Philipp Freise, Partner at US investment firm KKR, was unquestionably delighted: „Congratulations to my friend and partner in crime Alexander Geiser, for being recognised by Handelsblatt as the only strategic communications professional within the ranks of Germany´s top dealmakers", the Co-Head of European Private Equity posted on Linkedin a few months ago. Geiser is CEO of strategic communications consultancy FGS Global.

"This is not only a testament to the great work he and the FGS Global team are doing, but also to the critical value that communication adds to transactions and business success in our modern stakeholder economy,“ Freise wrote. "Very proud to be Alex's partner in FGS Global through KKR's recent investment. Way to go!“

KKR had recently acquired around 30% of FGS Global, while the advertising group WPP still holds 50.1%. The remaining 20% is split between almost 600 senior members of the team. The firm has a total of 1,400 employees. Geiser is CEO, together with co-CEO Andrew Cole in North America. Chairmen are the founders of Finsbury, Glover Park Group (GPG) and Sard Verbinnen. The company is managed by a Global Executive Committee of around 20 people.

„There was no official sales process, we sought dialogue with FGS bilaterally,“ recalls Freise in an interview with Börsen-Zeitung. „There is a meta-trend towards consulting on stakeholder issues. CEOs used to only call McKinsey. Today, they also call Alexander Geiser.“

KKR's investment in FGS is not an isolated case in the private equity sector. In 2019, the Amsterdam-listed financial investor CVC acquired a stake in the strategic communications consultancy Teneo, one of FGS's biggest rivals. The Teneo management at the time received a significant minority stake. Over the years, CVC has provided additional capital for a total of eleven acquisitions, such as the takeover of Deloitte's UK restructuring business, and the purchase of political consultancy West Exec Advisors, which was founded in 2017 by Antony Blinken and others.

2023 was a record year for Teneo with a turnover of more than 600 million dollars. The number of employees has doubled to 1,600 since CVC came on board. In addition to strategy and communications, the company provides financial advisory, management consulting, people advisory and risk advisory services. PR firm Brunswick Group, the other player in the group of three global PR consultants, which was valued at 580 million euros when it was acquired in 2021, also has a financial investor as a co-owner. That is BDT Capital, the investment company of „Warren Buffett's banker“ Byron Trott.

Alternative investment manager Investcorp has held a stake in the Italian communications consultancy SEC Newgate since 2023. According to the deal announcement, Investcorp acquired a majority stake and contributed around 90 million euros as part of a capital increase. The other shareholders, including Three Hills Capital Partners, remained involved. „Keeping the key people on board is crucial in transactions in this sector,“ says Jose Pfeifer, Managing Director at Investcorp.

Takeovers are also increasing among management, strategy and IT consultancies. Jörg Hossenfelder, Managing Partner of Lünendonk & Hossenfelder, an analysis firm specialising in the consulting market, explains that the fast pace of change shows the strong competitive pressure in the sector. For larger mandates, a consulting firm needs the visibility that comes with size, in addition to having a large staff of professionals. That comes with a turnover of around 100 million euros, "but the pressure increases for many smaller firms,“ he explains. Private equity investments are a means of building a platform by integrating smaller competitors.

When making investments, financial investors are of course primarily interested in making money. In the small-scale consultancy sector, regional firms can be merged into global players. SEC Newgate also wants to act as an active consolidator, explains Pfeifer at Investcorp. Since the transaction was completed in December 2023, there have been two add-ons in the Netherlands and Greece.

A notable example of the increasing consolidation trend can be found in WPP's portfolio. In 2018, WPP merged the consulting firms Burson-Marsteller and Cohn & Wolfe to form BCW. Now BCW is to merge with Hill & Knowlton to form Burson, with the unit set to become active in the second half of the year. Competitors are keeping an eye on such changes. „Such transactions often lead to conflicts of interest,’ surmises Fiorenzo Tagliabue, Group CEO at SEC Newgate. ‘We see such situations as an opportunity for us to win new customers.“

SEC Newgate intends to continue its growth both organically and through M&A, with Scandinavia being one of the target regions that Tagliabue has in mind.

The communications agency Farner Group from Zurich is also on a shopping spree with PE support. Waterland Private Equity has held a 50% stake since 2021. In 2023, Farner acquired the communications consultancies Komm-Passion and Kirchhoff Consult within a few months of one another, followed shortly afterwards by GFD Finanzkommunikation. With their client contracts usually concluded for one year, PR firms offer comparatively stale cashflows – an advantage from an investor's perspective. And the potential of influencing public opinion in favour of their industry is likely to be a nice side effect for private equity firms.

KKR described its investment in communications consultancy FGS Global in April 2023 as a „growth investment’. FGS did not need a financial investor to provide capital. „KKR wanted to help promote growth,“ says KKR manager Freise. ‘It was important for us to be able to contribute our global expertise. The minority stake that we acquired from Golden Gate Capital, among others, is sufficient for this.“ Freise is also a member of the Supervisory Board.

Alexander Geiser, co-founder and CEO of FGS Global, explains why the sector is growing: „Today, the pure equity story is no longer enough", he says. "It has become more complex because, in addition to shareholders, you also have to convince employees, managers, analysts, politicians and NGOs of your strategy. On top of that, if you can't offer your services to large corporations all over the world, you won't be able to beat your competition in the end.“

The consultants' capital is their employees, who must have good incentives to stay. This is why private equity investors have long held back on deals with consulting firms. In many cases, the structure of the investment should now ensure that the „walking assets’ are kept on board in the long term. "Investors are deliberately giving consultancies more room to manoeuvre in order to avoid churn – the private equity firms often limit themselves to minority stakes,“ observes Hossenfelder.

Tagliabue from SEC Newgate also favours shareholding structures in order to retain key people at regional level. The local businesses continue to be managed with a high degree of autonomy, while the shares of the managers are often converted into shares in the parent company, which is intended to further strengthen cooperation. From now on, their incentives will no longer be based on the results of the local unit, but on those of the group.

However, retaining key people is not the only difficulty. Conflicts of interest abound. KKR, for example, is not only a co-owner of FGS, but also receives advice on communication matters – as do Advent and Nordic Capital at times. Rival CVC is also a client of FGS and also has a stake in Teneo.

In bidding wars, such as the one for the drug manufacturer Stada, or the online pet food retailer Zooplus, bidders and companies sometimes found themselves with the same PR consultancy. It is not always easy to maintain the Chinese walls.

FGS Global CEO Geiser does not consider the parallel mandates to be a problem: „Of course we handle them transparently and there must be no conflicts of interest", he says. „Each client is advised by an individual team.“ Absolute exclusivity is offered for certain events or transactions." Co-owner KKR is also relaxed on this subject: "Of course, FGS also advises some of our competitors, but we naturally have no insight into these mandates,“ says KKR manager Freise.

Geiser pushes back on speculation about an impending IPO of FGS, saying that the company is in the „investment phase“. It could be years before an IPO. Nevertheless, rumours persist – with the justification that KKR has just been brought in as a shareholder to facilitate an initial listing.