Global consulting M&A and stock market performance strong in the third quarter

By Ramone Param, Buyer Coverage Associate, Equiteq.

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The Equiteq Consulting M&A Index remains significantly above long-term averages and the Equiteq Consulting Share Price Index achieves a ten-year high.

Global consulting M&A activity, as tracked by the Equiteq Consulting M&A Index, was robust in the third quarter. Deal volumes rose in comparison to both the prior quarter and the third quarter of 2015 with serial acquirers like Dentsu, Accenture and Deloitte continuing to be highly active. Third quarter M&A activity was highlighted by landmark transactions within media and management consulting, as well as the broader IT sector.

The Equiteq Consulting Share Price Index also performed very strongly this quarter, outperforming both the S&P 500 and FTSE 100. The index is now at a ten-year high with particularly strong increases in the management consulting and engineering consulting indices.

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Our European professionals continue to closely monitor market sentiment and deal activity following the UK’s vote to leave the EU. As we highlighted in our Brexit UK market update, buyers have been largely unconcerned with Brexit. Acquirers of European consulting firms continue to tell us that they are treating the aftermath of the referendum as ‘business as usual’ for acquisitions. This anecdotal evidence is consistent with M&A activity in the UK this quarter.

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This positive sentiment for M&A activity has been supported by a range of positive economic data released over the period and the strong performance of quoted equities. We expect that foreign buyers will also see the recent strong depreciation of the sterling as an opportunity to deploy increased purchasing power in UK acquisitions.

Bloomberg recently reported that demand for consulting services in the UK has also been strong. This report highlighted material increases in vacancies and salaries for consultants in August.

As the Q3 report went to press, The Blackstone Group announced its anticipated sale of Chinese IT outsourcing and consulting firm, Pactera. The business was sold to a unit of HNA Group and reportedly values Pactera at c.$930m. We expect to see further material deal activity like this within the highly active IT Services segment.

Dentsu’s acquisition of Merkle is also likely to spur competitors to consider large acquisitions of cutting-edge media capabilities. These capabilities are in demand across multiple buyer groups, as the latest digital trends continue to transform customer experience.

Over the next quarter all eyes are on the result of the US Presidential election and signals for any US interest rate changes. This could introduce some share price volatility and challenges for deals with quoted equity components. However, our experience suggests buyers appear committed to closing deals before the New Year and the fourth quarter is expected to be another strong one.

Access the full Q3 2016 Global Consulting Mergers and Acquisition Report.

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