GUIDE TO IR: Investor relations: agencies - In a sector where dealsare the main currency, specialist boutique firms rule

A little over a year ago, it seemed like every PR agency wanted to

build, buy, or pretend to have an IR department. The dot-com surge had

sent the NASDAQ up 85.6% to a March 2000, all-time high of 5,048, and IR

could tap into the lucrative IPO market, as well as pitch stories to the

financial media at a higher price than PR services could.

All that, of course, is now just a fond memory.

Some IR departments built to take advantage of boom times have busted,

such as Minneapolis-based LaBreche Murray Public Relations, which

started an IR department in late 2000. The firm now refers IR clients to

a sole practitioner, explaining that a slow market led it to scale back

its own IR efforts.

But tried-and-true IR houses claim they continue to thrive, with some

actually saying they are now invigorated to earn their paychecks from

thoughtful clients with workable business plans.

The way things work

Power in the IR agency world is traditionally based on the volume of

mergers and acquisitions that can be negotiated. The more deals an IR

firm completes, the greater the firm's impact on the business world -

and the greater the business world's impact on the firm's bottom line.

Deals are project-based work, but can be performed for a retainer


A good way to determine which firms are deal high fliers is Corporate

Control Alert, a report detailing the participants and advisors for US

corporate deals of $150 million or more (see sidebar).

Some IR firms are well-known and well-regarded, but rarely complete the

high-level deals of a Kekst or Citigate. These firms are active in the

retainer-based arms-and-legs work of investor meetings, earnings

reports, and financial media and analyst outreach. Examples are

Morgen-Walke and the Financial Relations Board (FRB), which has served

as the IR department for BSMG (now Weber Shandwick Worldwide) since the

agency acquired it for $33 million in January 1999. In PRWeek's

2001 agency rankings, Morgen-Walke had 2000 revenues of $26.8

million, making it the only specialist IR firm listed in the top ten for

corporate practice revenues.

Is size everything?

But Morgen-Walke is an outlier. Few IR firms take part in PR rankings,

creating confusion over IR agency trends: Is high-level work

concentrated in small shops? Do multipractice global agencies provide

real competition to this specialized niche of financial


According to Louis Thompson, chairman and CEO of the National Relations

Institute (NIRI), Fleishman-Hillard has the largest IR department, in a

tradition of IR work by large, full-service PR firms that dates back to

the M&A wars of the 1980s. But Thompson says he anticipates a

proliferation of smaller shops will be more successful in today's

economic downturn.

Close to 700 firms are NIRI members, but with 15% of NIRI's 5,000

members identifying themselves as consultants, that places the

population of most firms at just over one person.

"Smaller firms are more flexible," says Thompson, who says some big

firms will not operate on a project basis. "But retainer business is

down because if your corporate budget is being slashed and you look at

your IR budget, and your IR budget includes a hefty retainer, that is

sometimes where companies are cutting."

Big agencies do provide IR competition, though. With larger staffs, for

example, they can provide services at all points of the billings


According to PRWeek's 2001 agency corporate rankings, Fleishman-Hillard

led corporate revenues with $90.9 million in 2000. Hill &

Knowlton followed with $83.1 million, Burson-Marsteller with

$67.3 million, BSMG (now WSW) with $46.5 million, and

Citigate with $31.3 million to round out the top five.

Fleishman SVP and senior partner Al Bellenchia heads up the firm's

125-person, eight-year-old financial communications practice. He says

the size of his specialized staff coupled with the size of the agency

gives clients a breadth of resources.

"What we're able to do, certainly more often than the niche firms, is

bring people who have vast experience in specific industry segments

together with people who understand how the capital markets work," says


However, some IR practitioners say a big PR agency could never

understand the complexities of IR. Diane Perry, MD at Gavin Anderson,

left WSW's IR practice five months ago, and says she is delighted to be

at a specialty firm again.

"Here, I step out of my door and everyone understands what I do for a

living," says Perry. "In a big agency environment, they don't

understand, so the IR people are considered excess baggage."

If you buy it, they will come

As a separate communications discipline with its own terminology, rules,

and audiences, it isn't always easy for a PR company to move into


Some large PR agencies have purchased and kept the brand names of small

IR shops, allowing them to offer an IR component that retains the cache

of a specialty shop. Citigate has done this with both Sard Verbinnen and

Dewe Rogerson. Manning Selvage & Lee is trying to reap similar success:

this past January, the PR agency bought IR firm The Pondel/Wilkinson

Group, which it intends to leave with its identity.

