Carlyle explores exiting its stake in PA Consulting Group

07 August 2019 Consultancy.uk

Carlyle has launched a strategic review of PA Consulting Group, one of its portfolio companies, with a sale of the consulting firm seen as one of the most probable outcomes. Investment bankers from HSBC and JPMorgan have been tapped to lead the review.

Four years ago, the Carlyle Group took a majority (51%) stake in PA Consulting Group, a UK-headquartered management and technology consulting firm. Speaking at the time of the deal, Eric Kump, Managing Director at Carlyle, said “PA is at the inflexion point of a new growth phase, and we are excited to support the leadership’s ambitious plans.”

If the consulting firm is sold, then it would close a successful investment for the American private equity giant. When Carlyle acquired PA, the firm had around 2,600 employees. Today, the firm employs around 2,800 consultants and staff. On top of growth in its headcount, the consultancy has also managed to improve its financials – with consulting revenues jumping last year by 13% to £455 million.

Carlyle explores exiting its stake in PA Consulting Group

More importantly, PA has been able to position itself for the future. The firm expanded its global presence with the opening of new offices, including in Latin America, and significantly bolstered its presence in the world’s largest market – the US. Much of the growth stateside was through mergers and acquisition activity, however, with Essential most recently bolted on to its North American operations. The added financial muscle also enabled PA to close several deals in the UK, with We Are Friday and 4inno both helping broaden the firm’s UK portfolio of services and expand into new segments of consulting work.

Being able to move into new spaces such as the creative and marketing sector, along with lucrative lines such as digital transformation and design thinking, PA reported “record growth” in the last financial year. However, having changed the way it reported these results from previous years as of 2017, it has been suggested by some sources that the firm’s growth was not as impressive as it appeared, particularly given its spiralling headcount and sustained acquisition drive. Regardless of this, if Carlyle were to offload PA now, it would be in line with a common trend in private equity of exiting after four to six years of investing, capitalising on the value they add to a firm, so such a move would most likely represent business as usual.

According to reports from Sky News, the investment banking arms of HSBC and JPMorgan have commenced their strategic review, in a process which is planned to take several months. It is expected is that the bankers will launch an auction of PA Consulting after this point, though the timing of any formal sale process is yet to be announced. While there are other options which could be considered instead of a sale – Carlyle could simply opt to refinance the business – it is thought to be most likely that the private equity group will ultimately pursue a sell-off.

More options being considered

A return to full independence is also said to be on the cards. The remaining stake of PA is owned by management team members and employees, and the option is reportedly being explored, in a move that would see the firm return to its roots. Founded in 1943, PA Consulting Group has historically been owned by its employees, who support clients with strategy, business consultancy, and technology and innovation services. The firm works both for clients in the private and public sector, with revenue split around 50-50 between the two.

PA Consulting Group was contacted by Consultancy.uk with regards to its potential sale, but declined to comment.

Carlyle’s review comes at a time when private equity groups are upping their stakes in the consulting landscape. In the years after the financial crisis, around 10% of consulting deal value was financed by financial sponsors. Today that percentage has according to data sourced from Equiteq risen to nearly 20% in mature markets. Bain Capital recently took up a stake in Kantar, UK player Vendigital is backed by Livingbridge, and Capco turned to private equity to finance its return to independence from FIS in 2017. AlixPartners and Booz Allen Hamilton have been supported by private equity firms for some time.


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