Public Policy Holding Company (PPHC) LON:PPHC, is an odd beast, not necessarily the kind of company that you would generally find floating about on AIM. Or perhaps it is, as AIM is a market for all flavours. The Washington D.C.-based firm has been listed on AIM since December 2021 and is primarily engaged in the (big) business of lobbying US politicians.
Political lobbying is part of every democracy. It is quite a controversial occupation, which critics pan as an activity that gives companies or individuals with inordinate socio-economic power the opportunity to influence democratically-elected politicians who can change, or corrupt the law in favour of the person or organisation behind the lobbyist, when the politician should be serving the wider interests of the community or caucus they were elected to represent. Excessive lobbying is often seen as one of the root causes of democratic deficit.
However, lobbying can bring about positive change. It’s been the lobbying of a multitude of small interest groups that will bring world leaders to Sharm el-Sheikh in Egypt later this month for COP27, where it is hoped that the delegates will emerge from talks with a unified, global solution to tackle the issue of climate change. Positive social change lobbying has improved the lives of people at the lower-end of society across the world.
Political lobbying is a bit like Marmite. Like every aspect of society it can be used for good and for bad. And although lobbying can be a positive force in democracy, it can also be a mechanism for powerful groups to influence laws and regulations at the expense of the public interest. The practice may result in undue influence, unfair competition and policy capture, to the detriment of effective policy making. The OECD warned that regulation in many OECD countries has still to catch up with the growth and sophistication of political lobbying.
In the UK, lobbying undoubtedly goes on every day in the Palace of Westminster and its environs and here it is regulated through the Transparency of Lobbying, Non-party Campaigning and Trade Union Administration Act 2014. However, in the US, political lobbying is an art form and has been in place as long as America has had a democracy and had always been a contentious issue – if you go by the quite savage satirical cartoons from the nineteenth century.
Grassroots Influence
Of course, PPHC maintain that they are engaged in only the most ethical, above-board and legal forms of political lobbying in the US. The company’s tag-line is “…Building the future of public policy and advocacy communications,” and it describes itself as: “…a group of premier advisory firms specializing in government affairs, public relations, strategic research, grassroots influence and digital campaign solutions.”
PPHC has around 500 corporate clients, institutions and coalitions represented in its client roster. The company was founded in 2014 and is headquartered in Washington D.C. with offices in Boston and New York and primarily operates in financial services, energy, agriculture, transportation, foreign policy, healthcare, and technology. The company is happy to play both sides of the coin and highlights the bi-partisan nature of its practice. Neither Red, nor Blue are safe from its lobbyists!
The lobbying firm has primarily grown through acquisition, having completed eight transactions to bring various smaller lobbyist firms under one umbrella, to increase its efficiency and reach through scaling up. Most recently (3rd October) PPHC announced the acquisition of Californian public relations firm KP Public Affairs, one of the largest PR firms in the state, founded in 1996, giving PPHC the opportunity to expand its reach to the West Coast. PPHC paid USD35m for KP made up as 90% cash and 10% equity.
California dreaming
The KP transaction was the first acquisition PPHC made since going public on AIM and gives PPHC further input into state-level as well as national advocacy in key US states – something the PPHC is likely to replicate in other key US states. KP will continue to operate under its own brand and with a large element of autonomy, but will be able to tap into PPHC’s national network and its influence with lawmakers in Washington D.C.
The company said in a statement that the “…Acquisition [is] expected to be accretive to underlying earnings per share in the first full financial year post completion, being FY23.” PPHC buys into KP’s reputation as one of the largest lobbying firms in California for more than 20 years, with clients including Fortune 500 corporations, industry associations, local governments, and small businesses. KP reported revenues of USD10.9m in December 2021, which equated to profits of USD3.2m.
To underwrite the transaction, PPHC issued 739,589 New Common Shares of USD0.001, which will rank pari passu with the existing Common Shares in issue, to be admitted to trading on AIM.
In its last half-year results to 30th June 2022, PPHC announced organic revenue growth of 9.6% to USD51.7m (GBP44.8m). This compared to USD47.2m for the corresponding period in 2021. Despite an increase in revenue, the firm did report a small 0.6% fall in Underlying EBITDA to USD14.4m, and a slight 0.5% fall in Profit before tax to USD 14.4m compared to the same period in 2021. However, cash in hand was up 35.2% to USD17.9m. The company announced an interim dividend per common share of USD0.045.
The company opened trading today (1st November) at 145.5p. It has offered a year-to-date return of 1.46% with its shares ranging between 129.42p and 150p since launch. The company has a market capitalisation of GBP158.5m.
PPHC is in a market segment that offers significant growth potential. One look at the lines that are currently dividing US society, the stratification of political opinion post-Trump, post-Covid, and in a time when the US needs to take global leadership on issues including, but not limited to, the War in Ukraine, Climate Change, the rise of the influence of China, nuclear proliferation, world hunger and an impending global recession.
Last year lobbying firms reported record revenues in the first half of the year and the start of the Biden Presidency, as they rushed to meet client requests on massive legislation moving through Congress including Covid-19 relief, infrastructure, and appropriations measures. The nature of the trillion-dollar packages debated in Congress act as a febrile feeding ground for the lobbying industry. Post-Covid and as the US negotiates Congressional elections this month, the influence of the men and women in smoke-filled rooms (although to be fair, in today’s culture, more likely brightly-lit, edgy, artisan coffee shops) will only grow, which means that investment in what is quite a unique opportunity on AIM, makes an interesting proposition.
