Twelve months ago, financial PROs were ‘cautiously optimistic' about the year ahead. As it turns out, they need not have been so guarded - the City has had a busy 2006, with agencies reaping the benefits of investor confidence and solid equity markets.
This year's financial league tables are based on data supplied by analyst Zephus, which ranks the value of UK-only deals - those with a UK-based bidder, vendor or target firm.
For the second year in succession, Finsbury tops the By Deal Value table, ahead of Brunswick, with Citigate Dewe Rogerson holding on to fourth behind Maitland (download the PDF to see corresponding table). And while Finsbury's lead on Brunswick last year was £2.3bn, this year it is £5.4bn clear.
However, Brunswick did improve its average deal value from £285m last year to £488m this year.
Transactions in which Finsbury was involved included the £10.6bn de-merger of GUS (into Experian and Home Retail Group), RWE's £8bn sale of Thames Water, and the £2.2bn acquisition of Pilkington by Nippon Sheet Glass.
The biggest deals
Maitland leapfrogged Citigate Dewe Rogerson and Financial Dynamics (which fell from third last year to fifth), although the latter tops the By Deal Number table. Maitland increased its deal value by 94 per cent to £49.7bn.
Among the major transactions on which Maitland worked were Standard Life's demutualisation and IPO, and tech group Linde's bid for gas plant firm BOC. But the biggest was Mittal Steel's £15bn bid for Arcelor, for which the agency picked up The Hanson Search Award at this year's PRWeek Awards. This is not reflected in the Zephus tables as neither company is UK-based, but Maitland points out that the battle was ‘fought and won in London'. Finsbury acted for Arcelor.
‘The Financial PR market is in good health,' confirms Maitland executive chairman Angus Maitland. ‘This is largely due to a high volume of M&As, but the underlying market is strong. The IPO market was busy through the first half of 2006, but is showing signs of quietening down in the autumn.'
The chairman notes that M&A clients are increasingly demanding a global solution - which Maitland offers through its AMO network: ‘Without this offering you don't get a chance to pitch for a large volume of work.'
Financial Dynamics chief executive Charles Watson agrees, citing the firm's presence in markets such as China, Russia and the Middle East as evidence of its reach. ‘Visionaries talked about this before its time, but now it's really happening.'
Watson adds that investment banks - which tend to play a role in the appointment of financial PR consultancies to their clients' business - are increasingly looking for agencies that can operate internationally and assemble multilingual teams to handle complex cross-border deals. This, he claims, is a barrier to smaller agencies.
CDR chief executive Jonathan Clare reports a strong increase in retainer work from clients happy to invest in ongoing financial comms and corporate reputation management - in other words many clients that initially used the agency for IPO work retained CDR to keep investors on song.
In February, CDR worked on one of the most controversial IPOs of the year - that of defence technology business QinetiQ.
It drew criticism owing to the nature of the business (it is a major supplier to the MOD) and to the Government's decision not to open up the offer to retail investors. Coverage of the listing spread beyond the business pages and called upon CDR's corporate reputation nous as much as its financial comms expertise.
Elsewhere, Buchanan Communications overtook Brunswick in terms of deal volume - up by 53 deals in 2005 to 222 this year. Not surprisingly, CEO Richard Oldworth describes the past year as ‘extremely buoyant'. He confirms a major driver of growth has been the number of overseas firms listing in the UK, especially on AIM. In the past year, Buchanan has also handled seven foreign companies' IPOs, including those of Chinese solar panel maker ReneSola, US oil and gas explorer GeoPark, Chinese gas extractor Green Dragon, and uranium producer UrAsia.
Weber Shandwick Square Mile managing director Ian Bailey says: ‘The London IPO market has been strong relative to other markets, helped substantially by preference for the UK's more straightforward regulatory environment, compared with the time and financial expense involved with the US's Sarbanes-Oxley legislation.
This has led to an increasing number of international companies looking to list in London, including those that formerly would have looked to NASDAQ as a natural home.'
