Why P/E and PR don’t mix

When a flak buys a hack a friendly lunch the form usually runs like this: how are things, the flak asks.

Twenty minutes later she is still listening to the litany of moans that engulf nearly all journalists.

Everything is bad and getting worse. The new boss is an idiot. The owners do not understand the business. Everyone is stressed because they know what is being asked of them just isn’t deliverable.

Lately, colleagues have noticed a shift, or at least a levelling out of the moan factor – you lot are pissed off as well. Welcome to our world.

The rumblings of discontent come from firms large and small. The common factor is the arrival of new investors, who were supposed to grow the business and make everyone rich along the way. They can’t.

This seems to particularly apply when the investors are private equity.

One flak who has lived through the pain says: “P/E into PR never works. They buy, build and smash things together. It’s a classic example of management by spreadsheet/synergies. PR is long term and lumpy and entirely people driven. Private equity is none of those things.”

Operationally, what seems to happen is that unrealistic targets are set.

Agencies might be able to hit those growth rates initially, but it’s hard to do that over a sustained period – it’s a really competitive industry.

And the gap between the fees flak firms officially charge and what they might take (a lot less) can baffle the spreadsheet supremoes

The debt that was issued to take the stake in the first place soon gobbles up the equity, leaving execs demotivated and looking to leave. In fact, it is hard to think of a P/E investment in PR that had a happy ending.

It seems to me that P/E and PR are a bad mix – like football clubs that float on the stock exchange.

Results are going to be unpredictable, and investors don’t like it.