Risk & Compliance

The Sweet Smell of Success

Financial public relations advice has become a must-have for any company with a share price, but it remains a mysterious art.
Tony McAuleyMarch 7, 2006

Here’s a public relations challenge: You want your company to list on the prestigious London Stock Exchange, as a blue chip stock in the FTSE 100 index, no less. But your tax haven-based company is in the online gambling business; your founders, a Californian husband-and-wife team, made their reputations in the “adult entertainment” business; your biggest single shareholder and chief operating officer is an unknown young Indian techie named Dikshit; and the bulk of your customers (over 80 percent) are in the United States, where the Justice Department has declared that internet gambling is illegal.

Those were the formidable obstacles facing PartyGaming — the company in question — in the run-up to its flotation last June. But it joined the London Stock Exchange as a FTSE 100 company with a market value of €7 billion ($8.6 billion) — greater than prestigious corporate names such as British Airways and Marks & Spencer. The float was the biggest in London in five years, and the share price soared by more than 50 percent in its first month. After the float, the CFO of the Gibraltar-based company, Martin Weigold, who had been recruited by PartyGaming from entertainment group Jetix (formerly Fox Kids Europe) only six months before the listing, was being lauded in the business press as a finance guy to watch. How did it all go right for PartyGaming?

A key element in the flotation’s success was undoubtedly the financial public relations campaign. But, to hear Weigold describe it, that part of the operation was done more on a wing and a prayer than as a carefully executed battle plan.

“It’s not that we didn’t know that financial PR was going to be important, but we were very much prioritizing other areas in order to float the company,” Weigold says. Indeed, when he joined, he found a finance department with no directors of treasury, risk management, tax, financial planning and analysis, “and, of course, no director of investor relations.” The company would be the first-ever FTSE 100 company based in Gibraltar, making recruiting for the top jobs more difficult than usual. Weigold was only able to get IR director Peter Reynolds on board from Rank Group (PartyGaming CEO Richard Segal’s alma mater) just two weeks before the IPO launch. A director of communications was found only well after the listing.

That meant that financial public relations before the float was directed by an outside adviser, Financial Dynamics, which was brought in by the lead investment bank, Dresdner Kleinwort Wasserstein. It’s a typical scenario these days: the lead investment bank almost always chooses the financial PR adviser for transactions like IPOs and acquisitions, except for occasions when a top executive has built up a particularly strong bond with a PR advisor. Luc Vendeveldt, for example, switched Carrefour’s account from PR firm Tulchan to Brunswick when he joined the French retail chain as chairman last year.

Ruthie Ruthless

In PartyGaming, there was, as Weigold readily admits, “a unique set of challenges” from the public relations perspective. “If you were a journalist and you wanted to write a story, there were a great many areas that you could dip into,” he says.

The fact that the principal founder, a colorful American lawyer named Ruth Parasol, provided such interesting copy was a heavy burden in terms of controlling the message. She stood to become a billionaire and one of the world’s richest women from the flotation, so tabloid and serious press alike were soon excavating details such as the 38-year-old’s high school nickname — Ruthie Ruthless — or that when she attended the exclusive Marin Academy in California, a yearbook entry showed her in a fur coat with her own caption: “Diamonds are a girl’s best friend.” Also, there were plenty of references to her involvement in the phone sex and online pornography business with her equally colorful father Richard, and the fact that some associates in those businesses went on to be convicted of fraud. Many early stories emphasized this whiff of sleaze.

“We were disappointed to find that the press seemed initially to be more interested in focusing on side stories, such as the regulatory position and the background of some of the founders, rather than celebrating the success story of PartyGaming,” Weigold recalls. “But on the IPO road show, when we were subjected to a considerable level of hostile press, we were able to get through the noise and get investors to see the underlying case. It was important that we tried to bring it back to the real agenda, which is that what we’ve got is the European equivalent of an eBay or an Amazon.”

Certainly, the most compelling element of PartyGaming’s story was the fact that its business (mainly hosting online poker and taking a “rake,” or percentage, of each hand) had grown revenue from $30 million in 2002 to $600 million in 2004, with profit before tax going from $6 million to $380 million in the same period. That record, in turn, had attracted executives like Segal and Weigold, and non-executive board directors such as former Standard Chartered Bank CFO, Nigel Kenny. Other elements of the story were important, too, such as how law in the area was evolving. A MasterCard case in the United States, for example, seemed to limit the scope of the Justice Department’s concern to sports betting.

Managing the message wasn’t easy. “The hairiest moment was about four days into our road show when we got word that one of the major U.K. broadsheets was going to run a story that we were struggling to cover the book and that we would have to cut the price range,” Weigold recounts. That could have scared off key institutional investors and thrown the whole flotation off course. “We were able to discuss the story with the journalist concerned and give him the appropriate comfort that he was wide of the mark.”

How did Weigold measure the success of the financial PR effort? “The easiest way to see it is that despite our offering giving journalists many different hooks to come up with many negative stories, we came away from the float process three times oversubscribed.”

Having soared in the first month of trading, the shares plummeted in August when the company warned of slowing growth. But they have since climbed steadily as plans to expand into traditional gambling and entertainment businesses have filtered through. “The main PR benefit now, going forward, is when I look at our rating, when I compare it to others in the industry,” says Weigold. The company has managed to bracket itself with big, established gambling/entertainment players such as William Hill and Harrah’s, and stories now tend to focus on which companies PartyGaming might buy.

Get the Message

PartyGaming is a crash course in the essence of financial public relations, but it doesn’t quite reveal what makes the difference between success and failure. Weigold and even top financial PR industry people, find it difficult to put their finger on exactly what makes that difference. Yet, financial PR has grown in importance, and at the same time become much more expensive as key industry players — such as Brunswick and Financial Dynamics — have managed to group themselves with such pricey advisers as investment bankers and lawyers.

