Huntsworth has become the first London-listed public relations company to receive significant Chinese investment, allowing it to reduce debt and rebalance away from its shrinking European business.
Shares in the company rose 19 per cent on Thursday, after it announced that Blue Focus, one of Asia’s largest PR groups, would pay £36.5m for a 19.8 per cent stake. The deal price of 58p per share is a 10 per cent premium to Wednesday’s closing price.
Huntsworth also announced that pre-tax profits rose to £22.5m in 2012 from £19.3m a year earlier. Revenues slipped 2 per cent year-on-year to £173m, a three-year low, with public relations agency Citigate the worst affected part of the business, falling 10.5%.
Huntsworth’s chief executive Peter Chadlington said he had worked with Blue Focus for eight years. Although there was initially speculation that the British company would be the acquirer, the Chinese company is now about six times bigger by enterprise value. “I was very interested in buying Blue Focus and Blue Focus was very interested in buying us,” said Lord Chadlington, adding that Huntsworth would now look to enter the US market.
The capital injection will reduce Huntsworth’s net debt, which was £66.9m at the end of 2012, to the same as its expected ebitda in 2014, said Paul Richards, an analyst at Numis, the company’s house broker. Huntsworth will invest £4m in digital infrastructure and staff in preparation for the partnership, highlighting how its debt burden had led to under-investment, said Malcolm Morgan, an analyst at Peel Hunt.
Blue Focus’s largest client is computer-maker Lenovo. Huntsworth and Blue Focus are likely to work together on communications strategies for Chinese companies abroad, as well as providing investor relations services within China.
Oscar Zhao, chief executive of Blue Focus, estimated that fewer than one in 20 listed Chinese companies had professional investor relations services, providing opportunities for Citigate. Lord Chadlington said that public relations companies were unlikely to succeed in China without local knowledge, stating: “There is almost nothing as different as the Chinese culture” when compared with UK culture.
Hong Kong-listed Blue Focus also has a partnership with Dentsu, Japan’s largest advertising group that completed its £3.2bn acquisition of UK agency Aegis earlier this year. The deal with Huntsworth is expected to close in October, with the companies providing estimates of future revenues in August.