Analysis: What APCO Wants
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Holmes Report

Analysis: What APCO Wants

APCO founder Margery Kraus opens up about her search for new investment at the world's fourth-largest independent PR firm.

Arun Sudhaman

Analysis: What APCO Wants

APCO has always cut a slightly different figure to many of its peers in the global public relations world — whether by pioneering the public affairs agency model, investing heavily in research and data, developing a broad employee shareholder base, or buying itself back from Grey/WPP.

In the 31 years since she launched the firm from Washington DC, founder Margery Kraus has steered APCO to around $118m in fee income, employing more than 600 staffers, making it the world’s fourth largest independent PR agency, and the largest controlled by a woman. All of those factors are notable, but it is one other — APCO’s successful dalliance with private equity investment for more than a decade — that is currently attracting particular interest.

For more than a year now, Kraus has been involved in an effort to sell the minority stake (believed to be around 30%) of APCO that has been held by WindRiver since the firm regained its independence in 2004. While she will not comment on specific companies, it is understood that the initiative has attracted interest from several quarters, including consortia of individual investors and other private equity players; at least one major holding group; management consultancies (APCO has a growing relationship with Deloitte, for example); and — perhaps most notably — emerging US consultancy Teneo, which bought UK firms Blue Rubicon, Stockwell and Pendomer earlier this year.

The presence of Teneo among APCO’s suitors suggests that a majority sale of the firm cannot be ruled out. In an exclusive interview with the Holmes Report, though, Kraus is more circumspect. "We’re not looking to sell a majority now" she tells us via telephone from Mexico. "We are simply looking to replace our current outside investors, who are minority investors. If we would ever consider selling a majority in the company, it would have to be an extraordinary opportunity—both in terms of value created and in terms of strategic opportunity for our team."

Instead, Kraus sees a pivotal opportunity for APCO to be "more dynamic and forward-thinking".

"I made it well known to the staff a couple of months ago, that I was trying to attract new capital into the company and do it by exiting our current private equity investors," she says. "I’ve been talking to a lot of people — representing several different types of options — for the past few months. I haven’t been very quiet about the intention. There is a lot of interest and it’s just a matter of being very particular about who and what kind of capital we want to attract, because it’s important — this could be a period of accelerated growth if we find the right party and depending on how we invest that capital." 

Kraus has numerous concerns to consider as she weighs up the options. Foremost among these must be the views of APCO’s employee shareholders, which now number more than 60. In a 2013 interview with the Holmes Report, Kraus noted that WindRiver’s involvement had worked because of the PE firm’s shared commitment to "patient capital", which included "divestment to other employees." At least some of those employees, particularly at the more senior end of the spectrum, are likely to favour a 'monetising event'.

"We’re majority employee-owned," explains Kraus, who remains the firm’s largest shareholder. "That is the relevant point.  They'd like to have a return. We have to calibrate all of these considerations."

However, Kraus dismisses the notion that there is pressure to sell, noting that other mechanisms are in place to compensate shareholders for their equity. "We are not under any pressure in that regard. We already have a program to buy back shares from our employees and the more we grow, the higher their return will be."

In that same 2013 interview, Kraus added that one of the conditions for working with Windriver ensured that the firm could not make an "easy exit". As that moment looms, though, Kraus is focused on ensuring that APCO’s next investor brings more than just money to the table.  "We have been fortunate to have partners who have been with us for the past 10 years but it would be good to give them a proper return on their investment and replace them with a more strategic investor," she says.

Accordingly, Kraus wants a partner that can complement APCO in specific areas, including big data (the firm launched its own offering in 2014), global geopolitical solutions (where APCO’s international advisory council remains a unique, if premium, practice) and digital. "We have been fortunate to have partners who have been with us for the past 10 years but it would be good to give them a proper return on their investment and replace them with a more strategic investor," — Margery Kraus. "If we’re going to try to make it a more strategic partnership, there are three to four categories," she says. "It’s not just the highest valuation or bidder. But I do have minority shareholders, so there does have to be consideration about the prices of shares."

