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Opinion: Consulting M&A deals among the Big Four could get big

THE MOOD in the consulting industry is upbeat but not bullish – and rightly so.

All the evidence points to strong growth in the consulting industry through 2015 and well into 2016. Of course political instability, the turmoil in Greece being just the latest wave to rock the consulting boat, may change that. But for the moment, the industry, like the summer weather, is set fair: consultants are busier than ever.

But much of this growth is tied up with large-scale change and transformation initiatives in which the scale and speed of any consulting intervention are critical.

Once upon a time, consulting firms could take time to pull together the right team, but clients nowadays expect an instant response. Firms have to be ready with knowledgeable people, evidence of previous projects (preferably in the same sector) and even a point of view about whether such an investment makes sense for the client, if they’re going to win the work. Quite an agenda.

M&A boon

It’s therefore no surprise that M&A has been playing an increasing role in consulting firms’ plans. According to our analysis, there have already been 150+ M&A deals globally in 2015 – and there’s no sign of the bubble bursting.

The Big Four have been particularly active: in the past two and a half years, we’ve counted over 75 acquisitions or strategic alliances – more than two per month. Some, such as PwC’s acquisition of strategy firm Booz & Co, command international press coverage and comment, but the majority involve firms with fewer than 50 staff and are completed under the radar without fanfare. KPMG has been the busiest firm recently, with over 30 plus deals completed, but the others are not far behind.

Some interesting patterns emerge. Most activity is focused around four areas: digital and data analytics; audit; technology and cyber. With digital such a hot topic, majoring in this area is to be expected, with niche experts – either sector based or in specific functional areas – in greatest demand.

Regional audit firms or small restructuring or insolvency businesses are being hoovered up to build scale and in some cases, tackle the SME market, previously mostly ignored by the top firms.

There’s been a raft of acquisitions in the technology space: SAP and salesforce.com continue to be popular capability targets but cyber security has been particularly active: KPMG have made at least five acquisitions in this field, and have stressed this is an area that they want to invest in globally. But some purchases have been more surprising. Engineering, market research, sustainability, and culture are all areas where the Big Four have made investments over the past 24 months.

Most deals have been in developed markets. Although the Big Four all want to expand their presence in some of the newer growth markets, the reality is that these still do not have the level of smaller firms from which to choose. So, the USA, UK and Germany all feature prominently, as does Australia with 20+ deals completed there, mainly in digital. By contrast, there’ve been only a few deals in China and Singapore.

Bigger deals next?

The challenge now for the Big Four is to do more ‘above the radar’ deals. Some would say that’s reckless, that big deals invariably fail at the integration stage, but small-scale deals only add expertise, they don’t stretch brands. If the Big Four want to be serious in some of the areas they’d like to lay claim to – cyber security, for instance – then small simply isn’t big enough.

Margaret Cameron-Waller is M&A lead at Source Information Services

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