Has ‘you gotta be a gorilla’ syndrome seeped into the world of investor relations as well? In many ways the answer is yes. The recent combination of the pared-down Georgeson & Co proxy firm with Shareholder Communications Corp marks the most recent case of merging IR service providers, preceded by Thomson Financial’s acquisition of the investor relations and stockwatch divisions of Georgeson & Co last fall.
As in many industries, the drive to grow has been propelled by three key factors. First, increasing globalization of client companies raises expectations for IR and related firms to develop a presence or strong alliances in overseas target markets.
Second, the high cost of technology has been a driving force of consolidation; it is also key to equipment-intensive fields like proxy solicitation, requiring huge phone banks to work effectively.
Third, the growing cross-fertilization across communications fields is drawing once disparate disciplines together. As technology and the bull market draw more and more new investors into the market, all of a company’s communications, PR and advertising are increasingly done with an eye to how they could impact the stock. ‘IR firms [in the US] didn’t used to do financial media,’ says Lynn Morgen, founding partner of Morgen-Walke Associates in New York. ‘Now industry analysts in the media have a tremendous influence on how investors look at companies.’
The question IR agencies face is, given these pressures, should they grow or maintain their current size and focus? Should they grow organically or expand into new areas by buying another company, or by combining with another? Which choice best serves the company’s bottom line and the long-term interests of its clients? The answer to these questions is anything but black and white.
Global thang
The acquisition of Dewe Rogerson in October 1998 by Citigate parent Incepta to form Citigate Dewe Rogerson gave the company greater reach to key financial centers in London, New York, Hong Kong and Tokyo. Chairman and CEO David Wright says the expansion was governed by the needs of clients. ‘We are expanding internationally at a rapid rate because banking, financial services and most other companies are becoming more global,’ he explains. As clients globalize they increasingly expect IR firms to have expertise in cross-border deals and capability in all of the financial markets the client operates in. ‘If you haven’t got that it’s hard for you to take six out of ten and use someone else for the other four,’ says Wright.
Wright says the Dewe Rogerson acquisition, which added over 150 people in London, helped the company develop a critical mass of people within each market: ‘We have more business as a result because people have confidence we can handle their business. We have more business collectively than we ever had individually.’ And what’s next on Wright’s IR agenda? More acquisitions, this time in the US.
Thomson Financial, a unit of the Canadian media empire Thomson Corp, has been on a buying spree in IR and related fields for years: First Call, CDA, Technimetrics, Autex, Nelson’s Information, Institutional Shareholder Services, to list just a few. Most recently it formed Thomson Financial Investor Relations out of Technimetrics and Georgeson’s IR division. The idea, says Tom Clarke, president of TFIR, is to create a total solution for the client. ‘The one stop shopping concept on a global basis is something we feel good about, because clients want it.’
TFIR is considering adding more lines to its IR supermarket. Clarke says one missing area the firm is considering filling is financial media relations. For now it has alliances in the field; the question for Clarke is whether you can coexist with the partner in a profitable way. ‘Maybe you want to do some out-of-the-box thinking and it steps on the toes of the partner and then it doesn’t work,’ he suggests.
Also near the top of Clarke’s look list is the explosive area of internet services for IR. Whether to launch them internally or acquire is yet to be determined, he says, ‘But we have to stay ahead of the tech curve.’ The advantage of having such a variety of products, according to Clarke, is that it allows for the sharing of information. ‘A lot of proprietary data is necessary for an IR solution. Having so many information streams gives us a leg up.’
So does the convenience to the client of grouping a number of services altogether on one seamless invoice. Or so say the big-is-beautiful brigade. From an operations standpoint, it should certainly make outsourcing IR products and services easier if you can get all you need from one vendor. But this begs a few questions. One is whether it is cost-savings or just more expensive bundles that are passed on to the client; the other is whether the client can still expect the personal service of the cornerstore when dealing with the multi-check-out supermarket approach.
Boutique touch
One thing is clear: that not everyone agrees that bigger is better or that trying to be all things to all companies is a good idea. Smaller, more specialized agencies offer clients a number of benefits starting with the fact that they can devote more time and attention to each client, giving them a more tailored approach.
At Ludgate Communications, which was acquired by Weber in 1997 but retained its boutique style, CEO Kay Breakstone notes, ‘When you get large you tend to mass produce and you are not a consultant anymore. You tend to pull things off the shelf. Even at the really big specialists it can become a mass production and there is no such thing as mass production in IR. Every company is different.’
Clients at smaller firms are also more likely to get more senior level attention, says Breakstone. ‘I am involved with most of our accounts, not necessarily writing press releases, but I know what is going on with all of our accounts. So if there is a problem I am here to counsel. I tell every new client that comes here they will have a team with a senior person, a junior person, and my attention. That’s not necessarily true in a larger firm unless you are a fairly big account.’