The attraction of AIM
Bankside Consultants - which does not appear in the By Deal Value table, but is the seventh-placed agency By Deal Number - tends to focus on the sub-FTSE 250 market. Partner Simon Bloomfield reports that the first half of the year saw a flurry of IPO activity on AIM, which was followed by a slowdown with some planned floats pulled or postponed. He puts this down to fund-manager ‘indigestion' caused by the rate of activity, compounded by the fact that some floaters failed to deliver the performance promised.
‘A lot of the larger agencies haven't focused on AIM because they thought their market was with the full list,' says Parkgreen Communications managing director Justine Howarth. ‘They perhaps don't believe the fees are there, but they are.'
Parkgreen, which also concentrates on AIM work, has enjoyed a bumper year, handling flotations such as Pangea Diamond Fields' IPO. Howarth says her agency now boasts 65 clients and is growing new business at a rate of two clients a month, frequently on the back of broker recommendation. Parkgreen's success in concentrating on smaller transactions is reflected in its rise from 21st to ninth place in the By Deal Number table.
Private equity on the rise
It is important to note that it is not just the stock markets enjoying such feverish activity. Earlier this month, the Financial Services Authority warned it was ‘inevitable' that a large private equity (PE)-backed firm would default on its debts. The concerns were raised against a backdrop of record borrowing levels for PE deals. Yet the sector seems likely to continue its growth.
FD acted on the highest number of PE transactions (30), followed by Brunswick with 19. Finsbury, Tulchan and CDR each worked on 16.
Watson describes PE as a ‘phenomenal driver' of the market. He says Kohlberg Kravis Roberts' €40bn approach for French media and telecoms group Vivendi shows that ‘little is out of reach' for holding companies.
Among the PE deals on which FD has acted are Cinven's £1.6bn sale of United Biscuits to Blackstone and PAI; the sale of Pizza Express owner Gondola Holdings to Cinven; and Matalan's MBO.
Buchanan's Oldworth says some of the PE debt structures being put in place are ‘pretty overheated', with the competition for targets becoming ‘an auction market'. Retained client Alchemy Partners recently announced it was starting a £250m fund to take advantage of ‘distress and special situations' that will arise from overly ambitious lending, where targets of private equity may not be able to maintain their repayment obligations College Hill, which maintained the same rankings this year in the By Deal Value and By Deal Number tables - seventh and fourth respectively - was leader in terms of MBOs, advising on four (there is no table for this category).
The agency also worked on high-profile M&As, such as Old Mutual's £4.5bn acquisition of Skandia, which began as a friendly bid but evolved into a protracted hostile takeover.
The agency recently set up a public affairs offering under former Citigate Public Affairs chief Warwick Smith. ‘If you are working for more than 200 companies a year, a sizeable percentage will have legislative or public policy concerns at some point,' explains College Hill chairman Alex Sandberg.
Square Mile's Bailey notes that many niche agencies - such as those that focus on financial services, or corporate and personal finance - are trying to move into more traditional financial comms and M&A work, via involvement with PE firms. But as many mainstream agencies have found, breaking into these fields can be a major challenge.
One broad-based agency seeking to bolster its financial business is Fishburn Hedges, which earlier this year recruited Finsbury's Morgan Bone as director and co-head of its 18-strong financial practice. Among the deals it handled this year was the flotation of Ingenious Media Active Capital, a vehicle for investments in the media sector, which joined AIM on 11 April at 100p per share, giving it a market capitalisation of £150m. Bone says growth in the financial comms sector will be spurred by clients seeking a broader range of PR advice.
‘A rising tide lifts all boats'
Of course, financial markets are always volatile, and investor confidence is notoriously fickle, so making predictions for the year ahead is a risky business. Nevertheless, the consensus among financial agency heads is that, for the time being at least, the outlook is favourable for the medium term.
‘A rising tide lifts all boats,' says Tulchan Communications consultant Andrew Grant. ‘The banks say the pipeline is strong.'
Although the stock market wobbled in May, it has for the most part remained stable. Overseas companies are queuing up to list in the UK, M&A activity is robust, and private equity groups are scrambling for investments that will guarantee high returns.
Times are good - for evidence, one only has to observe the record-breaking bonuses being paid to the top City bankers this Christmas.