Robust demand for M&A by corporates and private equity, and strong share price performance in the fourth quarter.

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By  Ramone Param, Associate Director – Market Insights & Buyer Coverage, Equiteq

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Global M&A activity across the Knowledge-Intensive Services sector, as tracked by the Equiteq Consulting M&A Index, remained strong in the final quarter of 2016. Deal volumes were broadly flat in comparison to a robust prior quarter and rose in comparison to the same quarter last year. The conclusion of the U.S. presidential race has been followed by sharp rises in investor confidence and the Equiteq Consulting Share Price Index has rallied strongly throughout most of November and December, outperforming both the S&P 500 and FTSE 100. The overall Equiteq Consulting Share Price Index is now rallying at an all-time high.

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As we anticipated, deal activity in the last quarter remained buoyant in the IT services sector. Appirio, was acquired by Wipro for $500m, positioning the buyer as the leading Indian technology services player in the cloud consulting space. Appirio was considered a prized acquisition opportunity amongst a range of potential suitors after a wave of deals left Appirio as one of the largest independent cloud consulting specialists remaining in the market.

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Cognizant
, made two acquisitions this quarter, which follow pressure on the buyer to use its cash to strengthen its digital capabilities after activist investor, Elliott Management, expressed concerns about Cognizant’s level of acquisitions in the space in comparison to its highly acquisitive competitor, Accenture. Accenture continued its buying spree this quarter, which included its acquisition of Karmarama, believed to be the third largest U.K. based independent advertising agency by billings. This transaction was followed with another acquisition in the U.K. public relations space, when Deloitte acquired Regester Larkin, a specialist in crisis and reputation management. Alsbridge announced a merger with Information Services Group, which was considered to be one of the most significant deals in the outsourcing advisory space since KPMG’s acquisition of EquaTerra in 2011.

Last year also ended with a number of successful exits and acquisitions by the leading private equity investors in the sector. This included The Blackstone Group’s sale of Chinese IT outsourcing and consulting firm, Pactera, to a unit of HNA Group and was followed by a number of other large private equity transactions, including:

  • CVC Capital Partners’ sale of turnaround specialist, AlixPartners, for over $2.5bn to a consortium of investment firms.
  • KKR & Co.’s acquisition of cyber-security specialist, Optiv Security, for c.$1.8bn from The Blackstone Group.
  • The Carlyle Group’s sale of its remaining stake in government defence contractor, Booz Allen Hamilton, a business that it had acquired for over $2.5b in 2008 and took public in 2010.We expect that this quarter’s strong share price performance and robust demand for M&A by corporates and private equity will support strong deal flow as we begin 2017. As we go to press, Gartner announced that it is acquiring CEB for $2.6bn, an important transaction that combines Gartner’s research and advisory services with CEB’s talent management insights. The Carlyle Group has also announced a private equity investment in Claritas, a consultancy providing marketing and consumer insights to advertisers and other clients.

Access the full Q4 2016 Global Consulting Mergers and Acquisition Report.

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