While some firms choose to home-grow an IR capability, most choose

either to buy talent or an entire shop. Because IR requires knowledge

and contacts in the financial world, most IR practitioners say it makes

sense to buy rather than grow IR capability from scratch.

One example of a successful IR acquisition is FRB. The firm handles

day-to-day IR needs, while parent WSW handles crisis and other corporate


Naysayers claim FRB has shrunk in staff and prestige since the

acquisition by BSMG (now part of WSW) in January 1999, but admit that

staff cuts have kept pace with the downsized US economy.

Because acquired IR agency revenues are nearly always folded into those

of the corporate parent, it is difficult to accurately measure the

financial success or failure of an acquisition. While Ketchum's

corporate practice was in PRWeek's 2001 top ten with $26.1

million in revenues, IR experts say those numbers come from other

Ketchum corporate offerings, such as corporate reputation and crisis

management, not IR.

To grow its IR capability, Ketchum bought Greenwich, CT-based

nine-person IR firm Amen and Associates in March 1992. Today, Ketchum's

IR practice has eight employees, one fewer than the group first


Indie blockbusters

Many IR shops, however, prefer to handle mergers and acquisitions rather

than become part of a merger or acquisition. Of the leading high-level

IR shops (see table, next page), Kekst and Joele Frank Wilkinson Brimmer

Katcher are both independent, Citigate Sard Verbinnen is owned by

Incepta, while Abernathy MacGregor was purchased by Havas last year.

Compare that 50% independence figure to the leading PR shops as ranked

by PRWeek: Fleishman, WSW, Burson, Hill & Knowlton, and Edelman. Just

20%, or one firm (Edelman), is independent.

One reason for an IR firm to remain independent is, like law firms and

accountancy firms, many independent IR shops cut partners a percentage

of annual earnings. Those bonuses can be as high as 100% of salaries,

which are often higher than salaries at non-independent IR shops owned

by publicly traded companies. Sitrick & Company, for example, hired

investment bank Wasserstein Perella to investigate potential offers, but

then took itself off the market in March. Chairman Michael Sitrick said

independence was "in the best interests of our clients, employees, and

the firm."

Profit prophets

Sacrificing profits, if not profit margins, is one thing nearly all IR

firms have been forced to do since the once milk-and-honey IPO market

turned rancid. But during PR's IR buying spree last year, "recession

proof" IR firms were said to weather the economy better than PR

agencies. Did IR misrepresent itself?

The simple answer is no. Bankruptcy work is surging, with sources at

Sitrick saying the bankruptcy expert firm has fielded between 20% and

25% more Chapter 11 filings in August of 2001 than it did in the same

month a year before. To stay competitive, other agencies are beefing up

their services. For example, Morgen-Walke has added annual report,

advertising, and press kit development, as well as expanded its

communications program beyond financial media to include more broad

corporate business media relations. Stock market delistings have become

a hot sector for Lambert, Edwards & Associates in Grand Rapids, MI.

Principal Brian Edwards says there were 279 NASDAQ delistings from

January to July, 2001, versus 240 for all of 2000.

"It's a lot of hard work talking to shareholders about a bad quarter,"

says Edwards. "But the blocking and tackling IR activities are just as

critical to maximizing shareholder value. It's the IR firms that are

willing to get their hands dirty that will be in increasing demand."

IR agencies are tight-lipped about staff or revenue reductions. Most say

business is up, since pricey bankruptcy work is just as lucrative as

pricey IPO work. Earnings releases - or warnings - are also up,

prompting Cathy Baron Tamraz, COO of Business Wire (BW) to jokingly

refer to the raft of pre-earnings announcements as "confessional

season." In the first six months of SEC Regulation Fair Disclosure,

which took effect October 23, 2000 and required public companies to

publicly disclose material information, BW reported a tenfold increase

in earnings guidance releases. Those releases have been a small but

stable source of revenue to IR shops, which reap larger profits by

explaining the new rule to recession-wary companies frightened they may

accidentally violate the new rule.

Another factor keeping IR agencies relatively healthy is increasing


Online trading has slowed, but is still a factor. Institutional

investors try to nab good investments regardless of geographic borders.

The introduction of the Euro and the European Union (EU) have

streamlined investing in Europe. Rob Shimmin, MD of Ogilvy PR's global

corporate practice, says, for example, that simply linking an IR story

to an EU story out of Brussels can give the story instant play in 15

member countries. An increasing number of funds are also interested in

Latin American companies, driving IR business to South America. Dual

listings on foreign and US markets are also a hot topic, especially for

companies in the UK, Hong Kong, and Israel.

