EY allegedly moving to purchase OC&C Strategy Consultants

20 June 2017 Consultancy.uk

EY is reportedly making moves to acquire OC&C Strategy Consultants. OC&C says it is not in conversation with EY and will remain independent – if the deal does materialise however, the bolt-on would significantly improve the position of EY in the highly competitive strategic consulting market, with the firm adding a second large strategy consultancy to its ranks after the acquisition of Parthenon Group three years ago.

According to information received by Consultancy.uk from insiders on the matter, which supports recent reports in the German and French media landscape, EY are eyeing up the acquisition of strategy consultants OC&C, in the latest in a long line of mergers and acquisitions (M&A) seeing audit-based professional service firms buying up numerous strategic advisories. In recent years KPMG, EY, PwC and Deloitte – collectively known as the Big Four – have targeted strategy consulting firms in a spree of purchases. The Big Four have utilised such takeovers in order to pursue lucrative, high-level work for business and governmental elites – having largely divested their advisory parties after the Enron scandal of 2001 (with the exception of Deloitte).

The scandal, which saw energy giants Enron declare bankruptcy, following revelations that it had misled regulators with fake off-the-books corporations in order to disguise price-fixing, also brought about the de facto dissolution of audit firm Arthur Anderson – a member of what was then the Big Five. Since then, the surviving Big Four have been seeking to regain lost ground in the market, assuming small and medium-sized advisories in high numbers, with today a view to capturing consulting mandates which remain far more lucrative than the audit mandates.

Number of (major) consulting deals closed by Big Four firms

Despite acquisitions in the strategy area containing the potential for conflict, with significant clashes between the corporate cultures of buyers and transferees – the blown off deals between Booz & Company | A.T. Kearney or the latter’s failed marriage with EDS cited as cases – the potential financial gains have seen sustained M&A activity of this kind. In 2014 Booz & Company, a spin-off group from Booz Allen Hamilton, was purchased by PwC, which since saw it renamed Strategy&, while Deloitte bought Monitor to create Monitor Deloitte. EY acquired The Parthenon Group, incorporating the firm into a new strategy wing it named Parthenon-EY. Two years later, that new advisory unit saw further growth, as EY also bought the Benelux organisation of OC&C Strategy Consultants.

Auditors fight for advisory mandates

EY were also linked with the potential purchase of Roland Berger, at a time when the German origin consultancy was undergoing strategic reorientation. While EY eventually lost out to rival suitors Deloitte, they in turn saw a respective bid rebuffed at the last minute, as founder Roland Berger himself scuppered the deal by pumping a reported 80 million into the firm. Roland Berger’s perceived vulnerability made it a target for the professional service industry’s top earners, but while the firm may have evaded acquisition by the predatory Big Four, and today has returned to prosperity, the story underlines a more general trend within the wider strategy consulting market.

While most consultants regard strategy advisory as the most 'high-end' and prestigious segment within the professional services industry, many mid-level companies are struggling within the broader market. The strategy consulting domain focuses on supporting private sector clients with the development of corporate, organisational or functional strategies and helping public sector organisations and institutions with economic policy – and this work is dominated by firms such as McKinsey & Company, BCG, Bain and Oliver Wyman – however companies stranded in the 'economic middle market' face challenges. Compared to the dominance of others, they are according to analysts less likely to pick up top clients, while being too specialised to be able to compete in the more general consulting industry, where the likes of the Big Four, Accenture and the larger functional specialists thrive.

In the latest development in this long-standing pattern of M&A activity, OC&C Strategy Consultants are reportedly a target the next in line to lose their independence, or be dismantled. Founded in London in 1987 by two former partners of the consulting firm Booz Allen Hamilton, OC&C is primarily focused on strategic advisory services, and boasts a global workforce of around 550, of which 120 are based in the German offices of Düsseldorf, Hamburg and Munich. The company also advises on M&A and private equity issues, as well as providing expertise for the optimisation of organisational and business processes.

Global revenue of Big Four firms

Shifting membership?

If a deal does unfold, then it could mirror a similar situation that took place a few years back; in 2014 Oliver Wyman roped in a large team of OC&C consultants in North America (Boston office), while in the summer of 2015 OC&C Greater China also switched to Oliver Wyman.

Following the recent deal that saw Dutch-based member firm OC&C Benelux become part of EY in September 2016 meanwhile, a renewed attempt by EY to seize further chunks of the strategy firm would not come as a huge surprise. The previous move saw over 60 employees join the Big Four giant, including six Partners, as they sought to further bolster their growing strategy offering. Speculation regarding EY’s latest flirt with OC&C however remains unclear as to whether the attempt would be to absorb the strategy firm on a global level, or whether the effort merely concerns a number of territories, with Germany and France rumoured to be the most likely targets. Globally, OC&C has fourteen offices in nine countries.

While EY evaded the official confirmation or denial of the potential purchase, a company spokesperson said, “We are continually exploring the market for suitable candidates. If there is a suitable opportunity at the right time, we are open to further consultation with the company… At the moment, however, we can not provide any concrete information.”

"OC&C to remain independent"

Responding to the news, a spokesperson for OC&C said to Consultancy.uk that the firm "is categorically not in conversations with anyone about being acquired, including any of the Big Four." The statement follows shortly after one of the firm’s French partners, Guy-Noël Chatelin, stated to a French website the will of his member organisation to remain independent, rebuffing the rumour that the group is up for grabs. OC&C France has around ten Partners, as well as the same number of Associate Partners, and an estimated twenty consultants and managers. OC&C’s office in London is the firm’s largest operation.

Size of the 10 largest strategy consulting firms

The spokesperson added that it is natural for any consultancy to see turnover in its senior ranks, further highlighting that the firm is enjoying a run of strong growth, rejecting the notion that there may be any financial need such as was the case with Monitor. OC&C has grown at 10% per year over recent history, outperforming the 6% to 7% average of the consulting industry, as well as opened new offices in Turkey and Poland, led by partners that formerly served Bain & Company and Monitor.

The company finds itself in a period of top line restructuring though – OC&C is moving towards a 'one firm' approach, in a bid to solidify the brand and enlarge its financial muscle. The English, German, French, US and Chinese offices should by now have completed the 'merger', with other operations planned to follow within twelve months. Whilst such transitions typically heap pressure on certain wings of any global partnership, OC&C says it will, besides adding to strength and cross-border cooperation, also lower the risk of independent offices being poached by competitors.

Building on its independent status, OC&C's spokesperson says the firm is planning to expand its footprint in the coming period, "we are actively assessing firms in three countries to become new members of our international partnership."

EY meanwhile willl be hoping its deal team can get its foot in OC&C's door, as a transaction could make up key ground on its arch rivals in the advisory arms race, adding around $150 million in revenues to its books and a roster that includes 15 of the world’s 50 most valuable brands.

Related: Independence is a core value for the firm (reaction from OC&C Managing Partner David Krucik).

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