Political consultant Joe Trippi became a celebrity by bringing former Vermont governor Howard Dean to the verge of the Democratic presidential nomination. Now Trippi's partners are open to capitalizing on that experience to find a buyer for at least part of their firm.
Steve McMahon of Trippi McMahon & Squier said potential purchasers are doing "quite a bit of tire kicking" of the firm's lobbying affiliate, Issue & Image. "If somebody made us an offer we couldn't refuse," he said, "we wouldn't refuse it."
McMahon is part of a much larger trend. Lobbying and lobbying-related businesses are being gobbled up at such a swift rate that three publicly traded advertising and public relations companies -- WPP Group PLC, Omnicom Group Inc. and Interpublic Group of Companies Inc. -- now own most of the influence industry's best-known names. These global behemoths control firms founded by former president Bill Clinton's pollster, former president Jimmy Carter's spokesman, and the current chairman and immediate past chairman of the Republican Party, among many others.
Insiders say that the consolidation is sure to continue and that other major players will enter the fray. "The business of lobbying is expanding all the time," said Howard Paster, executive vice president of WPP and a pioneer of the corporatization of the District's downtown. "It's only common sense that companies will want to add public affairs businesses to their portfolios."
Some outside observers aren't fans of the movement. "Problems rise exponentially as you get more and more firms under a single roof," said Burdett A. Loomis, a political scientist and lobbying expert at the University of Kansas. "The bigger these merged firms get, the more their service may suffer and the greater the chance for conflicts of interest among their clients."
The mergers are "troubling," said Larry Noble, executive director of the nonpartisan Center for Responsive Politics. "It raises a lot of questions: Will we see one voice -- or just a very few voices -- addressing various public policy questions? Will these few companies become political powerhouses by controlling a lot of the money in politics?"
Spokesmen for the mega-firms dismiss such complaints. They say the businesses they buy remain autonomous so they don't coordinate their campaign giving and are far enough removed from one another to allow clients who compete to retain different divisions of the same parent company. What's more, they insist, the acquisitions are designed to provide clients with a broad array of services needed in today's campaign-style lobbying efforts.
As a business, lobbying in Washington "is a good growth arena," said Harris Diamond, chief executive of the Weber Shandwick unit of Interpublic Group.
The merger trend began in 1989 with the purchase by WPP of the boutique lobbying firm Timmons & Co., which was one of the first non-lawyer lobbying shops in town. WPP, a British-based communications company, also bought a lobbying firm headed by former Carter aide Anne Wexler.
The pace of acquisitions accelerated at the end of the 1990s. In 1999, Interpublic scooped up Cassidy & Associates, Washington's largest lobbying firm, for a reported $72 million in stock. (Along with Cassidy came Powell Tate, the PR shop run by Carter press secretary Jody Powell.) That same year, Interpublic also bought the lobbying firm started by Haley Barbour, the former chairman of the Republican National Committee and now governor of Mississippi. Omnicom was equally acquisitive, purchasing PR and lobbying firms run by prominent Republicans and Democrats. In 2000, Omnicom also bought the issue-advertising firm Greer Margolis Mitchell Burns & Associates.
WPP also went shopping again. In 2001, it bought Penn Schoen & Berland Associates Inc., which had served as a pollster to Clinton. And in 2003, WPP acquired Quinn Gillespie & Associates LLC, whose principal Edward W. Gillespie is on leave while he chairs the Republican National Committee. Omnicom had come close to buying Gillespie's firm the year before.
The buying sprees were propelled by two financial facts. First, lobbying firms can be extremely profitable -- more profitable, in fact, than public relations or advertising, the basic businesses of the parent companies. Thanks to the high retainers lobbyists tend to charge, the ratio of pre-tax profit to revenue, or profit margin, of a lobbying firm can run from 25 to 50 percent compared with a large PR firm's 10 to 15 percent. "Generally speaking, our government-related businesses are more profitable than our other U.S. businesses," said Kenneth C. Rietz, chief operating officer of WPP's Burson-Marsteller unit.
Second, the principals of lobbying and lobbying-related firms are often eager to sell their ownership to bigger companies, especially when they are contemplating retirement. Their income from the sale (because it usually involves the transfer of stock) is taxed at capital gains rates, which are lower than regular income tax rates. And the sackful of cash they get allows them to squeeze value out of what they've built. "There are always people who have been in the business a long time who are looking for exit strategies," Rietz said.