With that in mind, Teneo must seem like a intriguing proposition, given the firm’s focus on C-suite counsel and international advisory. But Teneo is not without controversy, and cultural compatibility is likely to prove a significant element to any prospective deal, say sources within APCO. Teneo itself did not respond to request for comment, but agency sources within the group told the Holmes Report that talks with APCO have taken place.

"At the right price (one that reflects poor revenue trends and razor-thin margins), APCO is an attractive investment opportunity," says one industry source familiar with the situation. "For an investor with a long-term view and a stomach for palace intrigue."

Of the other options, meanwhile, Kraus is least bullish about the holding group model. "To be part of somebody else’s collection doesn’t seem like it plays to our strengths or give us the chance to differentiate ourselves," she points out. "Especially, if I’m exiting this business at some point."


As with many independent firms, the question of succession has hovered over APCO for several years. Last year, Kraus named Brad Staples as CEO while retaining the executive chairman role for herself. At the same time, her son Evan Kraus was elevated to president and operations MD — ensuring that, while the succession issue was not immediately clarified, the prospect of a post-Margery future was brought into sharp relief.

"The succession is, at least in certain parts of the business, well underway," she explains. "It gives me a chance to focus on the things I’m best at doing."

"I don’t want to have the sell the company because I haven’t made the right preparations," adds Kraus. "I’d rather figure out a way that we keep the value system and the things that make APCO, APCO."

For her part, Kraus is clear that APCO’s succession plan will continue to focus on having the "right people in the right jobs," which may turn out to be easier said than done as the firm attempts to replicate the unique combination of vision and energy that Kraus has brought to the firm since its inception.

"Brad has been with the company almost 20 years and Evan has been here almost as long," she continues. They have very different but complementary skills and work together very well. Brad has taken over the day to day leadership as CEO and Evan has been his partner in this transition."

APCO at 31

Throughout its 31 years of history, APCO has demonstrated an enviable ability to punch above its weight, taking on big-ticket assignments for corporates that often involve genuine geopolitical counsel at a C-suite level. Independence, unsurprisingly, has hardly hurt — enabling APCO to invest ahead of the curve in such areas as research, digital, sustainability and geographic expansion, even if it has impacted its profitability versus publicly-held firms.

But as the industry continues its rapid evolution towards an even more integrated future, Kraus will be keenly aware of the need to ensure that APCO retains its ability to ‘future-proof’ its development.

"This is a good time to think about the next decade and how we can use our nimbleness and integration to our best advantage," she says. "The right kind of investment and partner at this stage of our growth — as the whole industry is changing — can make us even more competitive as we look to what clients want and need the most."

Accordingly, Kraus points to "strategic alignment" as an important factor in any investment decision. Beyond that, she notes that "compatibility" is important, along with a desire, "if possible, to preserve our independence and majority women ownership."

That last trait, says Kraus, is a distinctive characteristic, one that she believes helps APCO in a more diverse environment. "Given the world is finally paying attention to diversity in their suppliers and especially focusing on women entrepreneurship, this should be a great time for us to partner with clients who are serious about this initiative."

Despite ending its Blackberry relationship, furthermore, APCO is expecting growth of at least 4% in 2015, after a few years of flat returns. But Kraus contends that typical growth forecasts are less relevant for APCO, where the proportion of project revenue can mean that firm has to replace as much as $50m of business each year. "So we continue to grow and add new clients but it doesn’t always show up in the growth numbers," she says. "We are moving away from project work as more companies become familiar with our full range of services."

Even accounting for its low growth rate in recent years, and APCO’s willingness to use its profits to invest in its staff and business (rather than just paying shareholders), there is no doubt that the firm represents a significant prize among would-be industry investors. APCO has doubled in size since the MBO from Grey and, as the key figure behind one of the global PR industry’s true success stories, Kraus is probably right to take her time when it comes to finding a partner that will help, rather than hinder, APCO’s delicate balance of business savvy, intellectual leadership and geographic strength.

"The key to making a return is ensuring the founder's commitment to doing what is necessary to yield one — exiting non-strategic markets, trimming legacy leaders and advisors, adding management know-how and modernizing capability," adds the industry source. "APCO's niche position, global footprint and independence give it an interesting perch from which to attack global pretenders in the holding companies." 

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