Carlyle exits PA Consulting stake following Jacobs investment

01 December 2020 Consultancy.uk

Months of speculation have come to a head, with the announcement that PA Consulting has secured new investment from professional services firm Jacobs. The transaction values PA at over £1.8 billion, and despite seeing Carlyle Group exit its stake, will be structured like a traditional private equity investment to ensure that the consultancy retains its independence.

Five years ago, the Carlyle Group took a majority stake in PA Consulting Group, a UK-headquartered management and technology consulting firm. The injection of finance proved to be transformative for PA, which used its investment to drive a new era of organic and inorganic growth – committing to a sustained campaign of merger and acquisition activity to drive its expansion. The deal was a success on both ends, with PA enjoying compound annual revenue growth of 12% since 2016, however private equity firms typically look to exit their investments within a four-to-five-year window, and as such rumours began to emerge in late 2019 that Carlyle was looking to cash out of its stake.

Questions soon arose as to what PA would do if Carlyle were to exit – and one thing was quickly established: the firm would not be interested in a bolt-on deal to join another, larger firm. Also speaking in 2019, out-going CEO Alan Middleton stated he was keen for the firm to retain its independence. He added, “I don’t want their chain around our neck. It creates short-termism and messes with your purpose. We can choose what we want to do…”

Carlyle exits PA Consulting stake following Jacobs investment

The situation progressed steadily throughout 2020, and Carlyle reportedly stepped up its efforts to move on in September. According to Bloomberg, the buyout firm’s advisers had “reached out to potential suitors to gauge interest in PA Consulting.” Two months later, those efforts were seemingly successful, with the news breaking that PA has agreed a future investment and strategic partnership.

The transaction, which values PA at £1.82 billion, and is expected to close by the end of 2021’s first quarter. Technical and professional services group Jacobs has signed an agreement to invest in PA for a 65% shareholding in the company, with Carlyle exiting its stake. J.P. Morgan and HSBC served as financial advisors to Carlyle and PA, while Linklaters is serving as legal counsel. Dickson Minto is providing legal counsel to PA regarding its new partnership with Jacobs.

Ken Toombs, the recently appointed CEO of PA Consulting, said of the deal, ‘’We would like to thank Carlyle for the excellent partnership over five years. Together we have significantly grown the business and we are proud of what we have accomplished. We see Jacobs as the ideal partner for PA because of their market leading reputation, the alignment with our respective ambition and the opportunities to better serve clients through access to Jacobs’ global platform and client base, positioning us for the next phase of growth.”

Private equity style deal

With approximately $14 billion in revenue and a talent force of more than 55,000, Jacobs provides a full spectrum of professional services including consulting, technical, scientific and project delivery in its own right. Despite this, a release from the firms stressed that this is a “private equity style deal,” which ensures PA retains its independence, alongside current culture, brand and values. The continued share ownership by PA employees is a key feature of the transaction to that end. Meanwhile, Jacobs will provide debt financing to PA in the form of a £650 million term loan and a revolving credit facility of up to £100 million to fund future growth.

John Alexander, Chair of PA, commented, “We have undertaken a thorough process to screen and select potential new external investors that align with PA’s culture, independence and ambition. Jacobs stood out during the selection process because of the close affinity between our respective values and their reputation as one of the leading global providers of technical and professional services to clients across the public and private sectors. We were hugely impressed with Jacobs’ commitment to a PE style investment to support our values and purpose and accelerate our growth trajectory.’’

Working with Jacobs, PA hopes to accelerate its growth plan through further acquisitions, as well as via geographic expansion – particularly in the world’s largest consulting market of the US, where Jacobs is based. PA also hopes to further enhance its capabilities in innovation, design, digital and technology.

Jacobs Chair and CEO Steve Demetriou remarked, ‘’We are excited by this partnership and the opportunity to set a new industry benchmark together for technically-driven solutions that drive value for our clients, employees and investors – and changing the shape of our industry. We look forward to working together to deliver PA’s ambitious growth plans and strengthening their reputation as the leading provider of end-to-end innovation capability.’’