By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.
The Equiteq Global Consulting M&A report is the most comprehensive publicly available study of the knowledge-intensive services industry.
The review covers deal activity and equity market trends across fives consulting segments: Management Consulting, IT Services, Media Agencies, Engineering Services and Human Resources. Equity market trends are analyzed through the Equiteq Consulting Share Price Index, the only published share price index for the industry.
Strong deal activity
In 2016, the number of completed transactions in the consulting sector nudged up to reach a nine-year high. This was in spite of the restraining influences of slowing growth in global GDP, the UK’s vote to Brexit and the US Presidential election, which caused a slowdown in the preceding quarters. Activity from both strategic and financial buyers swiftly bounced back, and the year ended with conviction and momentum that has carried into 2017.
The top consulting segments for deal activity were the rapidly evolving Management Consulting, IT Services and Media Agency segments.
Cross-border M&A remains robust
While deal activity was highest in North America, accounting for 44% of all deals, Europe (38% of deals) and Asia-Pacific (9% of deals) experienced stronger M&A growth. Deal activity was particularly robust in the UK where the number of completed transactions increased by 20% over the year.
Cross-border deal activity remained strong, highlighting the global nature of M&A in the industry. Despite some major political upheavals, cross-border deal activity accounted for 28% of all deal volumes, up from 27% in 2015. The proportion of cross-border deals in 2016 rose to 33% for deals between $10m and $500m in value.
Strong activity from serial acquirers and private equity
Serial buyers of consulting firms, that have made multiple acquisitions over the last three years, were responsible for 46% of all deals in 2016 – broadly in line with 2015. Dentsu was the most acquisitive buyer in the world as its international arm pursues its aim of everything digital by 2020. Accenture, WPP and Deloitte also topped the tables again, acquiring across Strategy & Business Consulting, Media & Marketing and IT Consulting.
As was highlighted by the findings of our latest Buyers Research Report, private equity providers are enthusiastic investors in consulting firms and can be a flexible solution for a full exit or a partial value realization. In 2016, they remain competitive for deals above $10m, and their participation in the lower mid-market of deals between $10m and $500m is rising.
Traditional boundaries between consulting segments are continuing to blur and convergence is an ongoing trend in both operational and M&A growth amongst large players across the knowledge-intensive services space. Convergence was particularly strong at the intersection of Management Consulting, Media & Marketing and Technology.
Equiteq Consulting Share Price Index outperformed the S&P 500
The Equiteq Consulting Share Price Index ended 2016 on a ten-year high, rising by 14% over the year.
The Equiteq Management Consulting Share Price Index grew 32% over the year, boosted by the stellar performance of Navigant Consulting (NYSE: NCI) and FTI Consulting (NYSE: FCN). The Equiteq Engineering Consulting Share Price Index achieved strong gains in the second half of the year supported by the recovery in oil prices. The Equiteq IT Consulting Share Price Index also performed well, growing 9%. Equiteq’s Media Index achieved more modest returns of 6% and the Human Resources Index ended down despite a strong final quarter.
We’ll be providing further analysis from this data-rich report in future blogs.