News analysis: Accelerating IPO market promises better times for City PR

The London Stock Exchange could be set for a bumper year of new listings, further boosting the recovering City PR industry - but also threatening "collective madness".

IPOs: TSB is one of the companies tipped to choose a market listing this year
IPOs: TSB is one of the companies tipped to choose a market listing this year

Accountancy giant Deloitte suggested to The Telegraph that this year could bring up to 100 flotations as both domestic and international firms seek to take advantage of restored investor appetite.

It is believed there were a significant number of financial PR agency pitches during the back end of 2013, suggesting the IPO pipeline is already straining at the start of this year.

The City PR has had to adapt to the dearth of IPOs since the global economic crash, becoming far less reliant on project fees from deal-related activity.

Nonetheless, the uptick in the IPO market will provide a material fillip, both in project fees for advising on the listing itself and in the promise of retained contracts with the newly listed firm.

Last year saw a revival in main market listings especially, with 15 companies raising £5.3bn compared to six companies raising £1bn in 2012, according to Deloitte.

Deals included the privatisation of Royal Mail, which used Tulchan Communications and Brunswick (the Government used Citigate Dewe Rogerson to advise on the divesting of its stake), and the listing of tourism giant Merlin Entertainments, also advised by Tulchan.

Similar high-profile names seem set to come to market in 2014. Lloyds’ spun-out bank TSB, retailer Poundland and insurance and travel firm Saga are among those tipped to be preparing to float.

Deloitte suggested there could be as many as 20 main market listings this year, easily surpassing even the significantly improved performance of last year.

Such plum opportunities are large enough to impact any agency’s bottom line. One City source suggested that a mid-market IPO would customarily net its PR adviser between £100k and £200k for the project, while fees can reach around £500k for a more complex or high-profile deal.

One reason such deals remain profitable for agencies is that they are increasingly asked to handle comms with a wide variety of stakeholders – potentially including internal messaging and government comms as well as financial media and the investor community.

Additionally, internationally minded City firms could benefit from the better IPO conditions outside the UK. Notably in the US, on the back of the successful Twitter float last year, a number of other large tech firms, including Dropbox, Spotify and Pinterest, are said to be eyeing listings this year.

However, IPO fees – like many other areas of PR – have also come under pressure due to fierce competition among agencies.

John Waples, head of FTI Consulting’s strategic comms business in the UK, commented that pricing has become "more commoditised" and there has been downwards fee pressure on typical IPOs, forcing agencies to offer differentiated services.

Writing for PRWeek, Tulchan founder Andrew Grant said competition in the market is such that agencies are offering to work on IPOs for free just to secure the retained fee at the end of the process.

"As the IPO market has sprung into life, it is like the hatching of the mayfly," Grant said. "A collective madness seems to overtake our industry and fee levels collapse. It’s not just the young start-up firms that are doing it – some big old trout, who should know better, are joining in."

This competitive pressure is accentuated by the fact that M&A activity has not kept pace with the uptick of IPOs and there seems little prospect of dramatic improvement in 2014.

Paradoxically, an explosion in IPOs could help keep the M&A market subdued if firms, particularly large private equity and buyout players, prefer to exit by stock market flotation rather than through trade sale.

The increase in new listings is a welcome boost to the City PR sector, but will do little to change its direction towards more holistic comms services focused on corporate reputation.

As PRWeek’s investigation into the future of City PR suggests, the IPO recovery is the icing on the cake, but by no means the base of the recipe.

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