Every year, thousands of consulting firms worldwide, from large to small, are acquired by competitors or decide to merge with other consultancies. Reasons behind the joining of forces can span from offensive strategies, such as bolstering growth potential or deepening expertise in a sector or discipline, to defensive tactics, including goals as consolidating the firm’s market share or gaining added financial means to safeguard financial stability.
An analysis on the number of mergers and acquisitions (M&A) in the consulting industry* since 2006 shows that over the past 10 years the number of transactions has remained relatively stable. With the exception of crisis year 2009, deal volume consistently sat above the 2.000 mark. Following a decline in the number of deals in 2013, consultancy mergers and acquisitions reached to 2,274 in 2014, the highest deal volume noted since 2007 – the record year in the past decade with just over 2,400 transactions completed in the top segment of the advisory market.
Without exception, the IT segment (Technology Consulting) has seen the highest deal activity over the past 10 years. Most recent data shows that Technology Consulting accounts for around 30% of the total number of deals in the consultancy industry – the 680 transactions brought to closure is significantly more than the second most active M&A segment: Marketing Consulting. The number of transactions in IT consultancy is mainly driven by a rising demand for services such as business intelligence, data analytics, cybersecurity, cloud, robotics and the Internet of Things (IoT). The large majority of technology deals find themselves, in terms of deal value, in the middle to bottom range of the market (with a few megadeals serving as an exception), and tend to focus on market consolidation and/or service portfolio expansion.
The smallest deal segment is HR consulting, which accounts for 10% of the total number of registered transactions. The segment spans advisory-related deals by HR consultancy firms, recruitment firms and staffing / temporary employment agencies. Key deal drivers include market share consolidation, expansion of HR - Tech portfolios (focus on analytics and upcoming technology) and diversification (i.e. a recruitment firm that extends its line of business into, for instance, HR advisory or leadership effectiveness).
Across the globe, digitalisation and related services, forms the biggest catalyst for the number of mergers and acquisitions. The largest buyers in the consulting marketplace are the Big Four, who are aggressively buying their way into markets, spanning the full spectrum of industries or functional areas. Data from M&A analysts shows that in the period between 2010 and 2014, Deloitte, EY, KPMG and PwC combined closed a total of 185 consultancy deals. Deloitte led the pack with a total of 57 deals in the four year period, while PwC, KPMG and EY added 44, 43 and 41 targets respectively to their ranks.
In light of the improved economic landscape, the private equity sector has in recent years garnered more interest in the consulting industry. M&A data reveals that since 2012, private equity parties have upped their financing / acquisition activity in the sector. In 2014, 15% of the takeovers in the industry with a value of more than $20 million included a private equity or venture capitalist stake, almost double the share back in 2008.
M&A activiteit per regio
Almost half of the number of mergers & acquisitions occur in North America, followed by the European continent on second place. Europe’s share in consulting's M&A scene, however, has been on the decline in recent years. Between 2006 to 2009 Europe was home to the highest deal activity, yet, since 2010 onwards, North America, particularly the US, has taken over the helm. The share of Africa & Middle East, Asia Pacific and South America as part of the total number of deals has remained relatively stable over the past decade.
Europe and the UK
Within Europe, the UK is by a distance the market leader when it comes to consulting M&A activity. Close to half of all European deals take place in the UK, while France and Germany with respectively 115 deals and 83 acquisitions come on second and third place. Sweden and the Netherlands close the top five.
Between 2009 and 2014, the number of deals in the top of the European advisory market consistently fell within the 700 to 800 range. Record years still are 2007 and 2008, were with over 1,000 transactions recorded.
* The data has been sourced from Equiteq, an international advisory and M&A advisory firm. The firm annually analyses consulting sector deals in its 'Global Consulting Mergers & Acquisitions Report'.