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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The highest price for your consulting business may well come from outside your core industry

The most prolific acquirers of knowledge-led businesses are undergoing unprecedented diversification and convergence across adjacent consulting segments and sectors. At the same time, digital transformation is driving hybrid business models with consulting, technology and managed service revenue. This change is fuelling high levels of M&A activity from trade and private equity investors, which we review in our 2017 M&A report. For owners considering selling their business, an appreciation of these trends is critical to uncovering the synergistic buyers that may offer the highest value.

Convergence between consulting offerings

Global consulting clients are increasingly looking to their advisors for best-in-class, end-to-end consulting solutions. These trends are driving established consulting buyers to use M&A to enter new geographies and acquire complementary capabilities.

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April 2017: Consulting M&A Update

By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

SNC-Lavalin acquires Atkins

SNC-Lavalin is acquiring British engineering consultancy Atkins for £2.1bn ($2.6bn). The offer represented a c.35% premium to the undisturbed closing price of Atkins prior to acquisitions talks were announced. As highlighted in our January market update, CH2M had been rumored to be in discussions with Atkins about a possible merger earlier in the year.

The acquisition would boost the Canadian engineering and construction firm’s European revenue as it emerges from a self-imposed freeze on acquisitions in 2015. The deal is expected to expand SNC’s projects outside the energy industry, while oil prices continue to remain significantly below their 2014 levels.

In combination with John Wood Group’s acquisition of Amec for £2.2bn ($2.7bn) last month, the deal represents a consolidation of the UK engineering consulting market, a trend that we anticipated globally in our latest Engineering M&A Report.

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Equiteq’s tenth annual review of the global consulting M&A market highlights that deal activity has reached a nine-year high

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.

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March 2017: Consulting M&A Update

 By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

Oracle reportedly exploring Accenture acquisition bid

According to a report by The Register, Oracle has hired consultants to conduct due diligence research on acquiring Accenture. Accenture is a major Oracle partner, while Oracle has a material services business which operates alongside its software offering. The combination would significantly enhance both companies position in their respective markets, creating a leading provider of end-to-end digital transformation products and services.

A deal with Accenture would follow Oracle’s recent acquisition of NetSuite for $9.3bn and its acquisition of PeopleSoft in 2005 for $10.3bn. With Accenture’s market cap at over $77bn, the deal would be by far its largest acquisition to date.

Oracle has been focusing on its cloud business, but is still considered to be behind market leaders Amazon Web Services, as well as Microsoft, Google and IBM. Following reports of the deal, Accenture’s stock fell, with some equity analysts raising concerns about the deal’s implications for Accenture’s independence and the risks to Accenture’s strong relationships with Oracle’s competitors like SAP, Salesforce, ServiceNow and Workday.

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February 2017: Consulting M&A Update

 By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

Blackstone acquires Aon’s human resources outsourcing business

The Blackstone Group agreed to pay up to $4.8bn to acquire Aon’s human resources outsourcing business. The Aon unit processes work benefits for 15% of the US population and is a provider for cloud-based human resources management systems. Blackstone is believed to have prevailed over buyout firm Clayton Dubilier & Rice in an auction for the business.

Aon acquired the business in 2010 as part of its $4.9bn acquisition of Hewitt Associates. The transaction with Blackstone is expected to enable Aon to focus on growth areas like cybersecurity and health insurance, while using part of the proceeds to buy back shares.

The deal will be structured whereby Aon receives $4.3bn in cash, plus up to another $500m in earn-out.

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Private Equity firms demonstrate strong demand for consulting businesses

Eight mistakes when building a sale-ready business

By Alex White, Managing Director, Head of M&A and Strategic Advisory  Europe, and Ramone Param, Associate Director, Market Intelligence & Buyer Coverage.

Private equity (PE) providers are enthusiastic investors in knowledge intensive business services.  Last year was marked by some headline grabbing exits and new investments by the largest global buyout firms and this had a re-affirming effect on PE’s keen interest in this space.  These included KKR’s acquisition of Optiv Security from Blackstone, as well as the sales of AlixPartners by CVC and the divestment of Carlyle’s remaining stake in Booz Allen Hamilton.

Our own experience of achieving many great outcomes for clients who secured PE investment in 2016, and the line of investors queuing at our door for deal flow, bodes well for owners in 2017.

Sustaining growth in successful businesses – an owners challenge

A challenge for many owners of valuable businesses is the changing attitude to risk that creeps up as success is achieved. It’s natural for sentiment to shift from value creation to value preservation. While natural, it’s also a sure sign that owners’ personal financial portfolios are out of balance and a warning that excess cautiousness will be sub-optimal for their business in the longer term.

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