October 2, 2015

Korn Ferry’s Transformational Acquisition of Hay Group

Last week, Korn Ferry announced the acquisition of the Hay Group, a leading leadership and talent management consultancy. We believe the acquisition warrants some discussion due to the transformative impact it will have for Korn Ferry as well as for the broader talent management space. Even more importantly, this deal caps more than a decade of acquisition activity for Korn Ferry who has strove to redefine itself and diversify its business beyond its core executive recruitment business. We at Clearsight believe it is a great case study in the value that a well defined M&A strategy coupled with sound execution can create for shareholders. Not to mention, this deal has several thematic elements that are near and dear to our hearts.

To begin, let’s touch on these thematic elements. The market for high-value consulting services has exploded over the last 3-5 years. Corporate America has become highly reliant on consultants to help navigate the rapid pace of change spurred by globalization, heightened regulatory oversight, technological advancement, changing consumer preferences, and healthcare reform. We have witnessed first-hand the growth potential and thus, the value ascribed to firms that can deliver some form of subject matter expertise or intellectual property that is not easily or quickly replicated.

This transaction is also indicative of the broader theme of convergence we are seeing across markets. Delivering value to the customer is no longer about selling a product or a discrete service. Winners today have to be able to solve problems, provide solutions, or deliver a superior experience. Increasingly, consultants, with their high levels of expertise and experience, are viewed as a critical piece of that puzzle. To strategic acquirers, consultants can also be the point of access to the C-suite and/or Board of existing or potential client businesses, where policy and strategy are determined, and where they can cross-sell other products and services. This type of access and influence is highly sought after and, as a result, the buyer universe for consultancies has expanded dramatically to include: Big Four consulting firms, large diversified marketing/ad agencies, technology providers, executive search firms, and others.

As for the Hay Group transaction itself, it is a transformational deal for Korn Ferry. As reported, it nearly doubles the size of its employee base and expands its presence into over 50 countries. It greatly broadens Korn Ferry’s service offering, adding higher value advisory and consulting services to its arsenal. And most importantly, as alluded to above, it strengthens its relationships at the Board and C-Suite level. Said another way, it ensures them a seat at the table. This deal not only solidifies Korn Ferry as a leader in the Leadership and Talent Management sector, but puts considerable distance between them and their closest competitor, Heidrick & Struggles. On a combined basis, Korn Ferry and the Hay Group will generate approximately $1.7 billion in total revenue and employ nearly 7,000 consultants across the globe. As illustrated below, Korn Ferry’s stock has significantly outperformed Heidrick & Struggles since 2003. We begin to see real separation between the two in 2012 which corresponds with some of Korn Ferry’s larger and more impactful deals, including Global Novations in 2012 and Personnel Decisions International Corporation in 2013, precursors to the Hay Group.


Korn Ferry serves as a great case study in the role that M&A can play and the value it can deliver when treated as a strategic capability. As illustrated below, Korn Ferry has executed more than a dozen deals since 2003. M&A has been a terrific tool, enabling it to aggressively scale its business, enhance its capabilities, and ultimately reduce its dependence on its highly cyclical executive search business. In fact, with the addition of the Hay Group’s $500 million in reported revenue, its LTC division (Leadership & Talent Management) will contribute nearly $800 million in total revenues annually, exceeding its legacy Executive Recruitment division for the first time. Consequently, it is no surprise that Korn Ferry’s  stock price has tripled over the same time frame, and that the market has rewarded them with a premium valuation relative to its peers. Currently, Korn Ferry is trading at 1.4x revenues and nearly 10.0x EBITDA. This compares to 0.5x and less than 6.0x, respectively, for Heidrick & Struggles. Now that Korn Ferry has raised the bar in talent management, it will be interesting to see how the rest of the field responds.