Financial league tables: City advisers trade on quiet optimism

Brunswick loses its lead in deal value table after four years, but overall volume is up. Richard Carpenter says the top financial agencies’ figures should herald a positive outlook

The financial PR sector may not be experiencing a boom, but cautious optimism has returned. And in contrast to recent years, the spoils are being spread more evenly across the board. This year's PRWeek financial league tables reveal the leading agencies jostling for position but taking smaller slices of the deal pie and leaving more for smaller players.

The tables rank financial agencies according to the number and value of deals on which they advised between September 2004 and August 2005. Based on data provided by Zephyr, the deals included in the rankings must involve a UK-based bidder, vendor or target company. The data includes all types of financial deal, including M&As and initial public offerings (IPOs). Agencies are then split according to the activity in which they are involved, giving rankings for areas such as hostile bids, private-equity-related deals and IPOs.
League overview
The larger agencies have experienced a slow return to traditional M&A work, with one or two notable IPOs here and there. Several agencies just below the top rankings have been buoyed by a continued and steady flow of private-equity deals. And agencies specialising in smaller stocks have benefited from the ongoing success of the Alternative Investment Market (AIM).

'It's definitely been a much busier year as far as M&A work goes,' says Charles Watson, chief executive of Financial Dynamics – a comment perhaps inspired by 'merger Monday' (7 November), which included Telefonica's £17.7bn takeover of O2 and which brought new-found cheer to the City.
 
'There's been no let-up in private-equity work,' he adds. 'Indeed, many of those deals have got bigger. We've also seen a return of the conventional trade buyer to the market [companies looking to boost their business rather than simply engineer a financial deal]. All in all it's been fairly positive.'

It is worth noting the decline of the lucrative hostile bid market – there were only eight (see table, p31). 'Directors are more aware of their fiduciary responsibilities,' says Watson, implying they recognise the need to take shareholders' interests into account when deciding whether to oppose or support a deal. 'Bids will only be hostile if the bidding directors are unequivocally seen to be undervaluing a firm.'

The biggest news in this year's rankings is Brunswick Group being knocked off the top of the 'by deal value' table by Finsbury for the first time since 2001 (see above). That said, it was a close-run thing. Finsbury worked on £48.7bn worth of deals during the period, while Brunswick notched up £46.4bn.

Of course, these tables do not take account of non-UK deals, an area in which Brunswick would be likely to retain the upper hand. Nor do they include some of the largest deals of the year, such as the O2 bid, which were announced after the league tables were compiled.

Meanwhile, in the 'by deal number' table, Finsbury drops to seventh, while Brunswick resides in second spot behind Financial Dynamics (see right). Finsbury worked on 69 deals given financial consideration, compared with 163 for Brunswick, FD comfortably out-ranked both with 215.

Significantly, Finsbury's average deal value was much higher than that of any other agency. Finsbury's average deal size was £705m, easily beating Brunswick (£284m) and FD(£183m).

The big deals
Not surprisingly, Finsbury advised on several of the major deals of the year. These included Banco Santander's £8.5bn acquisition of Abbey National, as well as Pernod Ricard and Fortune Brands' £7.4bn joint acquisition of Allied Domecq.

Another reason why Finsbury's figures appear impressive is the freefall of Brunswick's deal average. Last year, Brunswick's average deal size was £639.9m – more than twice times its average for this year. Indeed, this time last year PRWeek said Brunswick's 'number one position in the "by deal value" rankings looks as secure as ever'. But it was Finsbury's outperformance in deal value over significantly fewer deals that upset the form book this time around.

Still, it would be wrong to suggest that Brunswick has suffered too greatly – last year its figures were buoyed by advising on several major deals, including Safeway's £4.1bn sale to Morrisons. This time around it benefited from advising Saint-Gobain on its £3.7bn purchase of building-materials group BPB, as well as its work for Abbey during its acquisition by Banco Santander. 

