May 19, 2021
The Economic Consulting Market: Top Five Investable Dynamics
Year after year, we see the appetite for professional services firms grow as the consulting industry adapts to provide novel ways to serve their enterprise clients. Most recently, the economic consulting market is garnering attention within the broader, high-intellect consulting sector. We are not surprised by this renewed interest and heightened M&A activity, as there is a lot to like about the space.
With an annual global spend of ~$40B per annum, the science and economic consulting services sector is large and fragmented. In addition, the sector and its members often exhibit five highly sought-after characteristics:
- Exceptional Profit Margins: Billable rates for this critical advisory are much higher than the cost of delivery.
- Competitive Moat: The experience and expertise necessary to perform well in the industry creates high barriers to entry for potential competitors.
- Impervious to Market Volatility: Litigation lags and is less correlated to the broader economy, creating dependable cashflow.
- Inelastic Demand (in select areas): Clients are less sensitive to pricing as critical litigation is extremely high-stakes work.
- Open Market: Although larger firms exist, the market is not dominated by one or two firms across all practice areas.
At its core, most forms of economic consulting rely heavily on data scientists – a breed of consultant that is both in high demand and short supply. The ability to attract, engage and retain skilled consultants at scale drives value.
Economic consulting M&A by strategic acquirers has expanded over the past twelve months with the acquisition of Vivid Economics by McKinsey, Blackrock Expert Services by Duff & Phelps, and Matrix Economics by AlixPartners, to name a few. Private equity investors are also looking to capitalize on the space as evidenced by LLCP’s acquisition of Resolution Economics in early 2020, and Bow River Capital’s acquisition of Ocean Tomo last spring. We expect demand from sophisticated buyers to continue through 2021 and beyond, further solidifying economic consulting firms’ place in the broader professional services arena.
Interested in discussing more consulting market insights? Contact Clearsight Managing Director, John Rakowski.