The global consulting M&A market stays hot despite global volatility

Global Consulting M&A Report 2016 Q2 Update
Q2 2016 deal volumes remain above long-term averages, and the newly launched Equiteq Consulting Share Price Index rallies strongly, nearing record highs in July.

The general mood during the second quarter of 2016 was already highlighted by uncertainty as compared to the same periods in 2014 and 2015. Then, just as the quarter was coming to a close, the UK’s monumental (and clearly surprising) decision to leave the EU resulted in a spike in volatility, particularly as it relates to the trading of equities and currencies.

We are far from convinced that the immediate impact of the Brexit vote is negative for a variety of reasons, but in any case, we look to longer term market dynamics to frame our advice to clients. When we think specifically about the consulting market, the long-term trend is still very strong in favor of the outsourcing of knowledge-intensive expertise throughout the economy. In the nearer term, the uncertain nature of what Brexit will bring and the very preliminary contingency plans that many companies created is expected to produce substantial opportunities for some consultancies. For example, each of the Big Four have set up new specialist roles and Brexit consultancy teams to help advise both UK clients and overseas businesses trading in the UK. Furthermore, the UK government is reported to have turned to private sector consultants, including McKinsey, for advice on their ongoing exit negotiations with the EU.

In line with a seasonal trend that was observed in 2015, the number of deals declined in Q2 2016 as compared to the prior quarter. However, the number of deals in Q2 2016 remained broadly flat in comparison to Q2 2015, and median deal values rose significantly supported by strong deal activity from traditionally prolific consulting buyers. The Management Consulting segment, followed by the IT Consulting segment, experienced the most deal activity with respect to volumes and growth in comparison to Q2 2015. Regular buyers of consulting businesses continued to demonstrate interests in niche data analytics, cyber security and digital transformation consulting capabilities, as well as traditional IT consulting offerings.

Global consulting M&A market stats hot despite global volatility

This quarter, Equiteq launched our Consulting Share Price Index, the only published share price index which covers the consulting industry. Global (as well as UK) share prices have continued an upward momentum into the third quarter as Brexit fears subside and investors return their focus to market fundamentals. As we go into August, the Equiteq Consulting Share Price Index and broader global market indices have been touching record highs.

We expect to continue to see landmark deals with large services components in the IT sector. Dell’s sale of Perot Systems is expected to complete shortly before its record acquisition of EMC. There are also reports that another large hardware provider is receiving interest from various private equity houses as it considers the sale of its cyber security business. Overall the potential for market volatility is expected to remain elevated as Brexit evolves and other significant events such as the approach to the Italian constitutional reform referendum and the U.S. elections come to the fore.

Take a look here for a deeper dive into the Global Consulting M&A Update Q2.

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