British businesses often look wistfully across the Atlantic and
envy their US counterparts' access to venture capital - and PR companies
have had more cause for jealousy than most.
Venture capital investment in the UK's economy is smaller than in the
US, which has steadily managed to inject four times as much investment
capital per dollar of GDP into its businesses than the UK. PR
specialists have rarely been able to count on more than a few crumbs
from the relatively small pie.
In recent weeks, however, there have been signs that this could be
changing and that increasing numbers of PROs might soon find themselves
recipients of venture capitalists' largesse.
As reported earlier this month, industry veteran Michael Murphy has
secured an initial pounds 20m to form a new company, Hatch, and finance
acquisitions across the UK and Europe (PRWeek, 1 June). The bulk of the
funding came from Bridgepoint Capital, a European private equity firm
with pounds 2bn under management.
A six-strong team bought Consolidated Communications from CEO and
founder Alastair Gornall this week, with funding from Close Brothers VCT
and Lloyds TSB bank. Close VCT Management took a pounds 2m stake in the
Venture Capital has made only occasional inroads into the industry
3i invested in the start-up of Shandwick nearly 30 years ago and has
made some small investments since - including backing Gornall's launch
But the scale of funding made available to Murphy has never been
The British Venture Capital Association estimates that the media and
photography sectors only accounted for four per cent of the pounds 6.4bn
private equity invested in the UK last year.
As far as Bridgepoint and Close Bros VCT were concerned, however, there
was no reason to steer clear of PR. Bridgepoint director James Murray is
cagey about discussing whether future forays into the PR industry will
occur, saying only that his priority is to identify potential
acquisitions for Hatch.
Although Bridgepoint has invested in other marketing services companies,
this was its first foray into PR.
'One element we look for is that the sector has certain growth
characteristics, because we typically take a three or five-year view on
the prospects for the company,' Murray says. 'We've identified PR as one
sector with particularly strong medium growth prospects - which we've
calculated in double digits.'
There is, of course, ominous talk of an economic downturn in the air,
but that did not appear to colour Bridgepoint's view. 'No company is
recession-proof,' says Murray. 'But if you look at what happened in the
past couple of recessions, PR fares better than advertising.
'We have anecdotal evidence that clients are less likely to cut PR
budget than ad budget when times are tough,' he adds.
Close VCT Management MD Patrick Reeve agrees. 'PR is taking a larger
slice of the cake,' he says. 'It's becoming a more mature industry.'
Like Bridgepoint, Close VCT had not previously invested in a PR company
and has no immediate plans to do so again. 'One's a good number at this
stage,' Reeve says. 'We want to watch it take off.
What attracted us about Consolidated was that they have a good client
base. Most importantly, they had a stake in the business - that
demonstrates the kind of commitment we want to see.'
PR is, after all, a 'people business', relying on intellectual
It is precisely this fact that causes some VCs to blanche at the thought
of investing in the sector. Jon Moulton, managing partner at leading
private equity company Alchemy Partners, put it most colourfully when he
told one newspaper: 'I have seen people trying to build up people
businesses - it is like trying to build a skyscraper out of eels.'
According to British Venture Capital Association chief executive John
Mackie, Moulton is unlikely to be alone in his views.
'It's this idea that at night your assets walk out of the building. They
might be tempted with higher offers, decide they don't want to work as
hard or go home,' he says. 'These types of business are difficult to
back because you're dependent on very mobile assets. Some houses will
invest because maybe they have a lot of confidence in the people running
the business, others won't.
'Perhaps larger agencies are more likely to attract investment because
then you're also buying into a brand - that way you have more
protection,' he adds.
Murray is adamant there is no reason to treat a PR firm any differently
from another business. 'When we invest in any company we're not just
making a judgement about the sector, we're making a judgement about the
people we're going to back,' he says. And he believes that other equity
houses may start to see things the same way.
'If this goes well, it might be the template for other private equity
firms to come in and do the same,' Murray says. 'There's certainly
enough corporate activity going on in the sector and the consolidation
that's going to take place in European PR will be particularly
attractive. When a sector decides to consolidate, you'll find private
equity houses aren't far behind.'