Private equity backed consultancy Capco returns to independence

08 August 2017 Consultancy.uk

Management and technology consultancy Capco has completed its separation from FIS, one of the globe's larger financial technology providers. A fund managed by Clayton, Dubilier & Rice (CD&R) has acquired a 60% interest in Capco, while FIS retains a 40% equity interest.

The Capital Markets Company, referred to as Capco, was founded in Belgium in 1998 by entrepreneur Rob Heyvaert, opening offices in Antwerp, London, New York, and Frankfurt, before expanding into Paris, France in the following year. The consultancy, which unlike the Big Four professional services firms caters exclusively to the financial services industry, has continued to expand since, becoming a major global business and technology consultancy, with more than 3,000 employees internationally, and 23 offices spread across the world.

In 2010, the young consulting firm attracted the attention of Fidelity National Information Services (FIS), a provider of banking and payments technology. At the time, Capco was expected to generate approximately $225 million in yearly revenue, half of which was expected from outside North America. The purchase price included cash at closing of $292 million and additional consideration contingent upon future performance of the business.

Capco reaches significant milestone as a newly independent company

Now, Capco's private equity-backed independence deal comes amid a growing M&A trend within the private equity sector. According to a study by Equiteq, an M&A firm that operates in the advisory space, key operators within the market are increasingly looking to grow their share of deals within the management consulting space, as the industry looks set to become integral to the spike in businesses looking to implement new, potentially disruptive technology in their business plans. Private equity firm The Carlyle Group took up a 51% stake in PA Consulting Group last year, while late 2016 three investor groups invested heavily in AlixPartners. Both deals saw the respective consultancies aiming for rapid expansion financed by the Private Equity investment, while their backers hoped to tap into the profitability of the growing management consulting market.

Independence day

In May 2017, FIS and Clayton, Dubilier & Rice announced a definitive agreement in which FIS would sell a majority ownership stake in Capco to CD&R, establishing Capco as an independent company – with the handover process completing this month. FIS retains a 40% equity interest in the business, having sold 60% to CD&R funds for net cash proceeds of $477 million – a substantial profit on their initial capture of the firm, having expected Capco to bring in a net of approximately $445 million for this financial year.

Upon the closing of the deal, Capco have become a privately held company. The firm hopes this will enable it to be more versatile and agile in order to take advantage of key market trends, including the disruptive innovation impacting the global financial services industry. With CD&R’s support, Capco now aim to move quickly to invest in a variety of growth initiatives including investing in new talent and deepening its capabilities in FinTech. Lance Levy will continue to serve as Capco CEO, while CD&R Operating Partner Russ Fradin, former Chief Executive Officer of SunGard, has assumed the role of Chairman of the Capco board.

Commenting on the completion of the deal, continuing CEO Lance Levy stated, “In the financial services industry, technology and disruptive innovation are accelerating at an unprecedented speed. We bring the skills, delivery capability, and deep-domain expertise to help our clients navigate this change. Today’s announcement allows us to accelerate our efforts to further differentiate our offerings and be even better equipped to offer the solutions that our clients expect.”

Incoming Chairman of Capco’s board, Russ Fradin, meanwhile said, “We look forward to working together with the Capco team at this exciting time in the company’s development. Capco’s highly skilled consultants are passionate about problem solving and delivering value to clients, and their reputation for exceptional service provides a solid foundation for continued success.”

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Consumer goods start-ups grow interest from venture capital

23 April 2019 Consultancy.uk

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.