FGS Global's ability to sell itself on a "McKinsey-style rating" is likely to shake up prospects for the corporate and financial consultancy sector, according to industry leaders responding to KKR's valuation of the firm at approximately $1.7bn.

The deal, announced earlier this week, saw KKR acquire WPP's 50.5% stake in FGS for $775m, taking the private equity firm's ownership to 74%. FGS reported estimated fee income of $455m in 2023, according to PRovoke Media's Global Agency Rankings.

While PR agencies are typically valued on far lower multiples of their earnings, the deal reinforces the notion that firms operating in the corporate, financial and public affairs advisory space are potentially worth far more than their counterparts. 

One agency head of a global corporate advisory firm admitted to PRovoke Media to being "stunned at the price." 

"Looks like it equates to a x17 multiple which sets a new industry benchmark," said the agency head. "It is an enormous price when you consider that our sector is asset-light and has few barriers to entry."

Rather than a divergence between boardroom-focused counsel and more generalist players, this agency head described the valuation as "a re-rating of strategic comms as a branch of management consultancy."

"So FGS is selling itself on a McKinsey-style rating," the agency head said. "[It's] clearly going to affect values in the strategic communications sector as a whole."

That said, few believe it will be plain sailing ahead. "KKR is not a charity, the opposite in fact," said the agency head. "They are going to expect FGS to deliver for them in the coming years. That means they will expect to be able to sell it on for $3-4bn when the time comes. Not sure where that value is going to come from."

The latter point is one that was echoed by others at rival consultancies, despite the resounding vote of confidence KKR's investment represents in the sector. "I struggle to see how FGS can quickly get the revenue growth the deal accounts for," said one executive at a leading corporate PR firm. 

However, KKR's clients are likely to spend more than $1 billion on advisors, including PR consultancies. "Access to that could give FGS a clear line of sight for new business and higher value services," representing a reasonable bet on the consultancy's future prospects, supplemented by further acquisitions.

Best known for the 'big four' of Brunswick, FGS, FTI Consulting and Teneo, the corporate advisory firms are not always viewed as a hotbed of innovation within the PR world. But the rapid rise of mission-critical issues management amid an era of prolonged turbulence has likely boosted demand for their services in boardrooms across the globe, even if their traditional transaction-based work has struggled to grow in recent years.

"There are a limited number of PR firms who can guide the C-suite and boardrooms through litigation, crises and other special situations and they are very much in demand,” said Brandy Bergman, CEO of Reevemark, a firm founded by former leaders from Sard Verbinnen, which was acquired by FGS in 2021. 

Generalist PR networks, and those operating in specialist sectors such as healthcare and technology, might beg to differ. But, as Paul Holmes noted last month, much of the private equity investment in the PR sector has focused on the corporate advisory space, including such firms as Penta, SEC Newgate, Team Farner, APCO, and Morrow Sodali. 

Further confirmation of whether KKR or FGS are outliers may well come soon, when BDT Capital Partners‚ which owns 10.7% of Brunswick — determines whether to increase its investment in the sector's biggest corporate advisory firm. The 2021 deal valued Brunswick at approximately £500m, a much more 'conventional' multiple compared to FGS Global. 

"Firms like us have to decide how much we're going to fight and invest," said Edelman CEO Richard Edelman. "We're going to compete. I congratulate [FGS]."

Edelman added that rising valuations may also require buyers to become more patient. "We’re not a PE firm, we’re not trading on that basis. We have a 25 year horizon, not a five year one."

"The big comms advisory firms look attractive," said a former practice leader from one of the big four. "They collect high fees and produce high margins. A cursory examination will reveal that a bit of grown up management would produce even higher profits. So the motivation for the deal is obvious."

The deal also comes at an interesting time in terms of generational leadership change, said the practice head. "The big four advisory firms are ripe for disruption. So KKR has the opportunity to bring in more sophisticated management and modernise and invest in growth and expansion."

"But there will be competitive pressure," added the practice head. "The big four advisory firms are wildly expensive and very traditional. More modern firms that can offer better, more holistic support in corporate affairs have the opportunity to take share from the big four. So the risk is that FGS and the others continue to stagnate, as they have for the last three years."

That competitive pressure may well be exacerbated by London's declining influence as a capital centre, given the British heritage of at least three of the big four. But, at the very least, few can be churlish about the premium the KKR investment suggests for corporate advisory firms as a whole. 

"Today we all have to take our hats off to Roland Rudd and Alex Geiser. Not many people manage to extract a deal like this from KKR."