Acquisition activity in the US Consulting Sector has been frenetic. What are the key stats you should know - and what lessons can you learn from recent M&A successes?
• Two and a half times as many global consulting firm acquisitions in 2015 compared to 2014
• Almost two thirds of acquisitions by U.S. based firms
• Technology firms are the most prolific acquirers
• A fifth of all acquisitions undertaken by the Big Four...
Consulting firm acquisitions rocketed in 2015 (384 compared to 143 in 2014), with almost two thirds (63 per cent) of the firms making these acquisitions based in North America. However, whilst over half of clients globally (56 per cent) say they benefit from these deals, 62 per cent say their access to expertise gets lost in the new organisation.
The Source Global Research report, M&A: Is it Adding Value?, released today (19th September 2016), is based on a survey of almost 3,000 senior users and buyers of consulting services. It found that while clients understand why consulting firms buy other firms – they lose expertise – either because good people leave the acquired firm, there are fewer specialist firms to choose from, or the acquiring firm is a generalist, into which niche skills are absorbed.
CFOs and heads of finance are more sanguine about access to good people
CFOs and heads of finance understand the thinking behind these deals, but a lower than average (52 per cent) said they benefited from the deal, and the Source research found that this group were also more optimistic about continuing access to good people.
Fiona Czerniawska, Director and Founder of Source Global Research said:
“It’s true that clients aren’t uniformly or overwhelmingly positive. Even those who view these deals benignly are quick to agree that they have a price, usually in terms of the loss of choice and/or access to specialist expertise. For most though, especially those who see this type of activity as the norm, the advantages just about outweigh the problems.”
The Source report also found that the rapid increase in the number of deals taking place in the global consulting sector is as a result of a number of factors, price being one.
Tom Bolger, from U.S based consulting firm, West Monroe Partners said:
“Acquisition prices are at a more realistic level than three or four years ago, but this is very sector/practice-dependent. Salesforce, digital, cybersecurity, and data are hot topics in the market and these skills are in high-demand, and therefore, sale price expectations are high.”
The Source report identifies the following three lessons that consulting firms have learnt from the last two years of frenetic M&A activity:
1. Having the right strategy - The first lesson is about focus. As one senior partner admitted, “many consulting firms are not strategic in their M&A thinking. They go after the next big thing and then pull out quickly when it fails. They’re not always focused, and clients get confused as a result.”
2. Cultivating a deep understanding on both sides - Try before you buy has a multitude of advantages. Deloitte’s ‘ecosystem’ of partnerships and alliances has been effective at doing this. Test-running collaboration between two firms provides an opportunity to understand the culture of each firm, and whether clashes are likely further down the line.
3. Explain, and explain again - As the Source client research illustrates, there’s often a gap between clients’ knowledge of a deal and their understanding of why it’s taken place, a gap into which confusion and uncertainty will inevitably creep. As well as working out the detail from the clients’ point of view, ensuring there’s consistent messaging at all levels is vital.
Stephanie Schnabel, Principal, Corporate Development Lead at KPMG, adds:
“It’s really important to incentivise the people on the front line so they can enthuse clients, too. Some firms take a very monolithic approach: they just broadcast information and expect the front lines and account managers to relay this to clients. But we try to make the communication two way. Yes, we want to explain the value of a deal from a client's point of view, but we also want to hear from them about what they need and discuss how this deal could benefit them.”
Fiona Czerniawska from Source concluded:
“Deals that work for clients tend to be those in which they end up not only feeling that they have access to more, better skills as a result of the deal, but in which they experience as little disruption as possible. That depends on consulting firms managing to hold on to their people in the run up to, and aftermath of, a deal. And the key to that appears to be to have both a clear rationale for doing the deal in the first place, and a clear plan about the extent to which brands and operations will be integrated. And, then to stick to it.”
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