been struggling with its own well-documented
downturn for two years. Corporate department spokeswoman Sue Sadler
notes that it is not a time to be cutting back on financial
communications, and while the company has been cutting costs across many
areas, it has released a start-up budget to build a dedicated investor
relations department for the first time.
'It's not really a budgetary issue as much as a people resource. They
have been recruited at a time when we are laying people off elsewhere,'
says Sadler. Now that the department has been established, however, she
says that its workload does not fluctuate with the vagaries of the stock
market: 'We don't increase or decrease work levels depending on the
ScottishPower corporate affairs director Dominic Fry was, like many
corporate chiefs contacted by PRWeek, reluctant to talk about what might
happen to the company's communications programme in a downturn or
recession, saying that talk of a UK recession is premature 'at the very
'The market rises and falls over a period of time but it does not mean
there are any changes to our financial PR programme,' he says, adding
that the company has been spending time educating London-based investors
about its US investments - and, if anything, has benefited from a
movement away from technology stocks into utilities.
While stressing he doesn't want to link the company with recessionary
talk, Fry does note that in the early 1990s, financial PR budgets held
up for much longer than advertising.
Food retail giant Tesco brushes aside forbodings of a downtown. 'It's
very much business as usual on the financial PR front as far as we're
concerned,' says David Sawday Tesco head of media relations. 'I don't
want to get dragged into an issue where there isn't an issue.'
Will Cameron, media relations manager at software services firm Logica,
notes: 'We've always had a fairly strong and proactive approach to
communicating with the investor community. We're regularly speaking with
them and going out to see them - listening to their views.' He believes
that is one of the reasons why Logica has managed to remain relatively
well supported in the City compared to others in its peer group.
'In any case, we're not actually seeing any sign of a recession in our
business at the moment,' notes Cameron. 'We're in what we believe is a
growth industry. It's business as usual on that front and in investor
relations. Companies such as Logica have been through various ups and
downs in the past and we've just learned to stick to our strategy.'
Most other companies, regardless of sector, seem to be toeing a similar
line at present, with few reporting signs of a downturn and none daring
to suggest that communications budgets might be slashed. That's easy to
say, less easy to live up to when the going gets tough. As Tulchan
Communications partner Andrew Grant notes, one of the lessons everyone
learned in the last recession was that communications budgets can be
quite viciously severed: 'It's very hard for a manager to say that
they're going to take 15 per cent off the cost base and not leave every
Overall, most companies do not recognise recessionary talk at the
Any downturn is seemingly restricted to a few key sectors. The downturn
in those areas has affected some financial PR agencies, but others
remain confident that companies will continue communicating their story
to the financial community through thick and thin.
But in case a downturn becomes a reality, consultants have been looking
at strategies to secure their business.
Popiolek says Gavin Anderson, as a global agency with various sector and
area specialities, is in the relatively luxurious position of being able
to diversify away from financial PR should there be a more significant
downturn: 'Our diversity and a global network of offices does help.
We've recently been introducing public affairs into our London office
and we've definitely seen a bit of growth in that area.'
Cook believes that a downturn can teach some salutary lessons to
financial PR players. 'Anyone who has taken over such a business in the
depths of a marketing services recession quickly realises that no-one
owes you a living in a recessionary climate. You have to fight for every
pound of revenue.'
He believes a downturn can teach CEOs to be more conservative: 'It
teaches you to save the pennies rather than splash out on overheads and
to be more commercial in your outlook. This stands you in good stead in
the good times providing you don't become so cautious that you lose the
ability to take risks.'
And Popiolek goes on to point out that when - and, indeed, if - times
get more challenging, then companies will need more strategic financial
PR advice. Helping board directors shape their messages and reappraise
their stories in times of difficulty can help agencies get through the
It's something virtually every agency was keen to stress they were
capable of doing - and where their business lies. Routine,
run-of-the-mill financial PR calendar work is old hat, apparently.
Strategic positioning is where the future lies and that, if the
consultants are to be believed, is just as relevant in a downturn as it
is when the financial markets are roaring ahead.
'Financial PR as it is traditionally known is a dying business,' says
Cubitt Consulting managing partner Simon Brocklebank-Fowler. 'Higher end
strategic positioning consultancy is what companies want and that's
where we've put our business. An investor focus is a strong part of that
Brocklebank-Fowler believes that agencies that can offer clients real
access to the institutional investor market will be absolutely fine
during a downturn. Whereas those agencies that offer traditional
financial PR - access to 'sell-side' analysts and journalists - will
It is more about a mix of investor relations and financial PR.
'Companies want buy-side (institutional investor) access in good times
and bad. Those agencies with sophisticated buy-side capability are doing
well because they can go out and get those clients in front of
investors,' he says.
