FGS deal sets new benchmark for private equity in PR

FGS Global’s ownership change—private equity firm KKR & Co. is set to take WPP’s majority stake—has industry leaders abuzz. Specifically, how much the private-equity firm agreed to pay for FGS is what piqued their attention.

In early August, marketing service holding company WPP and KKR revealed they would no longer be partners in FGS, a corporate and financial comms agency with 30 offices around the world, 1,400 employees and its legal headquarters in New York.

In a deal expected to close by year end, WPP will divest its majority share in FGS, and New York and London-based investment firm KKR will increase its equity from 29% to about 74%. Over 50% of FGS’s consultants around the world—representing over 500 employees—will hold the remaining 26%.

High-level executives in financial and corporate comms aren’t surprised the deal was made, noting FGS has wheeled and dealed numerous times in the past. They say it also makes sense for WPP to focus on its other comms offerings, Burson and Ogilvy PR, and pay down debt.

But what has raised eyebrows is the seemingly massive valuation a PE firm put on a comms firm. KKR’s payout to WPP values FGS at $1.7 billion—around $100 million higher than what KKR is said to have offered WPP in June.

The valuation is also about $300 million higher than in April 2023, when KKR first invested in FGS, following the exit of another PE firm, Golden Gate Capital. Golden Gate had been a minority investor since FGS was formed in 2021 from the merger of Finsbury Glover Hering and Sard Verbinnen & Co. (where Golden Gate had a position since 2016). Finsbury Glover Hering itself was born as a combined entity in 2020 after the merger of WPP stablemates Finsbury, The Glover Park Group and Hering Schuppener.

Experts also note that buyers often stretch the purchase price for competitive reasons, such as to prevent a rival from gaining more leverage in a sector, or because they see how to quickly scale a business through “bolt-on deals.”  

“It’s all about math in justifying a multiple,” says a source.

However, insiders say KKR didn’t pay a control premium, and a multiple of 15 times earnings is what it will pay out on this transaction, the same multiple as it paid in 2023 for a minority stake.

One executive asserts the KKR-FGS transaction reflects “a sea change” in how PE firms are viewing comms firms.

“I’ve been in the capital business for a long time, and a multiple from a PE firm like that would never, ever have been in the cards for a human capital business five years ago,” says this executive. “The paradigmatic quip was that ‘the assets walk out the door every night.’ And while that’s still true, something in the mindset of PE firms has changed. There are a lot of reasons for that, the main ones being they have the money, these businesses can be wonderful cash-flow generators and they realize they can just find more people if they do go out the door.”

Alex Geiser, CEO of FGS Global, agrees PE firms are seeing value in comms firms that they didn't before. But he says the financials of the deal also reflect how attractive to investors the kind of global growth business FGS has built—and is continuing to build.

“We decided five years ago we're going to be trailblazers,” he explains. “We saw that 99% of the issues the CCO, head of public affairs or investment relations center used to be able to handle on their own would also become of interest to the board. There has been a shift from a shareholder economy to a stakeholder economy, and that impacts a company’s ability to deliver on strategy, maintain momentum and their leadership credibility, and that is where we have been able to deliver for clients.”

“The fact that one of the most sophisticated investors on the planet doubled down with us should make eyes wide open to the possibility for the agency and comms consulting sector," adds Geiser. 

"I hope we can be seen as a north star to those players willing to try and become market leaders — leaders who have global partnerships and are well-diversified across businesses, currencies and geographic markets, with a track record of outgrowing the market.”

On LinkedIn, Geiser thanked WPP “and in particular Mark Read, for their partnership through the years.” But before making that post, he told PRWeek that FGS had “very low synergies with WPP” and the holding company “posed limitations to us.” 

In response, WPP CEO Mark Reid told PRWeek, “I don’t think KKR is going to be an easier manager of the asset than WPP was. If he [Geiser] thought WPP called the shots, it will be interesting to see how he finds life as part of KKR.”

FGS works with between 2,000 to 2,500 clients per year globally, and over the past 12 months counts ARM, Klaviyo, Bloomberg, Bayer and UnitedHealth Group among the companies that have sought out its counsel. The agency provides services including transactional comms, crisis and issues management, and global public affairs.

It reported 2023 revenues of $455 million in PRWeek’s 2024 Agency Business Report, ranking as the world’s ninth-largest comms firm by revenue. It also had the highest year-over-year growth — 8% — of any firm in the global top 10. About 59% of its business was in the U.S., where 6% growth was third-best among the top 10 in the country.

It remains to be seen what kind of owner KKR will be, of course. But over 500 consultants will retain ownership stakes in the company post deal that were first secured after KKR became a minority investor in 2023. Prior to KKR's investment, FGS had 250 of its most senior partners and managing directors as equity partners.

KKR has an employee ownership model of its own, which The New York Times detailed in a feature in late January. It aims to incentivize employees of its acquired companies to keep growing the business, thereby boosting the eventual sale price by more than what KKR leaves on the table.

According to recent public documents, to date KKR portfolio companies have awarded billions of dollars in equity to over 100,000 non-senior management employees across more than 50 companies.

But as one executive warns, “if anything goes a little bit sideways, you suddenly have a bunch of talent that thought maybe they were going to get a pretty big payday get very little. Anybody who gets equity ought to be eyes wide open to the fact that they only get paid if KKR hits the goals they want to hit.”

KKR’s exit plan when it was a minority investor of FGS was said to be a planned IPO. Now more likely, says one insider, is an eventual sale, not to another holding company, but “another financial buyer who wants to harvest the cashflow. If you are a private equity firm who is not KKR, there is some cachet in buying a company from KKR.”