NEWS ANALYSIS: Questions abound over APCO future

APCO, the once-dominant public affairs agency, has seen its client base shrink, two managing directors depart and is now up for sale, yet the company argues it is experiencing healthy growth.

The last year has been a tumultuous one for APCO UK. According to lobbying consultancy trade body the Association of Professional Political Consultants (APPC), during 2003 it shed just under a third of its clients and half a dozen staff and last autumn, as part of APCO Worldwide, went up for sale (PRWeek, 3 October 2003).

Four months on and there is still no announcement regarding a buyer. Last week APCO UK announced the departure of its second MD in a year as well as the loss of four-year client UK Atomic Energy Authority (UKAEA) to rival Grayling (PRWeek, 30 January).

To compound its troubles, the APPC published its latest register of members' interests, revealing that APCO had seen its client list dropping in number from 74 to 50.

Its position leaves many in the public affairs industry wondering: what on earth is going on at APCO?

While the firm looks to replace Stephen Kehoe - its managing director who last week announced he is to join PepsiCo as vice-president of government affairs after just over a year in the job - it has brought back into the top role former MD Simon Milton.

Milton, who is also Conservative leader of Westminster Council, describes himself as a 'temporary office manager' at APCO until a replacement for Kehoe is found. He says APCO's streamlined client list and the departure of certain key staff in recent years such as Kehoe and his predecessor Nick De Luca who left last year, tells one side of the story.

Streamlining the business

He describes the loss of around 20 clients last year as part of a strategy to refocus the agency on the large corporate accounts and to 'shed' the smaller project work.

'A lot of the difference is made up of project clients. What the APPC register doesn't show is revenue. We are in fact performing better now with less staff and fewer accounts. What we have done is weeded out some of the smaller accounts and increased the work on the corporate communications side,' says Milton.

He adds that the focus of the firm now is not purely government relations but more of the lucrative corporate communications work. Both he and Kehoe cite Merck Sharpe & Dohme, Microsoft and the Learning and Skills Council as key examples of clients where revenue and workload has greatly increased.

And it has just picked up work from the Association of the British Pharmaceutical Industry (ABPI) lobbying on NHS pricing.

Milton says he can back up his claim that the agency's revenue is up by giving a figure of ten per cent growth. However, since APCO Worldwide is owned by US-listed Grey, he is prevented by the Sarbanes-Oxley Act from releasing further financial details.

On closer inspection of APCO's recent client wins and losses, it is easy to see how the likes of former client Hammersmith and West London College are not likely to be missed financially.

But what of Sony UK, Saab, Exxon Mobil and Federal Express, who are - according to the latest APPC register - among the clients APCO no longer works for? Kehoe says that most of these can also easily be explained as project work that won't be missed.

While this may be true for Sony, Saab and Exxon Mobil the explanation for the loss of Federal Express is slightly different. Kehoe explains that Fed Ex decided instead to employ De Luca, who following a period of leave from APCO, decided to set up his own consultancy.'They were one of Nick De Luca's clients, which he took with him. Shit happens, we have to move on,' he says.

But the UKAEA review shows that not all client losses can be put down to the need to shed project work.

The atomic energy body's public affairs manager John Price explains that APCO lost the account to Grayling because the latter demonstrated what he felt to be better ideas in the pitch.

'APCO has done some very good work for us. It was a hard decision to make but we liked the ideas Grayling came up with,' he says.

Rivals attribute APCO's client losses to the departure of key figures. Several point to the loss of De Luca, director of public affairs and government relations Simon Crine, who moved to Ofcom as its director for England (PRWeek, 23 January) and co-founder Rosemary Grogan, who last year joined Morgan Allen Moore as a consultant (PRWeek, 17 October 2003) as major losses.

Agencies need to adapt

While not commenting directly on APCO, Bell Pottinger Public Affairs managing director Peter Bingle says: 'The public affairs market is in a state of transition and some firms are no longer in the position they once were.'

On the same basis, Hill & Knowlton corporate affairs managing director Andy Pharoah says the sector is changing and that agencies need to adapt: 'Clients are more intelligent nowadays. The idea of going in and saying "we'll get you such and such access" no longer works.

'They know what they want and will use you for maybe one or a variety of things,' he says.

Despite leaving at the end of next month, Kehoe remains bullish in his defence of APCO. In a parting shot to critics of the agency's strategy, he says: 'We've seen significant revenue and profit growth over 2002 and going into 2004.

'Frankly, the firm has never been more healthy. It is ironic that I won't be around to enjoy all that success and there is a big part of me that is very sorry to be leaving but life sometimes moves in mysterious ways.'

APCO KEY EVENTS 2003-2004

January 2003: Steven Kehoe appointed UK MD replacing Nick De Luca

April 2003: De Luca sets up The Shore Consultancy, taking client Federal Express with him

October 2003: APCO Worldwide is put up for sale by parent firm Grey Global Group, which decides to consolidate its PA investment behind GCI Group

January 2004: Latest Association of Professional Political Consultants register reveals APCO reporting a third less clients during 2003.

Kehoe resigns to join food giant PepsiCo in Brussels, director of public affairs and government relations Simon Crine quits to join communications super-regulator Ofcom and the UK Atomic Energy Authority drops the firm as its public affairs adviser.

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