Financial PR firms change tack as bad news mounts

LONDON (Reuters) - Financial public relations firms, who elevated the honing of corporate messages to a highly profitable art form, are having to adapt their businesses and in some cases cut staff as the economic gloom intensifies.

With far fewer deals to publicize and lucrative "retainer" contracts under pressure, companies are cutting costs and are increasingly focusing on work thrown up by the crisis, such as capital-raising, restructuring and repairing tarnished images.

So far, job cuts have been limited. But Esther Carder, a partner at Kingston Smith W1, a London firm of media-focused accountants, predicts financial PR firms will have to make across-the-board cuts of 10 to 20 percent.

"There's nowhere near as much M&A activity going on and obviously that generates a lot of work for the financial PR agencies," Carder said.

"Generally lots of businesses out there aren't making as much money, so they've got to cost-cut. And as has been the case in other recessions, marketing spend is generally one of the first areas that gets cut."

RECORD PROFITS

The entire industry is small in scale and even its biggest players employ just a few hundred staff. But that belies the big role it can play in shaping media coverage and public opinion.

Some, like Brunswick, are partnerships, while others belong to listed groups including Huntsworth Plc (HNTS.L), Chime Communications Plc (CHW.L) and FTI Consulting (FCN.N), or to global advertisers such as WPP Plc (WPP.L), Omnicom Group Inc (OMC.N) and Interpublic Group of Companies Inc (IPG.N).

The agencies work with bankers and lawyers on multi-billion-dollar takeover battles and have even been accorded their own league tables.

Lucrative work from the mergers and acquisitions (M&A) boom reached its apex in 2007, but the industry is now contending with a hobbled financial sector, penny-pinching corporate clients and a dearth of deals.

It was great while the boom lasted. Kingston Smith W1 data shows Britain's biggest 40 PR firms, many of them so-called "City" firms focused on corporate and financial work, had combined turnover of 684 million pounds ($977 million) in 2007 and enjoyed record profit margins.

According to mergermarket league tables, Brunswick Group had 2008's most valuable clutch of deals, worth $406 billion, while Financial Dynamics (FD) was most prolific, working on 218 deals.

But both are among firms trimming staff -- close to 10 consultants at 450-strong Brunswick and up to a dozen at FD's London office which employs 250, according to senior sources at the firms.

Gay Collins, chief executive of London-based Penrose Financial, says small PR houses, if they rely heavily on a handful of big clients, are particularly vulnerable.

Other changes are also underway.

Carder at Kingston Smith says some blue-chip clients could end "retainer" contracts, which can cost tens of thousands of pounds a month, and hire help project-by-project instead.

LONG-TERM SWITCH

Colin Farrington, director general of the Chartered Institute of Public Relations (CIPR), says the crisis may accelerate a "long-term switch from consultancy to in-house advice," in financial PR and elsewhere -- although in-house PR teams, particularly at banks, have also suffered.

Farrington says recent events have also sparked debate in the industry about whether they should have asked tougher questions of some clients, particularly the battered banks.

But this being PR, its practitioners are keen to stress the good news -- that the market is resilient.

"If you put me in a corner and said, 'would you prefer a booming stock market and lots of hostile M&A around?' the answer would be yes," said Angus Maitland, executive chairman at Havas (EURC.PA)-linked Maitland.

"But when M&A and IPOs go away, you tend to have a lot of issues, and crisis-management ... So the market doesn't go away in the sense one would think."

In January FD trumpeted the launch of a European restructuring and recapitalization practice, for "protecting enterprise value and managing change in a downturn."

Former Royal Bank of Scotland Group Plc (RBS.L) Chief Executive Fred Goodwin even personally hired PHA Media, according to the firm's website, to advise the Goodwin family on dealing with the media.

Danny Rogers, editor of PR Week, says the industry is unlikely to lose its hard-won access to top executives.

"I think that's an argument they've probably won," he said. "The good PR people are actually right at the top table now, and at times of recession and crisis, that's when they're called into the boardroom more than ever before."

(Editing by David Holmes)