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.
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
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
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.
Join the club.