Finsbury's ascendancy saw FD  drop  a place in the 'by deal value' rankings to third, but it came top in the 'by deal number' chart – its 215 deals with financial consideration were worth a total of £39.4bn. FD traditionally excels in the 'by deal number' rankings, and this year Brunswick, with 163 considered deals, came closest. High-profile deals worked on by FD included PartyGaming's £900m IPO on the London Stock Exchange and National Grid Transco's sale of £3.2bn worth of gas networks to Scottish & Southern Energy.
Below the top three of Finsbury, Brunswick and FD in the 'by deal
value' rankings there is quite a gap.

The fourth-placed agency, Citigate Dewe Rogerson (CDR), advised on £27.4bn worth of deals – some £12bn behind FD. However, it is worth noting that last year there was a much more significant gap, £31bn, between the third and fourth-placed agencies (Finsbury and Smithfield Financial respectively). CDR's fourth place marks a return to the upper echelons of the 'by deal value' chart – last year it came seventh, having come third in 2003. Deals for CDR over the year included the Yellow Brick Road Group's sale to Macquarie Bank, and construction firm RMC's £2.3bn acquisition by Cemex.

The Maitland Consultancy also returned to the top five in the 'by deal value' rankings, having slipped one place to sixth last year. This time around it advised on £25.5bn worth of deals, including Cemex's takeover of RMC and SAB Miller's £1.5bn purchase of Grupo Empresarial Bavaria.

One of the biggest losers in this category was Tulchan Communications, falling from second place last year (advising on £72.1bn worth of deals) to sixth this year, with £17.8bn. The rest of the 'by deal value' table has relatively few surprises, with College Hill, Cardew Group and Smithfield all making it into the top ten.

Smithfield (ninth) was fourth last year, but that position was elevated due to one deal being counted four times due to changing bidders. This year the agency advised on £9.5bn worth of deals.

Merlin just sneaked into the top ten of this ranking largely by virtue of a good performance on the private equity front. The 63 deals it worked on had a total value of £9.5bn, including advisory roles for clients such as Mezzanine Management. However, it was its work on LNM Holdings' £6.8bn sale to Ispat International that catapulted it into the top ten.

What's your number?
The 'by deal number' rankings are mainly a case of the leading agencies swapping positions, notably with FD (first) and Brunswick (second) exchanging the places they held last year .

It is interesting that the number of deals worked on by the top agencies rose significantly this year. In 2004, Brunswick led the way with 132 deals (this year it worked on 196); and FD came second with 128 deals (compared with this year's 245).

This trend is reflected as you move down the rankings, too. Last year, College Hill came third with 92 deals, but this year drops to fourth despite having worked on 30 more deals. This year Buchanan Communications needed 169 deals to take third place.

Many of the usual suspects make up the rest of the 'by deal number' top ten, with Finsbury, Weber Shandwick Square Mile and Merlin Financial just making the cut. Meanwhile, Tavistock Communications (tenth) advised on 55 deals to keep GCG Hudson Sandler out of the top ten.

The high number of deals led to a few of last year's top ten dropping down the rankings. Bankside Consultants and Tulchan Communications, for example, fell to joint 12th and 15th respectively.

IPO resurgence
The IPO table (see above) indicates that the market remains relatively healthy when compared with the lows of 2003/04, although it is nowhere near its peak during the internet boom. In 2002, Brunswick led the table with just six IPOs. That fell to four in 2003 for leader Buchanan, which advised on 17 company IPOs last year. This year, FD is top, having advised 20 companies on their admission to market. Chief among these were PartyGaming and RHM, as well as a number of smaller AIM issues for firms such as property company Trading New Homes and food manufacturer Zetar. The IPOs worked on by FD were worth nearly £2.5bn.

Buchanan Communications was not far behind FD in terms of the number of IPOs worked on, having helped 16 companies come to market during the period. It was, however, far behind in terms of IPO deal value, at £204m compared with FD's £2.5bn. Last year, Buchanan's 17 IPOs were enough to put the agency in top place. This year's clients included chemicals firm VASTox, drugs company Synairgen, oil and gas investment company Gasol and ethanol producer Renova Energy.

