January 13, 2014

Unprecedented M&A Activity in the Consulting Sector in 2013 – More of the Same in 2014?

Just prior to Christmas, Booz & Co. announced that its partners had approved the sale to PwC which was announced two months earlier.  The deal will likely officially close in the first quarter of 2014 but it puts an exclamation point on a strong year for M&A in the Consulting sector.  We have seen unprecedented activity in Consulting M&A particularly at the top of the consulting pyramid, with Strategy Consulting firms. 

The PwC/Booz deal comes on the heals of Deloitte’s deal for Monitor Group and Hitachi’s acquisition of Celerant, and amidst much discussion about other leading Strategy firms like Roland Berger, ATK and LEK.  Now that Deloitte and PwC have made substantial acquisitions in the Strategy space we fully expect E&Y and KPMG to respond in kind.  Accenture, Oliver Wyman and others are also considering their next move in order to not lose ground in what is clearly becoming a monumental landscape shift in the Global Management Consulting sector.

How about the large “pure” strategy firms like McKinsey, BCG and Bain?  Surely, they are becoming concerned as the much larger Big 4 Accountancies are encroaching on their hallow ground and starting to compete on price which will severely impact the premium rates enjoyed by providing strategic advice to CEOs and Boards of the Global 1000.  It took Deloitte and PWC five years to gear up their M&A machine to compete with Accenture who can be credited with starting this race when they went public in 2001 and began using M&A as a strategy in the middle of that decade.  Now that the Big 4 have embraced M&A as a strategy to encroach on McKinsey’s turf, how long will it take them to respond?  It doesn’t happen overnight but all of these firms are well aware of the old adage “if you aren’t growing you are dying”.  This hits home in particular in the Professional Services sector where the bulk of the revenue is generated by the junior partners while the bulk of the equity is held by the active senior (and retired) partners.  When these firms stop growing the junior partners realize they are just working for the senior partners and begin to look elsewhere.  The result is an increase in spinoff firms formed by frustrated junior partners and M&A.   We have seen a significant increase in both but McKinsey, Bain and BCG have largely been bystanders (aside from losing junior partners who have created spinoff firms).

Clearsight fully expects the Big 4, Accenture and other active acquirers to lead the way in M&A in 2014 but we believe pure Strategy Consultancies will start to poke their head out of the sand and test the waters in what has become a vibrant M&A market.