KKR & Co. agreed to buy a minority stake in FGS Global, continuing a trend of private equity funds betting on communications advisers amid rising demand for their services from companies, governments and financial institutions.
(Bloomberg) — KKR & Co. agreed to buy a minority stake in FGS Global, continuing a trend of private equity funds betting on communications advisers amid rising demand for their services from companies, governments and financial institutions.
KKR is purchasing the stake from WPP Plc, as well as exiting investor Golden Gate Capital and some employees, according to a release on Tuesday, which confirmed an earlier Bloomberg News report. The deal values the communications specialist at $1.43 billion.
KKR will take a 29% interest in FGS, people with knowledge of the matter said, with London-listed WPP remaining the company’s majority shareholder.
FGS was formed through the 2021 merger of Finsbury Glover Hering and US rival Sard Verbinnen & Co. The company is led by Chief Executive Officer Alex Geiser and co-chaired by Finsbury founder Roland Rudd, Carter Eskew and George Sard.
The minority purchase represents a multiple of about 15 times FGS’s estimated earnings before interest, taxes, depreciation and amortization of roughly $95 million, the people said. It’s another high-profile deal for KKR’s European private equity co-head Philipp Freise, who’s close to Geiser and already sits on the board of Axel Springer, the German media empire KKR has owned since 2019.
“We believe that communications is a strategic growth sector,” Freise said in an interview. “The world has never been more chaotic, more complex. It’s the same theme as when we helped Axel Springer buy Politico to help explain a complex world to stakeholders.”
’90s McKinsey
FGS has 1,300 employees in 27 offices and generated about $435 million in revenue in 2022, the people said, asking not to be identified discussing confidential information.
Its more than 1,600 clients include Bayer AG, Alibaba, SoftBank Group Corp., Apple Inc. and Dick’s Sporting Goods Inc., as well as private equity firms such as Permira. Some pay it a monthly retainer, while others engage it on one-off situations, such as takeovers. By working with private equity firms, communications advisers can also get access to their portfolio companies.
FGS’s German business — formerly Hering Schuppener — is the market leader in Europe’s largest economy and advises everyone from DAX company executives to politicians on issues like communicating takeovers and controlling public image. FGS makes the majority of its revenue in the US, where it competes with the likes of Brunswick, Teneo, Edelman Smithfield and Kekst CNC.
“This feels like a McKinsey in the ’90s,” said Freise, likening FGS’s relationships with corporate boards to the reign of the management consulting giant decades ago. Freise worked at McKinsey & Co. earlier in his career.
‘Early Days’
The deal with KKR defers plans for an initial public offering of FGS, although a listing could be pursued down the road, the people said. The transaction results in a realized gain of more than three times for Golden Gate on its investment in FGS, one of the people said.
The communications industry has been ripe for consolidation in recent years, with CVC Capital Partners-backed Teneo agreeing to buy UK competitor Tulchan Communications, Camarco being bought by APCO Worldwide and BDT Capital Partners taking a minority stake in Brunswick.
The business model of firms like FGS can be highly dependent on the amount of activity in the capital markets, which has been muted of late amid rising geopolitical tensions and macroeconomic uncertainties.
“We’re very proud of our unmatched ability to help boards and CEOs navigate an environment that has never been more challenging,” said FGS co-chair Sard. “This is all about meeting rapidly evolving client needs.”
While dealmaking among companies and private equity firms has dropped significantly since the record-breaking 2021, FGS said in a recent financial report that the fall in takeover work can be rebalanced by advising companies on restructurings. Other aspects of public relations, such as reputation management, could also be key going forward.
“It’s early days for them to grasp the potential of what’s out there,” said Freise.
KKR is making the investment in FGS primarily through its European Fund VI, a new $8 billion flagship vehicle that’s its largest ever for dealmaking in the region.
(Adds detail on FGS co-chairs in fourth paragraph, KKR fund in final paragraph.)
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