Cook agrees with the need for higher level, strategic PR advice: 'A
market downturn or recession really focuses senior management minds on
the value they get from their PR advisers. Companies under pressure
become more discerning about their choice of PR adviser and,' he notes
with a marketing flourish 'that tends to work in our favour'. Maitland
adds that the need for strategic, board level financial PR advice
definitely increases in a recession: 'Economic slowdown p eriods like
this do create strategic issues within companies that can benefit from
Like many others in the industry, Maitland believes that financial PR
has moved up the corporate ladder since the last recession. He doesn't
expect it to be as badly impacted this time around should a real
recession start to bite. 'It's definitely seen as playing a more
significant role than it did in corporations ten years ago.'
That thought is echoed across the companies themselves, with most
reporting no intention whatsoever of cutting back on financial PR or
investor relations budgets at this stage of the economic cycle. Few want
to run the risk of antagonising investors by suggesting they are
directly cutting back on communications.
Most companies suggest it is business as usual on the IR front - even in
the technology sector, which has been harder hit than many. If anything,
the downturn calls for more IR work, not less.
Hugh Morrison, group managing director of Financial Dynamics parent
company BCI, notes that when companies enter a difficult period in their
sector, there is often a 'flight to quality' in terms of the advice they
seek. Not surprisingly then, that Morrison quickly places his agency in
the 'quality' bracket that benefits from such moves.
Lessons learnt from the last recession certainly point to the fact that
those companies which maintain solid communication programmes during the
bad times find it much easier to bounce back to cash-in on the good
Indeed, despite the downturn in the technology IPO sector, says
Morrison, FD is 'exactly on the money' for where it was predicting it
would be at this stage: 'That implies that clients are still investing
in their reputation.'
The agency, he admits, is also in the enviable position of being large
enough to diversify into other areas of expertise. He adds that the
bigger technology companies are still maintaining solid financial PR
programmes, with everyday communication being unaffected by the jitters
at the new listing end of the market.
And Morrison believes that the IPO market is simply on hold, with many
still considering Quarter 3 or Quarter 4 stock market listings. 'The
others are big enough to know that they should continue to spend on
their communication in a downturn because that is when reputations are
really built. The last thing you should do is sack the messenger,' he
DOWNTURN? WHAT DOWNTURN?
Financial analysts on both sides of the Atlantic can't make up their
minds whether we are entering a recession or not.
Julie Hudson, senior strategy analyst from the global sector strategy
team at UBS Warburg in London, points to the fact that certain areas are
only just feeling a slowdown whereas others think they are in severe
Some companies are beginning to use the downturn in global sentiment to
pick up corporate bargains while others are simply cutting back in some
areas but extending businesses in others. 'The technology and telecoms
sectors may have invested in too much capacity in recent years,' she
says. 'They need an extended period of consolidation but that doesn't
The perspective is no clearer in the US. A few weeks back Richard
Berner, an economist at Morgan Stanley Dean Witter, was sure that a US
recession had arrived - and was here to stay. By late May, however, he
had changed his mind: 'After a mild economic downturn, we expect that
the economy will begin to recover in the fourth quarter and accelerate
smartly in 2002.'
US firms on the other hand have been reporting lower earnings left,
right and centre. Yet there does not seem to have been much of an impact
on investor relations or financial PR spending as yet. Deals have been
put on hold and there has been some tightening of belts, report those in
the market in the US - but firms are still getting out there and telling
their story to Wall Street. One optimistic observer of the US market
suggests that IR spending may actually have increased while other
marketing budgets decline, but only time will tell if such optimism is
M&A ACTIVITY BREAKDOWN BY QUARTERS 2000-2001
Q1 2000 Q2 2000 Q3 2000
No of pounds No of pounds No of pounds
deals bn deals bn deals bn
Acquisition/Merge 852 244.3 1,053 379.1 1053 249.9
Minority Stake 423 22.4 539 41.6 617 35.4
IBO 49 8.5 72 11.1 65 17.6
MBI/MBO 40 1.2 42 0.7 44 0.6
Total 1,364 276.4 1,706 432.5 1,779 303.5
Q4 2000 Q1 2001 Q1 2001 vs Q1 2000
No of pounds No of pounds No of pounds
deals bn deals bn deals %+/- bn %+/-
Acquisition/Merge 958 309.7 855 191.1 0.1 -21.8
Minority Stake 706 43.3 649 32.2 53.4 43.8
IBO 48 10.7 52 12.5 6.1 47.1
MBI/MBO 44 0.6 44 1.5 10.0 25.0
Total 1,756 364.3 1,600 237.3 17.3 -14.1
Source: Zephus Corporate Finance Knowledge (www.zephus.com)