So Omnicom, Interpublic and WPP never go wanting for wannabe subsidiaries. "I wouldn't say we're besieged, but we get approached by companies who want to sell quite a bit," said Paul Johnson, regional president of Omnicom's Fleishman-Hillard. He said he's in the market now for research, government marketing and specialty lobbying firms.
Newcomers to the merger game are also making inroads. Lake Capital Partners LP, a Chicago-based investment firm, last year committed to spend $50 million over several years to expand Dutko Group Cos., a diversified lobbying firm based in the District. It hopes to make Dutko a brand name in government affairs in the United States and around the world. The France-based Publicis Groupe SA also may be widening its presence in Washington, senior lobbying executives say. Eric Giuily, chief executive of Publicis Consultants, told the Wall Street Journal that it intended to beef up its public relations operations in America.
But the rush to the altar does sometimes prompt misgivings. In exchange for their newfound wealth (which regularly reaches into the millions of dollars), the former owners must deliver what can sometimes be unrealistically large profit to their new bosses. Corporate ownership can also limit flexibility and risk-taking, which typically are traits that allowed the firms to thrive in the first place.
As a measure of their discontent, some already-acquired companies are actively trying to undo their deals. APCO Worldwide Inc., a majority-owned lobbying and PR subsidiary of Grey Global Group Inc., is in intensive negotiations to buy itself back with the help of a significant investor. In addition, Haley Barbour's former firm, Barbour Griffith & Rogers Inc., is negotiating to "restructure" its arrangement with Interpublic Group, a lobbyist familiar with the talks said.
Lobbyists who sell their firms are usually obliged to remain with the company for up to five years, the purchase price tied to maintaining revenue growth over that period. But as often as not, the principals leave the moment they're permitted, occasionally starting another lobbying business of their own.
When such rapid flight occurs, the purchase is generally considered a failure. The reason: As with many service-oriented enterprises, lobbying is heavily dependent on the personal involvement of the principals. In fact, the relationships that the principals bring to the table are often the business's chief asset. "Finding a way to work with principals to have a gratifying career past their earn-outs is very important," Paster said. "We want to sustain the business."
That's rarely easy. Take the case of the lobbying firm Gold & Liebengood. According to people who worked closely with the firm but insisted on anonymity, Martin B. Gold and Howard Liebengood had difficult dealings with their owner, Burson-Marsteller, in the early 1990s. Profit goals weren't always met. At the end of their contract Gold and Liebengood bolted, and their parent eventually merged the remnants of their old firm with a business headed by Republican stalwart Charles R. Black Jr.
Even before the creation of the new entity, the new principals had to eliminate a potential conflict of interest. One lobbyist who was part of the company said Gold & Liebengood dropped one of its clients, the long-distance telephone company MCI Inc., because Black's firm represented its rival AT&T Corp. Now, despite the rocky start, the combined firm, which is called BKSH & Associates and is part of WPP, is growing by at least 10 percent a year.
Independent lobbyists have seen similar turmoil in other merged firms and aren't sure they want the aggravation. Thomas J. Downey of Downey McGrath Group Inc. said he has been approached two or three times, including by Omnicom. But he has demurred, he said, because he does not want to "twist myself into a pretzel" to deal with both clients and a corporate master. "You surrender a lot of control if you're not an owner," he said. For instance, he covets his freedom to do pro bono or low-fee work for the do-gooder clients he favors.
Bought-out firms also grouse that they sometimes have trouble attracting young talent, because they can't offer substantial ownership stakes. The allure of such stakes is that they can become hugely valuable when the firm eventually is sold.
Anthony T. Podesta of PodestaMattoon said the fit in a merger needs to be just right to create a growing, ongoing concern. And that takes harder work than lobbyists with their eyes on the exit may foresee. Acquisitions, he said, are "never quite as attractive as they sound. No one's paying you a lot of money to play golf or go hunting."
David M. Carmen, chief executive of Carmen Group Inc., said all sorts of arrangements short of a complete sale, such as merging existing firms and consolidating their administrative functions, make sense given the drawbacks of outright acquisitions.
Another option is to make deals closer to home. Last year, David E. Johnson and Patrick J. Griffin sold 60 percent of their firm to fellow lobbyists, including Peter T. Madigan, who had just left Interpublic's Cassidy after his earn-out contract from a previous merger had expired.
Then again, no lobbyist will ever say never to the chance to sell out. "I don't know of anybody who said with honesty, 'Not me, not ever,' " Podesta said. "At some point it's an attractive prospect for one and all."