Opinions are divided on whether a possible worldwide economic slowdown

would speed or slow international IR. Like many other functions in IR,

it would depend on whether an agency specializes in IPO or financial

crisis work. One thing, however, is certain: IR, which was considered

PR's Teflon brother when the economy was good, has proven it can still

thrive in times that aren't so healthy.


Measured by numbers of mergers & acquisitions arranged between February

6-March 5, 2001

Kekst and Company 81

Citigate Sard Verbinnen 35

Joele Frank Wilkinson 33

Brimmer Katcher

Abernathy MacGregor Group 25

Burson-Marsteller 14


Company Location no. of Employees

Abernathy MacGregor Group NY/LA 75

Breakstone and Ruth

International New York 20

Brunswick Group London/NY 300 worldwide

Citigate Dewe Rogerson New York 1000+ worldwide

Citigate Sard Verbinnen New York 50

Compton Consulting Group Boston 6

Corporate Communications Nashville, TN

Dix & Eaton Cleveland 75

Edward Howard & Co. Cleveland/Akron/

Columbus/Dayton, OH 50

Emmanuel Kerr Kilsby Stamford, CT/NY/Dallas 16

Financial Relations Board* New York (HQ), others 1,200+

G.A. Kraut & Co. New York 18

Investor Focus

International London 3

The Investor

Relations Company Des Plaines, IL 6

Jaffoni & Collins New York/Boston 13

Joele Frank Wilkinson

Brimmer Katcher New York All

KEI Advisors Upstate New York 8

Kekst & Co. New York 70

Lippert, Heilshorn

& Associates New York, San Fran, LA 50

Makovsky & Co. New York 70

Morgen-Walke Associates New York (HQ),

San Francisco, others 150 worldwide

Noonan Russo New York, London,

San Francisco 90

Raw Communications London/NY/Paris/

Munich/Hong Kong/

Stockholm 100 worldwide

Robinson Lerer

& Montgomery New York 130

Sitrick & Company LA/NY/DC 65

Sloane & Co. New York 25

Taylor Rafferty

Associates NY/London/Tokyo 70 worldwide

Torrenzano New York All

William Mills Agency Atlanta, GA 23

Company IR Activities (see key) Specialties

Abernathy MacGregor

Group All

Breakstone and Ruth

International I, F, Ana, Inv, FMR Research, messaging

Brunswick Group M&A, I, F, Ann, B, L,

Ana, Inv, FMR, Crisis


Citigate Dewe Rogerson M&A, I, F, Ana, Inv,

FMR, Distressed debt


Citigate Sard Verbinnen All

Compton Consulting Group F, Ann, FMR

Corporate Communications M&A, I, F, Ann, B, L,

Ana, Inv, FMR

Dix & Eaton M&A, I, F, Ann, B, L,

Ana, Inv, FMR Perception surveys

Edward Howard & Co. M&A, I, F, Ann, B,

Ana, Inv, FMR Surveys and research

Emmanuel Kerr Kilsby M&A, I, F, Ann,

Ana, Inv, FMR Online distribution

of economic analysis

Financial Relations

Board* All

G.A. Kraut & Co. M&A, I, F, Ana, Inv Perception studies,

staffing/training IR

depts., roadshows

Investor Focus

International F, Ana, Inv, FMR International IR

The Investor

Relations Company I, F, Ann, Ana,

Inv, FMR

Jaffoni & Collins All Perception surveys,

strategy development

Joele Frank Wilkinson

Brimmer Katcher

KEI Advisors M&A, I, F, B, L,

Ana, FMR Inv

Kekst & Co. M&A, I, F, B, L,

Ana, FMR Inv, messaging for


Lippert, Heilshorn

& Associates M&A, I, F, B, L,

Ana, FMR Inv

Makovsky & Co. All Strategic counseling,

market intelligence

Morgen-Walke Associates M&A, I, F, Ann,

Ana, Inv B, FMR

Noonan Russo M&A, I, F, Ann, L,

Ana, Inv, FMR Healthcare

Raw Communications M&A, I, F, Ana,

Inv, FMR Video distribution

Robinson Lerer

& Montgomery All

Sitrick & Company All

Sloane & Co. M&A, I, F, B, L,

Ana, FMR Inv

Taylor Rafferty

Associates M&A (cross border),

I, F, Ana, FMR Inv


William Mills Agency M&A, I, F, Ann, L,

Ana, Inv, FMR

M&A: Mergers and Acquisitions I: IPOs F: Financial Announcements Ann:

Annual Reports B: Bankruptcies L: Litigation Ana: Dealing w/ Analysts

Inv: Strategic Targeting of Investors FMR: Financial Media Relations

Source: PRWeek/Impulse Research *Owned by BSMG

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