As the head of corporate PR at one of the large global marketing groups says, “A lot of PR is about common sense. The thing that distinguishes financial PR is that you need to know a lot about the law, what you are allowed to say, how to read balance sheets. And where you really make the money is in deals. You wake up one morning and the deal has gone through and there’s a €1 million check in the post — not in the same league as the banks, but in the world of PR that’s big.”

The financial PR industry, which is only a little over a decade old, is still defining itself. Andrew Merrill, global managing director of financial PR at Edelman, a big New York–based PR firm, explains, “When we’re brought into transactions, it’s a much broader brief than to just get press coverage. We have a seat at the table with management and their financial and legal advisers.” To do what exactly? “Our experience is primarily oriented towards ‘The Street’ and the current environment. We’ll help them develop communications around that transaction which will resonate with ‘The Street’.”

That’s okay as far as it goes, but Sanjay Jawa, CFO/COO of Financial Dynamics (and a former investment banker), points out that “the difficulty with financial PR is that it is a softer expertise than investment banking and it is therefore difficult to measure success.”

Most people in the industry talk of how it is much more complicated than it used to be. “It’s not, ‘Here’s a gin and tonic, and by the way, here’s a press release’ any more,” says Jonathan Clare, founder and chief executive of Citigate. “The heart of financial public relations is about building a reputation with the audiences that are important,” which Clare identifies as investors, sell-side analysts and the commenting financial press. “If you are successful, it should mean that a company’s shares are rated better, and the cost of capital is lower,” Clare says. “The only way you can measure that is by constant research to see whether a company’s valuation is on an improving trend.”

Old Ways

It is generally accepted that modern financial public relations was the brainchild of Alan Parker, the reclusive founder of Brunswick, an independent London-based agency that is consistently at the top of European deal advisory league tables. (See “All for One,” at the end of this article.) Parker was a rock band manager until his father, Sir Peter Parker, former head of British Rail, got him a job in PR. He founded Brunswick at the end of the 1980s and is credited with bringing investment banking-style professionalism to the trade. Brunswick’s influence spread within the London financial community, and latterly to Wall Street and continental Europe, where firms have copied its approach.

Brunswick has long been seen as epitomizing the influence-and-access game in deals circles, something that it is exporting to other centers. Notably, in 2001 Brunswick recruited as head of its U.S. operations Steve Lipin, a former Wall Street Journal M&A reporter with a reputation for aggressively leveraging his newspaper’s franchise to get news scoops on deals.

The firm has had its share of controversy over its aggressive tactics. Also in 2001, for example, a former client, Jupiter Asset Management (which had been acquired by Commerzbank), threatened to sue Brunswick after the PR firm sent a dossier to several London newspapers claiming that Jupiter was in financial trouble.

Today, however, some in the industry reckon that the old methods are dying away. “We used to call it ‘the Monday morning special’: stories citing ‘sources close to’ or ‘people familiar with,’” recalls Merrill of Edelman. “But the notion of calling The Wall Street Journal or the Financial Times on Sunday to position a piece [on the following day] is something recommended a lot less frequently these days.”

There are various schools of thought about how financial PR is developing, but there is one common theme: that the approach must be broader in every sense. Benoit Viala, head of financial PR at Euro RSCG C&O in Paris, says this was typified last year with the €7 billion part-privatization of EdF. Euro RSCG is the French arm of AMO Group, a confederation of financial PR companies that are owned, partly owned or associated with Havas, the €1.5 billion French marketing group. The 20-city road show for the EdF share sale was a mammoth international undertaking, Viala says, like a Rolling Stones world tour. The logistics were subcontracted to one of the two firms that now dominate the road show market, and each sister company within AMO group was enlisted to use its local knowledge and contacts to shape the message.

Many Audiences

At the same time, marketing to millions of both individual shareholders and institutions, handling communications not only for the company but for the government too, as well as dealing with vociferously skeptical unions, meant Euro RSCG had to lean on the advertising capabilities of other companies in the Euro RSCG group, Viala says.

On a completely different scale, tiny €75 million BioAlliance Pharma’s Euronext IPO, which came at the same time as EdF’s, presented its own challenges. CFO Piers Morgan says the Paris-based company had to pay particular attention to “the local hero effect” and court local investors and press, even though most funds knowledgeable in its specialist area are based in Switzerland, the United States, and the United Kingdom.

“There was no core of specialist investors in France. We were the first specialist biotech company to IPO in six years, and what had gone before had, shall we say, mixed performances,” says Morgan. BioAlliance used a small boutique — Andrew Lloyd & Associates — for a long campaign, with the main objective “of avoiding hyping the share price,” and had to pay particular attention to information on specialist internet sites.

The key to financial PR is often expressed in the negative. A favorite recent example of “how not to” was Deutsche Börse’s failed bid for the London Stock Exchange. Though advised by Maitland, one of the top-ranked firms (brought in by investment bank Goldman Sachs), no amount of advice could have prevented the Financial Times story recounting how CEO Werner Seifert had accused one of his shareholders of being “greedy” when the latter had asked Seifert when he could expect a dividend.

Crane, the CEO of Citigate, says the direct involvement of investors is a change since he wrote a column for the London Times in the 1980s. “When I was a journalist, it was very rare for shareholders to talk to the press. These days, if they are feeling a company’s performance isn’t up to scratch, investors are happy to pick up the phone to talk to one of their mates in the press. Then, you’d better be sure your message is consistent to all groups.”