KKR JUMPS INTO K STREET BONANZA: KKR is the latest Wall Street player to join the crush of private equity investors ponying up for a slice of K Street’s record revenues, announcing this morning that has purchased a minority stake in government affairs and communications giant FGS Global. (KKR holds a significant stake in Axel Springer, POLITICO’s parent company.) — The deal values FGS Global — which has more than two dozen offices and 1,300 employees around the globe as the result of a number of acquisitions and mergers over the past couple of years — at more than $1.4 billion. British advertising conglomerate WPP (whose other properties include Hill+Knowlton and Ogilvy) will retain its majority stake in FGS, which counted KKR as a client prior to the hedge fund’s investment. — KKR’s investment represents the latest bet by hedge funds that political and social controversies — on top of the usual policy concerns (more on that in a bit) — grabbing the attention not just of corporate investors, but companies’ employees and customers, will continue to infiltrate corporate boardrooms — and therefore keep fueling business for Washington consulting and communications shops. — “Our politics have become more unpredictable and that impacts the legislative and regulatory world. Financial markets are chaotic and unpredictable,” Michael Feldman, a partner and co-chair of FGS Global’s North America business, told our Sam Sutton. “An issue that may not be core to the business can become core to the business overnight.” — That uncertainty has driven a number of similar private equity-K Street deals over the past few years. In February, PI reported that Abry Partners had acquired a minority stake in the well-connected Democratic consulting firm Precision Strategies. Last year Coral Tree Partners scooped up a stake in the lobbying firm Subject Matter, and Seidler Equity Partners invested in a conglomerate of polling, consulting and lobbying firms. — And Falfurrias Capital’s 2021 purchase of a majority stake in what was then Hamilton Place Strategies helped pave the way for HPS’ merger last fall with a half a dozen other political firms to form what is now called Penta. But Sam notes that those investment firms “are much smaller than KKR — which now controls more than $500 billion of assets worldwide. And the deal’s price tag is certain to compel the CEOs of some Washington policy shops to call their bankers and gauge their worth.” — “To me, it feels like investing in McKinsey in the 1990s,” Philipp Freise, the co-head of KKR’s European private equity business, told Sam, explaining that a company’s need to respond to a potential crisis “used to be a once in a three-year event. It feels like it’s every three weeks now. … This has become boardroom priority number one.” YOU’RE THE PROBLEM, IT’S YOU: While hedge funds rush in to capitalize on the boom times for lobbying firms, the U.S. Chamber of Commerce came out today with an analysis showing perceived risk posed by the government is surging among major companies — a dig at the state of policymaking that also underscores the dynamics driving business on K Street. — The business lobby examined annual reports filed by publicly traded companies in the S&P 500 from 2011 to 2021, and tallied companies’ mentions of risk factors associated with public policy compared to other potential risks unrelated to the government, like the state of the economy or reputational threats. — Over the decade of disclosures reviewed by the Chamber, mentions of terms associated with government risk increased 27 percent, while mentions of terms related to other types of risk only rose around 4 percent. Policy risk spiked at the end of the Obama administration and peaked during the first year of the Trump administration at around 360,000 mentions, remaining high for another year and then falling below 320,000 mentions. Policy risk then surged again in 2021 to around 330,000. — The Chamber attributes the shift to regulatory whiplash for the business community caused by swings in party control of Washington and increasing tribalism among lawmakers, a source of frustration for the group for several years now. — “Brief periods of single-party control of Congress and the White House at the beginning of each administration have allowed both parties to pursue a maximalist and partisan legislative agenda,” the report notes, pointing to the passage of Obamacare, the GOP tax cuts and the Inflation Reduction Act at the beginning of each of the three most recent administrations, respectively. — The Chamber argues that uncertainty has only been exacerbated by presidents’ increasing reliance on shaping (and reversing) policy through executive orders and regulations due to gridlock in Congress, making public policy less resilient. “Companies of all sizes face increasing headwinds from Washington and those risks are diversifying and intensifying,” Neil Bradley, the Chamber’s top lobbyist, said in a statement on the report. — That’s where K Street comes in. “Like other risks, companies must anticipate, monitor, manage, and, when necessary, mitigate risks posed from changes in public policy,” the Chamber’s report says, which entails “closely monitoring public policy developments” and engaging policymakers, among other things (like finding comfort in the Chamber’s “stepped up” advocacy amid the “unprecedented increase in public policy risks impacting businesses of all sizes,” presumably). WHERE’S PHRMA ON MIFEPRISTONE RULING?: “A judge’s decision to suspend the Food and Drug Administration’s approval of an abortion pill could have massive impacts for the pharmaceutical industry, but its largest lobbying association is staying on the sidelines,” STAT News’ Rachel Cohrs reports. — “PhRMA, which is the top-spending lobbying group in the health care sector and is known to be litigious itself, still hasn’t put out a press release on the decision made by a judge in Texas on Friday — despite the possibility that the decision could destabilize the sanctity of the FDA approval process entirely.” — The trade group is instead sending out upon request the same statement it first issued back in February that calls FDA “the gold standard” for assessing a medication’s safety and efficacy and emphasizing the importance of “ensuring a policy environment that supports the agency’s ability to regulate and provides access to FDA-approved medicines.” — “Pharmaceutical companies have an enormous amount at stake, as the entire industry is predicated on a reliable regulator, said Josh Sharfstein, a vice dean at Johns Hopkins Bloomberg School of Public Health and former principal deputy commissioner at the FDA. ‘If the calculation is, “This isn’t a big deal; we don’t have to come right out and say how bad this is,” I think that’s a mistake,’ Sharfstein said.” — “By contrast, the Biotechnology Innovation Organization, which shares many of the same members as PhRMA, took a much more aggressive approach. A statement from BIO’s Interim President and CEO Rachel King called the ruling ‘an assault on science,’ and a ‘dangerous precedent’ that will have negative effects on drug development. She also made clear that BIO’s preference is that the ruling be overturned.” — “In the absence of a pointed statement from PhRMA itself, some board members have decided to sign on to a letter from various executives of biotechnology and pharmaceutical companies. The letter calls the ruling ‘judicial interference’ that creates regulatory uncertainty for companies developing new medicines.”
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