Global consulting M&A mixed in the second quarter, after a strong start to the year


By 
Ramone Param, Associate Director, Equiteq.

Equiteq’s quarterly market updates provide an indicative guide to current M&A market conditions in the consulting industry. However, it should be noted that we typically observe large variations between quarterly M&A volumes, which are not always reflective of longer term trends.

M&A activity was mixed in the second quarter after a strong start to the year. Overall global deal activity in the consulting sector fell by 12% quarter-on-quarter. Deal volumes fell by just 2% on the same quarter last year. The Equiteq Consulting Share Price Index rallied in the second quarter, achieving similar returns to the S&P 500.

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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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Buyers’ view: Hot sectors update March 2015

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We spend a lot of time talking with buyers of consultancies and listening to their strategic growth needs. We also track several markets in consulting and monitor acquisition activity across the world. In doing so, we develop a good sense of hot spots for consultancy M&As. So as we head towards the end of the first quarter of 2015, what are the areas that buyers are the most interested in?

IT consulting

IT consulting continues to make up the largest proportion of deals in the management consulting space, as it has done for many years now. IT consulting covers a large and disparate set of firms, horizontally across technologies and vertically along a ‘value stack’ in IT. From IT strategists to system integrators, SAP to Workday consultants, business intelligence and data analytics specialists to IT transformation advisors; this space is broad and continues to evolve at a rapid pace.

The fact that IT is driving change in so many other industries, such as media/marketing (digital), telecoms, healthcare and financial services, amongst others, means that this section of the consulting market will, somewhat unsurprisingly, continue to evolve and change in line with demands from various different industries. As this happens, not only does it drive the need for increased IT services and advisory, it also begins to drive acquisition demand from the industries becoming increasingly dependent on IT.

Subsectors in this category where we are seeing particular acquisition interest include the so-called ‘SMAC’ areas (Social, Mobile, Analytics and Cloud), as well as cyber security. For IT consulting firms, these areas have become a necessary focus, given the new IT deployment models and the heightened threats that come with them. Our next sector insight will be on cloud computing and the various areas of consulting within it, so check back next week for a more detailed analysis on this area.

Engineering / environmental / energy

Engineering has long been a popular area for M&A activity and is seeing a particular demand for firms that deal with infrastructure change. As well as this, demand is also being driven by the general developments occurring in emerging markets.

Environment and energy are becoming more topical as concern about global warming moves up the business agenda and the demand, supply and price of oil continues to have significant economic and political influence. These issues mean businesses seek advisors in this space, hence the uptick in demand in this sector. There is also the constant flow of civil design and architectural firms acquired each year.

As this part of the market is constantly being replenished with new engineering consulting firms coming to market and a fair bit of consolidation across the board, in addition to a growing global population, significant environmental factors and changing energy needs, we expect engineering consulting to remain as one of our hot areas.

Media and marketing

Media and marketing has always had a strong advisory component and the move from print to digital has seen this sector transformed, particularly in the past two years. While print is still represented, the new digital channels are where all of the change and activity is happening. The amount of customer data generated – and the opportunities afforded by effective analysis and monetization of this – make consultancies in this space hot property. We are seeing particular demand for analytics, mobile and social media marketing, which as mentioned earlier is driving change in both the media and IT markets.

To ensure they remain competitive, big media firms need to have the right skills or access to customer channels. As these areas can take time to develop organically, media firms continue to look for acquisitions in these areas to quickly gain access to new skills and intellectual property. Otherwise, they will continue to see their market share eroded as innovative and agile companies take bites from their customer base.

Technology companies are also buying into this space as it is very IT reliant. Customer analytics for example is critically important for predicting future customer behavior and therefore how best to reach them. As this is mostly about analyzing data, IT plays a key role and large IT firms with these skills are increasingly important to the media sector.

These three areas have seen a lot of activity in the past couple of years and we expect them to continue to be hot in 2015. We regularly produce market intelligence reports on these and many other sectors. If you would like to find out more about what reports we have available, please contact us at info@equiteq.com.

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