'We had anticipated a fairly difficult year so it's worked out rather well,' says Buchanan director Bobby Morse. 'At the beginning of the year there were far more bears than bulls and the IPO market is only hot when fund managers' pockets are open. We are cautiously confident that next year will be quite good because we've already been appointed to more deals for Q1 than we had this time last year.'

College Hill came third in the IPO league, having worked with 13 companies on their admission to market. Clients included coach operator DunnLine, five-a-side football pitch operator Goals Soccer Centres, and online casino 32Red.

Below the top three agencies, the IPO pickings were relatively slim. Abchurch Communications and Park Green Communications both worked on six IPOs, with Bell Pottinger Corporate & Financial, CDR, Maitland and Smithfield each notching up five IPO deals.

One leading financial PR practitioner, who declines to be named, suggests the IPO market was 'lumpy' over the past year. 'There's been a certain seasonality to it, with companies taking their chances when the market looked OK,' he says. 'There have been relatively small windows of opportunity. We've also seen the gaming stocks bubble, but I think investors have had their fill of that. Still, generally speaking, there is a good pipeline for the year ahead.'

Seasonal changes
Weber Shandwick Square Mile chair Susan Ellis concurs, adding that the seasonality of the IPO market could be an effect of logistical changes linked to regulatory approval. 'The IPO market at the start of the year was buoyant for us, but only half or them have gone through to date,' she says. 'It's taking longer to get comments back from [Financial Services Authority division] the UK Listing Authority.'
For many financial PR agencies it is the boom in private-equity work over the past few years that has kept their business buzzing. As traditional M&A and IPO work declined, so private-equity/venture capitalists became busy – with the latter awash with cash and under pressure to reinvest it. They have subsequently sought exit routes for their post-boom investments – hence the rise in the number of IPOs, management buy-outs and buy-ins, and other associated deals.

'The deal flow in private-equity work has been good throughout the year,' says Merlin CEO Paul Downes, pointing out that it has replaced much of the non-calendar work of a few years ago. 'Most financial agencies have had to restructure because the flow of IPO and M&A work is just not the same. The IPO market has definitely picked up, particularly with the help of AIM activity, but it's nowhere near the flow of high-quality IPOs that we saw back in, say, 2000.'

Those sentiments are shared by other agencies, many of which have repositioned themselves to target the private-equity market. FD leads the private-equity adviser pack this year, having worked on 25 deals for clients such as Cinven. It regained the top spot from Brunswick, which fell to joint fourth with CDR in the private-
equity/VC table (see above). Merlin jumped to second, benefiting from its work for clients such as Mezzanine Management.

So, what of the year ahead? Most  seem to be optimistic. The Maitland Consultancy executive chairman Angus Maitland points out that any agency that has positioned itself to pick up cross-border M&A work should do relatively well.

He foresees continental companies continuing to look for expansion opportunities outside of their home markets – along the lines of Telefonica's acquisition of O2. 'On the other hand, I think there's probably some economic slowdown to come in the UK and we could see a lot more mandates switching hands,' he adds.

Positive forecast
Merlin's Downes takes a similar view. He says he is quietly confident about the agency's prospects, but reveals worries about interest rates, consumer confidence and the retail sector. 'Still, a lot of bankers are enthusiastic about the next year and that helps me to
feel more confident about the outlook,' he adds.

FD's Watson is also upbeat. He notes that private-equity deals are increasing in size, while trade buyers have returned to the market and hedge funds are more active than ever. Meanwhile, he says, the IPO market, driven by the AIM, continues to grow. He adds that the move to 'international accounting standards' across the EU may lead to greater transparency and help drive the M&A market.

Providing retailers do not have too bad a time over Christmas, the financial PR outlook for 2006 should give agencies reasons to be cheerful. L

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