M: Comms sell-out is tactical move

Back in 2002 in the slow period after the bursting of the dotcom bubble, Hugh Morrison and Nick Miles founded M: Communications. This week, with the global economy slowing down and financial PR again having to come to terms with leaner times, they sold up.

Anthony Hilton
Anthony Hilton

They did not work for years with Tony Knox at Financial Strategy for nothing - a man who sold, bought back and sold the same business half a dozen times, usually to Americans.

This sale, however, is about getting capital and a currency to use for acquisitions and expansion through the coming downturn, not to get money to head for the beach. They have that already.

People say in these markets that private equity deals cannot be successful, but this one has been. M: , together with the US proxy solicitation business DF King, are both being acquired by a private equity-backed vehicle called Sage for a total of $180m, or almost £100m. Why DF King? Apparently Miles and Morrison have known the firm since it was involved in the Vodafone Mannesmann deal back in 2000.

M:'s share of this package is not disclosed but it is much the smaller firm. King has annual sales of about $100m whereas M: is said to have fee income of about £10m and profits of about £3.5m, which if true makes it one fifth of King's size.

Proxy solicitation is a stable but slowly growing business. It is typical of private equity strategy to give the growing business a dis-proportionately large slice to use to motivate
key employees.

In fact why they did it is much more interesting than for how much. It is the perennial problem of PR start-ups that they can only get to a certain size by recruiting people and adding clients, before the law of diminishing returns sets in. The risk then is the business loses momentum and gets stuck on a plateau unless it can find a way to catapult itself forward with acquisitions.

M:'s focus so far has been on acquiring growing international companies. I would therefore expect it to seek bolt-on acquisitions of firms of three to ten people, which will add geography and sectors to its mix.

And what better time to persuade them to sell than when they can see the market turning down?

Anthony Hilton is City commentator on London's Evening Standard

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