Our Management Consultancy guru Mick James has just been given a first-hand account of the A.T.Kearney MBO deal that has today been unveiled. To find out what the future holds for A.T.Kearney and its ~200 new equity partners read on...
A.T.Kearney management buy-out deal just agreed...
One of the longest running sagas in consultancy has come to an end. A.T.Kearney and EDS announced on Wednesday that they have reached an agreement on the terms of the MBO that will bring to an end the venerable consulting firm’s ten years of being a subsidiary of the IT and outsourcing giant.
The financial terms of the deal, which will see roughly 200 senior Kearney staff become full equity partners in the new firm, were being kept a close secret. Although a deal has been in the offing for some time, a structure which would satisfy both EDS shareholders without creating an unacceptable debt burden for Kearney partners proved elusive. The current deal also includes a “multi-year service and marketing deal”, under which Kearney will provide consulting services to both EDS and its clients as part of the transaction. A.T.Kearney staff who have reached principal level will also be able to acquire equity, but not voting rights in the new firm.
“The deal which we’ve struck is recognized as a win-win,” says Kearney vice-president Anne Deering, a 20-year veteran of the firm who also chairs the firm’s Officer Leadership Council, which represents the interests of senior staff to top management. “You might say that a miracle has happened--independent analysts on both sides have said this is a desirable agreement.
As well as being acceptable financially, she is confident that the ongoing relationship between the companies will also be mutually beneficial:
“You can partner without having to be in an ownership position,” she says. “In fact I’ve recently completed a two-year research project which shows that partnerships are actually more attractive than acquisitions.”
According to Deering the new A.T.Kearney will not be a “back to the future” exercise in putting everything back like it was ten years ago:
“You might describe us as an 80-year-old start up,” she says. “We have an 80-year tradition on which to build, but we’ve also learnt a lot and grown a lot in the meantime. In some senses we have gone back in terms of governance, particularly how we governed in terms of ups and downs in the economy. But we’ve also noticed how much has changed in that period and we’ve built in a lot of fluidity.”
Deering is keen that the EDS years are not be seen as wholly negative, pointing out that Kearney’s revenues tripled in the five years after the acquisition, and that there were many highly successful joint projects, such as the firms’ work with Rolls-Royce.”
“We believe that as a partnership we can release a lot of the entrepreneurial spirit that perhaps got a little bit drowned,” she said. “We’re very pleased with our results from September, for two consecutive months now we’ve exceeded plans, which shows what we can achieve with the future in our sights. For our people it is extremely important to have our destiny in our own hands.”
Deering says that she’s been particularly surprised at how supportive clients have been, and that during what has undoubtedly been a distracting period client satisfaction ratings have actually increased.
Strategy and operations consulting has traditionally been a rather staid and boring (in the sense of “unobtrusively making pots of money”) part of the market. At the moment though it seems to be having a bit of a hot flush, outperforming other consultancy segments and supporting both new entrants and growth for incumbents.
“There’s very interesting realignment going on, clients are going back to speciality, back to true expertise,” says Deering. “The market has shifted to what has been our sweet spot for the last 80 years.”
Facilitating the unbundling of Kearney and EDS has been a (largely client-driven) trend towards alliances which perhaps spell the end of the one-stop shop.
“I can’t think of a recent assignment I’ve done where we’ve worked as a standalone,” says Deering, who works in the public sector. “The transformations are so large, the scale is so great that it’s a job for a consortium — that’s been my experience for the last three or four years.”
This trend in consultancy has also brought with it a proliferation of start-ups moving into the strategy and operations field, which means that the “new” A.T.Kearney might face stiffer competition than in the old days. However, Deering believes the firm is up to the challenge:
“I’ve no qualms about the state of the market, nor of the opportunity for consultancy firms like us, who are in there for the long haul,” she says.
For a long time commentators have debated about how A.T.Kearney would leave EDS with an IPO or trade sale long the favourite options, but ones which would still leave the firm shackled either to shareholder expectations or the exit strategy of a new owner. If the “new” Kearney has indeed found the formula to reemerge as an untrammeled and self-directing partnership, it could become a fearsome competitor indeed.
Related link: Business & Strategy consultancies are increasing their use of Associate & Freelance consultants. Click for the latest short-term contract consulting roles
All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.
Contact Mick with your views or suggestions at: email@example.com