A New Era of Consulting M&A, the Private Equity Marriage

Earlier this month Ankura Consulting Group, a business advisory and expert services firm, announced that it had received an investment commitment of $100M from Madison Dearborn Partners, a Chicago-based private equity firm. Ankura is a recent entrant into the consulting arena founded by former executives from FTI Consulting and is largely focused on providing clients expert witness, litigation support and financial forensics, as well as other economic, financial and strategic consulting services. The deal is interesting because it represents the second foray into the “consulting” arena by Madison Dearborn (a firm that has historically not done many “professional services” deals). In late 2014, the firm invested in Kaufman Hall, a financial and performance improvement oriented management consulting firm with roots in the healthcare industry.

Traditional management consulting deals have historically been challenging for the vast majority of private equity firms, because of the high intellect human capital risk and partner-driven selling model.  However, over the last 10 years there has been a growing group of middle-market oriented private equity firms that have carved out niches focusing on the dynamic management consulting industry. Over this time, the larger or mega private equity firms have continued to shy away from these deals given their lack of experience in the space, inherent risk in the business model and a general lack of interest from most debt lenders to provide the requisite leverage. As a result, the larger consulting firms have tended to sell to strategic buyers, like the Big 4, instead.  But that has changed in recent times as seen through the Madison Dearborn deal as well as deals done by The Carlyle Group (PA, Duff, Booz Allen) and CVC Capital (AlixPartners).

As we often tell our consulting clients, private equity firms represent a unique exit for consulting firm owners given it provides liquidity while at the same time giving autonomy, which avoids the cultural issues that need to be confronted with strategic buyers. We continue to see more and more private equity firms becoming increasingly comfortable with the consulting business model (the asset light, attractive free cash flow dynamics don’t hurt) and expect private equity to become an even more viable exit strategy for consulting firms in the future.