EY Advisory buys strategy firm The Parthenon Group

23 July 2014 Consultancy.uk

Accounting and consulting firm EY has bought The Parthenon Group, a global strategy consultancy with offices in Boston, London, Mumbai, San Francisco, Shanghai and Singapore. As a result of the deal roughly 350 professionals will be integrated into EY’s Advisory business unit. The Parthenon Group will continue to operate under its own brand.

The Parthenon Group was founded in 1991 by Bill Achtmeyer and John Rutherford, former employees of Bain & Company. Over the past 23 years the Boston based consulting firm has grown to a team of 350 people in six offices across the globe, and revenues of over $80 million.

From EY’s viewpoint the acquisition of The Parthenon Group does not come as a big surprise. Over the past years the Big 4 firm has quickly been expanding its Advisory business, by more than 30% between 2008 and last year, the result of several acquisitions* and organic growth. Yet despite the impressive growth, EY Advisory globally still trails rivals Deloitte, PwC – both in size and growth rate – and KPMG (in size) in the consulting landscape. An overview:

Global revenue and growth development of Big 4 firms ($ / billion)

In addition, in particular in the high-end Strategy & Operations segment of the market EY has a gap to close, which was one of the main reasons why EY end of last year was prepared to outbid its rivals to poach top-5 player Roland Berger Strategy Consultants. After the deal fell through at the last moment (EY was quite convinced that it was an inch off the deal) and the German-based strategy consulting firm yet again choose for independence** EY was left with the need to change its focus to other targets. With several rivals already bought (Deloitte bought Monitor in 2012, PwC acquired Booz & Company end of 2013) and other interesting options not feasible (e.g. A.T. Kearney, Arthur D. Little and OC&C are following a strategy to remain independent) EY’s set its sight on The Parthenon Group.

Since The Parthenon Group was not really under pressure to sell – the firm has experienced strong growth in recent years and was on the shortlist of several rivals – the negotiations took a considerable time to materialise. Following a successful due diligence and a principal agreement between the board of directors, the 33 partners of Parthenon recently unanimously voted to merge into EY, according to Parthenon Managing Partner Bill Achtmeyer mainly because of the shared ambition to deepen Parthenon’s ability to compete. “The merger with EY gives us a really interesting opportunity that we couldn’t have dreamed of doing by ourselves. And it certainly vastly increases the level of growth we could see,” said Achtmeyer.

Revenue from Strategy & Operations Consulting ($ / million)

Another reason cited by analists for Parthenon Group’s decision to sell is the height of EY’s bid. Although terms of the deal have not been disclosed, the acquisition sum is said to be ‘highly attractive’, providing the partners a good return on their capital and lucrative financial incentives for the coming years. All of Parthenon’s partners have agreed to stay on for at least four years, and similar to the PwC and Booz & Company transaction the Parthenon partners have been guaranteed a substantially higher management fee than their counterparts in EY Advisory***.

Own branding maintained

From an organisational viewpoint Parthenon will be integrated into EY’s Transaction Advisory Services business unit. The firm will remain to operate under its own brand and under the leadership of Bill Achtmeyer, who will report to Pip McCrostie, EY’s global head of Transaction Advisory Services. “Combining EY’s and Parthenon’s strengths, we will be better positioned in the marketplace to serve as strategic advisors working with companies to develop investment strategies across the capital lifecycle,” says McCrostie.

* Firms acquired by EY Advisory include Greenwich Consulting (Europe), J&M Management Consulting (Germany), Beco (Benelux), Taurus-i (Belgium), Jeffrey Parker (US), Partake Consulting (Europe) and ISA Consulting (US).

** In 2010 the Roland Berger was close to merging with Deloitte Consulting, yet after a last-minute investment from the founder of Roland Berger the deal fell through.

*** A similar construction has been agreed by Strategy& and PwC. Partners of Strategy& have according to insiders close to the matter been guaranteed a partner dividend twice or more that of an average PwC Advisory partner for the period of two years, irrespective of the performance of Strategy&.