ANALYSIS: Investor Relations - Economic slump is also hittinginvestor relations

Highly profitable, highly esteemed, highly secretive, IR agencies

enjoy an almost mythical status in the PR world, and continue to be

courted by ad-agency holding companies. But behind the facade, they're

feeling the pain, too. Robin Londner and Adam Leyland report

It's become a popular misconception that IR is recession proof. For five

years, the investor relations business could do no wrong, and a

combination of high margins, extraordinary growth, and tight-fisted

secrecy has given the IR agencies an almost mythical status. Add to that

the constant courting of ad agency conglomerates, enamored by the

influence they hold with chairmen and CEOs, and the prodigious sums that

they continue to offer to the few remaining independents, and you could

be forgiven for thinking that IR was a slam dunk.

But while the departure of David Walke from Morgen-Walke was explained

by a personal desire to pursue an undisclosed "entrepreneurial dream,"

the badly kept secret of Morgen-Walke's indifferent performance over the

last 18 months provides a rarely seen chink in the normally impenetrable

IR armor. And the further you probe, the more you realize the problems

that a faltering economy has provided.


Of course, material announcements - the bread and butter of IR - have

provided a safe haven in the economic storm. Posting earnings results,

profit warnings, layoffs, and other crises requires constant


This is especially so because this is the first recession in which IR

officers have had SEC Regulation Fair Disclosure, which requires US

public companies to disclose all material information through a press

release or Webcast. Business Wire, for example, reports a tenfold

increase in earnings guidance releases in the first six months of Reg

FD. Meanwhile, PR Newswire reported a 300% hike in the number of

companies Webcasting their financial results because of Reg FD.

Indeed, as BW COO Cathy Baron Tamraz reports, FD has helped cushion the

PR news-wire services from the economic slowdown. Press release volume

is down 10%, she says, but "if it weren't for FD and the increase in web

advisory press releases and earnings forecasts, coupled with some

initial confusion as to what information had to be released, I think we

would have seen a bigger drop in business."

Whither the IPOs?

But no one in IR makes a lot of money from press releases, and it's the

loss of the lucrative IPOs that has really hurt the IR sector. After a

flood of Nasdaq offerings, analyst and shareholder outreach has

diminished as VC-funded tech firms have either gone out of business or

cancelled their stock market listings. And as Financial Relations Board

chairman Ted Pincus says, "The IPO market has dwindled to a precious few

companies, and obviously, IPO companies are among the foremost that are

seeking IR help, always."

The statistics speak for themselves. In 2000, 406 IPOs, many by

technology companies or tech spin-offs, raised a record $97

billion, according to figures from Renaissance Capital. So far in 2001,

only 53 companies have filed for an IPO, earning just shy of $26

billion. While there is some debate over an improvement in the quality

of IPO offerings, the sharp decrease in quantity has pummeled what used

to be an easy IR moneymaker.

Pincus also admits that his firm, like all others, was burned by dot-com

companies that ran out of cash. "IR may not have the same degree of

sensitivity as PR, but its health and buoyancy still relate to a

company's ability to pay," he says.

M&A meltdown

Also affecting the IR market is the decline of high-margin, high-end M&A

work. It's still there, of course. Sard Verbinnen is reportedly "pulling

its weight" for Citigate following its sensational deal. And Joele Frank

recently reported that M&A business was "if anything better than last

year" (PRWeek, July 9), when her new shop, from a standing start,

overtook her old IR agency (Abernathy MacGregor) to become the

third-largest player on the IR M&A scene.

But the evidence of the new marketplace is irrefutable. According to

Mergerstat, there have been 66 deals valued at $14 billion in

2001 (at an average of $212 million). In 2000, there were 160

valued at $116 billion (at an average of $725 million).

Added to that is the fact that hostile takeover bids - the biggest

moneymakers - have all but disappeared. "If a deal is all over in 72

hours," says one IR CEO, "where's the money to be made?"

"There's only two practices that are hurting," adds the CEO of one

multi-practice agency. "Hi-tech and investor relations." It stands to

reason that even if the biggest, most prestigious shops are keeping

busy, further down the chain, IR agencies are being hit. But the CEO

says, "If the Keksts and the Sards say they've not been hit, they're


Bright spots

Still, there are bright spots. Nick Miles, CEO of UK-based Financial

Dynamics, who heads up Cordiant's IR operations (which consist of FD and

Morgen-Walke), says US IR is still strong in crisis communications and

corporate restructuring. He admits that the stock market has pulled IR

into what he calls a hiatus of confidence, but he believes that the US

economy is as responsive upwards as it is downwards.

"The practitioners have to look at providing value to tomorrow's

customers," says Miles. He advises IR agencies to move their focus from

slow markets (such as IPO and M&A) to counseling companies on

longer-term ideas, assisting with global benchmarking, and gaining

market perspective.

Hollis Rafkin-Sax, senior MD and GM of Edelman's financial practice,

agrees. Rafkin-Sax says midyear to midyear, the financial practice has

tripled its business from last year. And while she stresses that the

100-person international practice continues to do some IPO work, the

definite increase has been in crisis counsel. "From our perspective,

management is a lot more available and a lot more willing to listen in

bad times than in good," says Rafkin-Sax. "In good times, a lot of

people have a sense they can do it on their own, but there's been a real

clamoring for lessons to guide companies through these tumultuous


A year ago, Rafkin-Sax launched a restructuring group, which she says

has contributed 10% to the practice's new business. Restructuring

communications is a complex, full-fledged communication effort, she

says, focusing not only on the investment community, but also on

employees, vendors, and customers.

Top IR pros say they can weather the downturn, but even that is a

departure from the previously cocksure pose of most IR practitioners. It

seems like even the IR business is waiting on better times.

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