Analysis: Murphy keeps his goal in sight after takeover

After two years attempting to build a PR group by acquisition, hatch-group switched direction this week when it announced its own sale. Mark Johnson reports on what the deal means.

Industry veteran Michael Murphy launched hatch-group in June 2001, with an aggressive acquisition plan that he projected would springboard the venture into the UK PR Top 10 in three years with a fee income of £50m. But two years on, and £45m short of his target, few of his plans seemed to have come to fruition - hatch reported only £4.7m in fee income last year and has just two acquisitions under its belt.

This week, the firm announced it is to be gobbled up itself. Huntsworth plc, a publicly-listed PR holding firm with a voracious appetite for agencies, announced it would acquire hatch-group for an initial consideration of £1.635m, plus the procurement of its outstanding debt for a further £1m.

The deal leaves Murphy in place as chief executive and sees hatch's brands remain unchanged, as with all of Huntsworth's previous acquisitions. But many market watchers are left wondering: what happened to the aggressive plans for hatch?

Huntsworth and hatch shared similar strategies and ambitions. Both are essentially holding companies using capital to execute a 'buy and build' strategy. Huntsworth CEO Lord Chadlington says the hatch deal, and the opening of its first European office in Madrid - coming as they do while the PR and marketing markets are in decline - show he remains positive about international expansion.

'We want to build a global group. We've tried to meet market expectations by delivering growth,' he states.

Contrary to those expectations, even Murphy, with a long and respected track record in management, has been stymied by the declining market and proved unable to meet some of the more ambitious goals he set the firm.

hatch provides a salutary lesson in funding to all holding companies planning swift expansion. Despite a notional war chest of £20m in VC backing, the group found it hard to move beyond its first acquisition, London media specialist MacLaurin, which cost £3.5m when it launched the new venture in June 2001.

Murphy went on to launch hatch operations in Scotland and the Midlands, as well as hatch public affairs and Prospero Financial in London. But organic growth would never achieve his ambitious targets, and the capital he had agreed for his expansion plans seemed less forthcoming as time went by.

'None of us could anticipate the rollercoaster ride of the market two years ago, with clients cutting back,' says Murphy. Funding was always a problem when it came to acquisitions. The Royal Bank of Scotland provided debt facilities, while equity came from VC shop Bridgepoint Capital.

Following the MacLaurin deal, the acquisition trail cooled, with hatch only buying small tech firm Connors Communications for an estimated £300,000 last October. Protracted talks with celebrity expert The Outside Organisation came to nought. Talks with a major European PR network, believed to be worth around £10m, also folded. The deal would have formed the main plank of hatch's European strategy. In both instances, funding proved problematic.

Then came the departures of MacLaurin Media chairman Brian MacLaurin and MD Ian Monk in March (PRWeek, 27 March), who have subsequently set up their own separate PR operations.

The industry grapevine began to buzz with rumours Murphy had changed strategy, opting to hire managers who could grow business, rather than buying existing operations. Murphy denies this: 'We continue in trying to attract the best people, but we haven't ruled out acquisition.'

Instead, the Huntsworth deal is spurring Murphy to pursue anew his plans to build by acquisition: 'Huntsworth is a plc,' says Murphy. 'They have the ability to acquire by paper.'

Chadlington says: 'I spent a long time courting Michael. It goes back to when he was running PR Consultants in 1989. He was a brilliant manager.' Chadlington subsequently acquired that firm, which still exists in the form of Weber Shandwick Scotland.

Of course, Chadlington and Murphy are old colleagues from the former's first creation, Shandwick International. Murphy left Shandwick, where he was deputy global CEO, as part of a shake-up in 2000. His return to the Chadlington fold is less of a surprise in that sense, as other Shandwick management names such as former Asia-Pacific CEO Alison Clarke have also made that leap.

Murphy is unlikely to relinquish his ambitions easily, and Chadlington is likely to respect that. Just as Chadlington nods in that direction, Murphy says: 'I'm confident we (hatch) can rekindle our ambitions in Europe.'

For the time being, however, Huntsworth is buying a firm that will help it improve its expertise in IR, public affairs and tech PR. hatch's chances of reaching the UK Top 10 in another year are slim. But Huntsworth's backing should at least provide some comfort on the journey.

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