Opinion: Agencies caught in MBO dilemma

There are more and more occasions in the stock market where a firm's sitting management decides to make a bid and go private. Anthony Hilton takes a closer look.

Misys, the software firm that supplies much of the City with the code that powers the dealing rooms, was absorbed by such a proposal for most of the summer. Just last week, SHL, albeit with misgivings, agreed to sell to its management. Executive search firm Whitehead Mann may join the club.

When these deals happen they are a nightmare for the affected company's PR agency. The reason is that the company splits into two polarised camps, leaving the PR firm wondering which half is its client. Typically, the chairman and the non-executive directors will form a committee and take advice on what is a fair value for the firm, while the chief executive will go off and get his own advice and funding. The two then negotiate.

The PR firm's dilemma is that the chairman and his committee most closely represent the company it was hired to act for. But more often than not it is the chief executive who appointed the PR firm and with whom the account executive has the working relationship - and he has become the opposition. So duty and contract is on one side of the line, loyalty and relationship on the other.

Also, several of the most successful PR firms gain a lot of their business because they hitch themselves to a rising chief executive. Thus the agency's interest is likely to be better served by supporting the CEO, rather than the firm.

But it is even more ticklish than that. The Misys deal came to nothing,  but most deals go through, leaving the chief executive back in charge. If the PR firm has been too robust in supporting the chairman, the chief executive is not going to be best pleased with it. Perhaps agencies should make sure they have generous clauses to protect against early termination of their appointment.

Anthony Hilton is City commentator on London's Evening Standard

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