Smaller, specialized IR agencies can be cheaper than the bigger ones. ‘The assumption is if you go to a larger firm there are all these resources and people. That’s not true. Nine out of ten times you are paying for them whether you need them or not,’ says Breakstone. That’s especially true when firms operate on a time-input basis as opposed to retainers. ‘One reason we as a small company choose to use retainers is because we want the relationship to be close. I want them to call me and not think Is this going to cost another two or three hours?’ says Breakstone.
Cheaper by the dozen
Certainly, it is not always cheaper to go to the small shops. Jeff Luth, director of investor relations at Amkor Technology, worked at several IR consultancies, including Morgen-Walke, GA Kraut and Dewe Rogerson. ‘You get a big bang for the buck [at small agencies], but sometimes you lose the context,’ he says.
As for large agencies, in Luth’s view the biggest potential weakness for them is compartmentalization. ‘One set does this, the other set does that. You can get a disconnect,’ he says. Not all central account executives are intimate enough with all the different branches to understand the overarching themes and convey them appropriately. Incepta’s David Wright, when asked if there was a mechanism to help keep all the different branches from becoming compartmentalized, responds, ‘Yes. Me. I travel around the world to hammer in the need to work as a team.’
One reason for the compartmentalization is that many larger firms use separate profit and loss statements for each division which, according to Simon Brocklebank-Fowler of London’s Cubitt Consulting, sets up a disincentive for sharing knowledge across groups and builds in inflexibility. ‘The incentive is not to do work for which you don’t get full revenue credit,’ says Brocklebank-Fowler, himself an ex-Citigate director. ‘It’s hard to institutionalize an incentive for knowledge sharing.’ At his new – and for now very small – firm, Brocklebank-Fowler believes the challenge is to find ways to continue rewarding the knowledge sharing which naturally happens in a partnership culture, even as the company grows.
Another side-effect of separate P&L statements is the attention managers have to devote to workflow and preservation of client income. That can be especially true for broadly diversified companies. ‘It’s hard to be great at a million things,’ says Lynn Morgen. ‘We want to keep the essence of what we are trying to do for the client. Otherwise, expansion can take you over. We’re not pushed to go to 150 or 200 plus clients and tell them what they need,’ she adds. ‘Big companies are a P&L nightmare because you have to keep the pipeline busy and be directed toward making sure it is always busy.’
Pressure to keep the pipeline full can further siphon senior management’s attention away from clients and toward generating new business. Brocklebank-Fowler departed from Citigate to launch Cubitt Consulting in January of this year. ‘I now spend 75 percent of my time managing clients, as opposed to 25 percent in my last year at Citigate, which is not unusual for a managing director at a major investor relations firm. They would all deny that, but this is just the way it happens, I’m afraid.’
Incepta’s Wright begs to differ, saying he doesn’t attempt to get himself or other dedicated managers involved with the clients. ‘We manage this business just like any other and you can’t do both. I have a lot of senior people here, and they are not in the full-time management role, they are operators,’ he says.
Noughts & cross-selling
In a diversified firm, another potential challenge is intelligent cross-selling of products and services. In some cases, salespeople and consultants in other areas may not really understand what investor relations is all about. Lynn Morgen notes that some advertising agencies have bought PR firms with an embedded IR function. The deal may look good on paper, she says, ‘But to really make it work people have to really understand what you do and feel really comfortable with your ability to deliver for the client. This is still a people business.’
The Carson Group’s chairman, David Geliebter, is more direct. ‘Some firms out there are not putting the best foot forward for the industry. They have salespeople selling things they don’t know about and being forced to sell things that are not the best in the world because they were bolted together like Frankenstein.’ Not that Geliebter is always against acquisitions, he emphasizes; they simply have to be intelligent and benefit the client. ‘I’m all in favor of one plus one equals three,’ he says.
On the other hand, smaller agencies are not always the best choice either. They may have more limited capabilities, in terms of product and service range, international reach, and the availability of manpower to service an account. In the common scenario where a company is newly public and the primary goal is profile raising, ‘Larger agencies compartmentalize service offerings, which can be very discrete and efficient. Smaller agencies can handle all those activities but it’s more apt to strain the system,’ says Luth. ‘A larger agency may have more arrows in its quiver.’
So it may, but perhaps one has to accept that in IR size really doesn’t matter, provided an agency – big or small – can create and maintain long-term relationships of trust and understanding with its clients. That may be harder in the supermarket than in the cornerstore, but it’s surely not a logical impossibility.
