Consulting buyers report “business as usual” with respect to acquisitions in the U.K. and Equiteq’s Consulting Share Price Index continues to rally beyond pre-Brexit levels, supported by the release of a string of robust economic data.
Two months on from the U.K.’s vote to leave the E.U. and the vast majority of the U.K. and overseas consulting buyers that we are in regular discussion with report that it is business as usual as it relates to their strategy for acquisitions. Robust investor confidence in the consulting and IT services sector is also evident from the continued rally of the Equiteq Consulting Share Price Index beyond the levels reached pre-referendum, with some consulting sub-segments touching record highs. This positive sentiment is supported by the strong U.K. and European economic data that has been released over the past two weeks.
As we discussed in our last quarterly update, the initial period following the U.K. referendum was marked by a spike in volatility, particularly as it relates to the trading of equities and currencies. This week it was announced that U.K. manufacturing exports are at their highest level in two years and a Eurozone economic sentiment indicator published by the European Commission rose in July. This market data is painting a more optimistic picture of post-Brexit economic conditions, particularly when combined with the surge in U.K. retail sales and the fall in the U.K. unemployment claimant count, which were both announced this month. These recent economic figures contradict some of the early indications that consumer and investor confidence was falling in July.
The positive economic news, along with the Bank of England’s decision to cut interest rates at the beginning of the month, has supported the rally in the share prices of U.K. listed consultants across all Equiteq tracked consulting segments. The fall in the unemployment claimant count last month has buoyed the strong rebound of some of the listed HR consultants comprising the Equiteq HR Consulting Share Price Index, previously noted as being the worst performing segment in the second quarter. This week, WPP plc, a leading global advertising player tracked within our Equiteq Media Share Price Index, saw a jump in their stock price after reporting an earnings increase for the first half of the year. The earnings announcement included commentary from WPP’s CEO, Martin Sorrell, that they saw an impact from the uncertainty prior to the U.K. referendum but haven’t seen it since then.
With respect to changes in the demand for consulting services in the U.K., we are being told that consultants and lawyers are being asked for specialist advice to develop their client’s contingency plans, particularly as it relates to the nature of the U.K.’s access to the single market. Each of the Big Four have specialist Brexit consultancy teams in place and the U.K. government is reportedly working with private sector consultants, including McKinsey, on planning for their exit negotiations. This week, the global chairman of law firm, Baker & McKenzie, said that he is “not that pessimistic” about Brexit and believed that London would continue to be a significant legal centre. This follows high-profile commentary after the referendum from John Haley, the CEO of Willis Towers Watson, who oversaw its formation from the merger of the U.S.-based consulting firm and the London-headquartered insurance broker, which completed early this year. Haley highlighted that he was optimistic about the immediate opportunities for his risk consulting business post-Brexit, which he described as an offering which benefits from regulatory changes, political risk or economic uncertainty.
It is still too early to tell what the definitive economic impact of Brexit will be on Europe, but it is clear that the immediate sharp deterioration of the U.K. economy that some commentators were expecting has not materialised. Furthermore, consultants are benefiting from the opportunities to advise their clients on some of the political and economic uncertainties which they face. Looking further forward, the impact of new bilateral trade agreements that would have been outlawed by E.U. membership will further occupy public and private sector clients. Demand for differentiated U.K. acquisition opportunities in the professional and IT services segment continues to remain robust amongst a range of domestic and international buyers.
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