Deal values in management and IT consulting on the rise

06 August 2018 5 min. read

Global M&A deal volumes in the professional services sector dipped in the first half of the year, while deal sizes and valuation multiples rose markedly, continuing a long-term trend in the sector. Management consulting and IT consulting continued to be the largest segments of deal flow across the industry.

The number of global M&A transactions completed across the knowledge economy contracted by 5% as compared with the first of half of 2017, according to the latest available data from professional services M&A firm Equiteq. This contrasted some significant rises in median deal sizes and transaction valuation multiples, as many global buyers push ahead with major deals for their businesses at premium prices in the current low interest rate environment, while signs continue to increase that the quantitative easing programs of the past 10 years are coming to an end across developed economies.

Going into 2018, the number of deals in the consulting industry had remained stable in final quarter of last year. This was bolstered by a 58% rise in deal activity in the management consulting segment, compared to the same period in 2016. Management consulting drove deal activity throughout 2017, with a total of 863 deals being completed over the 12 month period, while activity was strongest in North America – the only major economic region to enjoy positive growth in the number of acquisitions during the year – at 5%.

M&A in the consulting industry (H1 2018)

The first half of 2018 saw a total of 1,181 deals completed across the global consulting industry. Notably, North America saw the number of deals completed in the region fall in line with the global trend finally, dropping by 3% when compared with the first half of 2017 – and should the second half return the same number of results, it will represent a decline of 57 mergers and acquisitions. Europe, which saw 454 deals in the first half of 2018, saw its drop in deal numbers compounded on last year, when it saw an 8% decline overall on 2016’s levels. The only region to report growth in terms of deal numbers was Equiteq’s “Other” segment, suggesting that consultancies are exploring entirely new markets in order to expand their client-bases and revenues.

Most deal activity occurred in the IT services and management consulting segments IT services and management consulting continued to be the largest segments of deal flow across the knowledge economy. There were dips in the number of deals completed in these spaces as compared with the first half of 2017, as buyers in general appeared to be focused on a smaller number of larger deals. This could either reflect a willingness to put quality before quality, or it could suggest a market which is seeing price-tags inflate in a way that may be unsustainable in the future – so market experts will be monitoring further declines closely, one way or another.

Private equity

A number of transformational deals that did take place involved prolific private equity (PE) acquirers. Deal flow in the human resources space rose, supported by a strong global economic outlook and falling unemployment across developed economies. M&A also rose moderately in the media agencies space. Despite the strong economic backdrop, M&A in the engineering segment continued to decline.

Exemplifying this, among the notable deals which were concluded in management consulting, Ankura acquired the Disputes, Forensics and Legal Technology (DFLT) and Transaction Advisory Services (TAS) segments of Navigant Consulting, with Ankura having been backed by Madison Dearborn in 2016 to the tune of $100 million. In the same period, in the less active engineering consulting M&A scene, H.I.G. Capital acquired Conduent’s US-based human resources consulting and actuarial business, formerly known as Buck Consultants, which represented $278 million of Conduent’s 2017 revenue.

Elsewhere, in addition to acquiring LiquidHub, the expanding IT and advisory consultancy Capgemini purchased Adaptive Lab, adding to the firm’s Idean London studio, as part of another major trend – that of the encroaching of consulting on the design and advertising world. 2018’s first half also saw Accenture continue its building of its digital and design offering, with the acquisition of Meredith Xcelerated Marketing, a content-focused provider of marketing, cross-channel strategy consulting and creative execution. Meanwhile, Bain & Company bought US-based digital agency FRWD, as Bain’s first recently announced acquisition saw the strategy consultancy follow its major competitors McKinsey & Company and The Boston Consulting Group into the digital fray.