Kenneth P. Ducey Jr. is the mystery man of K Street.
Downtown D.C. has been buzzing for weeks about a venture capitalist who's been secretly trying to buy a bunch of lobbying shops, tie them together and take them public. Well, the gossip is true, and the 41-year-old, Connecticut-based Ducey is that man.
I don't know whether he can pull it off; he won't identify his financial backer and the history of such ventures is abysmal. But investors have been digging deep lately in the belief that so much money can be won in Washington that lobbying companies are no-lose propositions.
"They're excellent businesses," the gregarious Ducey effused in a telephone interview. "At least the lobbying firms I've been talking to have been growing substantially over the past five to 10 years, are earning money and have a very loyal clientele."
In other words, manipulating government has developed into a reliably high-margin -- and thus high-rate-of-success -- enterprise.
That fact may contain the seeds of K Street's own decline, of course. With scandals involving lobbyists and lawmakers ravaging Capitol Hill and dragging down public faith in politicians, it probably won't be too long before new restrictions are placed on lobbying and campaign donations. That, in turn, might dent lobbying's profitability and effectiveness at least for a while.
In the meantime, the market for lobbying properties is hot. Ducey's entreaties come during a mini-wave of acquisitions. Last week, Financial Dynamics, an international public relations company, bought the District's Dittus Communications, an expert in PR for lobbying campaigns. And in September, Ogilvy Public Relations Worldwide, a unit of Britain-based WPP Group, bought the Federalist Group, a Republican lobbying firm.
Other permutations of partnership have also proliferated. Two years ago, Lake Capital Partners, a Chicago-based investment firm, committed to spend millions of dollars to expand Dutko Worldwide, a diversified lobbying firm. There's also talk that people other than Ducey are eager to purchase lobbying firms with an eye toward offering them to the stock market.
Gerald S.J. Cassidy was the first person to try to take a lobbying company public when, in 1998, he offered shares in the firm that bears his name. He proposed to become, in effect, the King of K with a stock sale that would have raised him $40 million.
It never happened. The IPO foundered as the market weakened and people expressed doubts that lobbying -- the quintessential service business without tangible assets -- was steady enough to gain value over time. Cassidy & Associates was sold the next year to Interpublic Group of Companies Inc. instead -- becoming another in a long series of lobbying shops that have been bought by multinational advertising giants.
Ducey is betting that times have changed and that a free-standing lobbying company can thrive in the stock market. He said modern lobbying isn't so much back-scratching as "best practices" that can be learned and passed along in a professional manner. He is also convinced that lobbying has become such an accepted part of Washington that the danger of it falling out of favor is small.
What lobbyists need but don't have, he said, is access to capital. Not the nation's capital, but capital in the sense of financing, primarily for expansion. And Ducey, as a longtime financier in the New York region, said he has a way to tap into it.
Unfortunately, Ducey won't say what his money source is. His only hint: "The investment bank that is involved is a credible, household name," he said.
Should we believe him? Is his concept a good deal for either the lobbyists or the public?
It's hard to know.
Ducey has been involved in government-related investments before, and they haven't worked out perfectly. He was president for a couple of years of Markland Technologies Inc., a collection of defense and homeland security contractors based in Ridgefield, Conn. But in March a company news release said that Ducey was "removed from his position by the Board of Directors."
Markland doesn't appear to be doing so well. A statement on its Web site put the company's net loss for the quarter ended Sept. 30 at $4.2 million, more than three times larger than the year-earlier period, on revenue of nearly $19 million. At the market's close Friday, Markland's stock was trading at less than 2 cents a share, down from nearly 18 cents in August.
Ducey claimed that he left the company after he and the board disagreed about strategy. But that couldn't be verified. Markland declined to comment.
Other people who have worked with Ducey say that he is a known commodity in the hit-or-miss, small-business investment game and is experienced with the kind of "roll up" transactions that he's contemplating in Washington. "He's a legitimate guy, has access to capital and he seems to be on to something here," said Michael J. Byl, president of Greenfield Capital Partners, an investment banking firm in Ridgefield.
Ducey has made his living finding and riding the popular wave. In 2000, he was considered an expert in outsourcing. After the attacks of Sept. 11, 2001, he helped Markland accumulate security companies. And now he sees lobbying as the next new thing.
In the last 90 days, Ducey and Brien F. Morgan of McLean's Lerota Capital have been quietly trolling K Street for acquisitions. Ducey said that he's had serious discussions with a handful of lobbying firms and might buy one of them in the next two months. When he pulls together enough companies to have total annual revenue of $30 million to $40 million, he plans to sell shares in his holding company, Hermes Group International Inc., to the public.
What isn't in doubt is that outsiders to the Capital City see the influence industry as a potential cash cow. Financial Dynamics, which has concentrated on investor relations and public relations connected to corporate mergers, bought not only Dittus in Washington but also a lobbying-related company in the United Kingdom called LLM.
"There's a very serious commercial opportunity for us in public affairs," said Declan Kelly, chief executive of the U.S. unit of Financial Dynamics. "For the last number of years, it's continued to expand in terms of fees. It's a fast-growing segment."
With the help of the $9 million-a-year Dittus, no one would be surprised if Financial Dynamics is on the block in a year or two (though the privately held FD won't divulge its thinking).
Lake Capital also plans eventually to sell its stake in Dutko to other investors or to sell out when a larger corporation buys Dutko itself. "Lake invests in good companies that they believe are well run," said Mark S. Irion, Dutko's chief executive. "We're a good, retainer-based business with continued high growth year over year."
Translation: There's a market out there for lobbying companies.
The more of such businesses that can be patched together into a portfolio, the safer the overall investment will be. David M. Carmen, president the lobbying firm the Carmen Group, foresees a time when a hundred-million-dollar lobbying company, much larger than any that exist today, could become a national and worldwide brand. "There will be room for one or two of those," he predicted. "That will be a bellwether moment."
Maybe Ken Ducey will hasten the day -- for good or for ill.
Jeffrey Birnbaum writes about the intersection of government and business every other Monday. His e-mail address is firstname.lastname@example.org. He will be online to discuss the massive growth and profitability of lobbying today at noon at www.washingtonpost.com/business.