FINANCIAL: Receding opportunity? - As the City talks downturn, Richard Carpenter asks if financial PR is about to catch a cold

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

recent weeks.

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

share price.'

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

budget untouched.'

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

hard times.

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

probably struggle.

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

outside advice.'

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



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

apply everywhere.'

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

well founded.


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 (

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