Q3 2016
Market Update
The Global Consulting Mergers & Acquisitions Report
The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
Strong Sector M&A Activity Global M&A activity in consulting was strong in the third quarter. Deal volumes rose in comparison to both the prior quarter and the third quarter of 2015 with serial acquirers like Dentsu, Accenture and Deloitte continuing to be highly active. Third quarter M&A activity was highlighted by landmark transactions within Media and Management Consulting, as well as the broader IT sector. Noteworthy technology deals included the completion of the transformational $67bn takeover of EMC by Dell, another significant divestment by Hewlett Packard Enterprises, as well as TPG’s majority investment in Intel’s cyber-security unit.
Robust Consulting M&A Post-Brexit Vote Our European professionals, continue to closely monitor market sentiment and deal activity following the UK’s vote to leave the EU. As we highlighted in our Brexit UK market update published on Equiteq Edge, buyers have been largely unconcerned with Brexit. Acquirers of European consulting firms continue to tell us that they are treating the aftermath of the referendum as ‘business as usual’ for acquisitions. This anecdotal evidence is consistent with M&A activity in the UK this quarter. The positive sentiment for M&A activity has been supported by a range of robust economic data released over the period and the strong performance of quoted equities. We expect that foreign buyers may also see the recent depreciation of the sterling as an opportunity to deploy increased purchasing power in UK acquisitions. Bloomberg recently reported that demand for consulting services in the UK has also been strong. This report highlighted material increases in vacancies and salaries for consultants in August,
based on the results of a survey by job-search engine Adzuna.
Robust Stock Market Performance The Equiteq Consulting Share Price Index performed very strongly this quarter, outperforming both the S&P 500 and FTSE 100. The index is now at a ten-year high with particularly strong increases in the Management Consulting and Engineering Consulting indices.
Outlook As we go to press, The Blackstone Group has announced its anticipated sale of Chinese IT outsourcing and consulting firm, Pactera. The business was sold to a unit of HNA Group and reportedly values Pactera at c.$930m. We expect to see further material deal activity like this within the highly active IT Services segment. Dentsu’s acquisition of Merkle is also likely to spur competitors to consider large acquisitions of cutting-edge media capabilities. These capabilities are in demand across multiple buyer groups, as the latest digital trends continue to transform customer experience. Over the next quarter all eyes are on the result of the US Presidential election and signals for any US interest rate changes. This could introduce some share price volatility and challenges for deals with quoted equity components. However, our experience suggests buyers appear committed to closing deals before the New Year and the fourth quarter is expected to be another strong one. As always, if you have any questions or would like to learn more about Equiteq, we look forward to hearing from you. Best regards, David Jorgenson CEO
At a Glance (Q3 2016) 630 consulting transactions recorded across the globe with 45% occurring in North America and 37% in Europe.
18% %
Increase YoY in # of deals vs. Q3 2015
Management Consulting was the
best performing segment with respect to share price increases and growth in M&A activity.
6%
Increase QoQ in # of deals vs. Q2 2016 (30%)
3%
Increase YoY in median deal value vs. Q3 2015
Decrease QoQ in median deal value vs. Q2 2016
120
United Kingdom
No. of Deals
No. of Deals
Equiteq Consulting M&A Index (Q1 to Q3 2016, UK vs. RoW) 100 80 60 Q1 2016
Q2 2016
Q3 2016
560 490 420 350 280
Global (excl. UK)
Q1 2016
Q2 2016
Q3 2016
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
M&A deal overview Strong M&A activity in the third quarter, led by the serial acquirers Deal volumes were highest in IT Services, followed by the Management Consulting segment. Although the HR Consulting segment experienced the least number of deals, volumes increased substantially compared with the same quarter last year.
Deal Volume Growth vs. Q3 2015
M&A Transaction Statistics by Consulting Segment
Top Buyers (Q3 2016) 1. Dentsu (11 deals)
40% 31% 30% 28%
Management Consulting
HR Consulting
2. Accenture (9 deals) 3. Deloitte (6 deals) 4. SGS (4 deals)
20%
5. EY (3 deals) Engineering Consulting
10% 8% 4% 50
81 75
161 IT Services
135 85
100
125
150
175 168
1. Accenture (9 deals) 200
2. Bureau Veritas (4 deals) 3. Dentsu (4 deals)
(10)% (15)%
Top Buyers (Q2 2016)
Media
(20)% Number of deals of Q3 2016
4. BDO (4 deals) 5. Grant Thornton (2 deals)
Deal activity was again led by the traditionally prolific buyers. Accenture continued to broaden its capabilities globally with acquisitions across digital consulting, cyber security, cloud consulting and management consulting. Dentsu Aegis Network acquired a number of digital agencies as part of its drive to be 100% digital across all of its businesses by 2020. The most notable was its purchase of a majority stake in Merkle, the largest independent US-based agency focused on customer relationship management and search.
As we anticipated last quarter, there continues to be strong deal activity within the broader IT sector. Hewlett Packard Enterprises (HPE) announced that it will further restructure its operations with the sale of its software business to the UK’s Micro Focus for $8.8bn. The deal will result in the majority of HPE being focused on hardware and Micro Focus becoming one of the leading European software players. Intel announced that it agreed to sell a majority stake in its cyber-security unit to private equity firm TPG, in a deal which values the business at The Big Four continue a buying spree with PwC, $4.2bn. Deloitte, and EY also recently announcing The legacy technology giants are facing record financial results for the year* supported disruption from cloud computing and new by strong demand for their growing consulting technologies. The players at the forefront of businesses. cloud computing are highly acquisitive of In September, there were two transactions technology services and adjacent media involving leading strategy houses. McKinsey capabilities, as well as investing strongly in builds on its digital capabilities with the their organic growth. This quarter, Salesforce acquisition of PriceMetrix, a Toronto-based data announced an acquisition of a Chicago-based analytics firm focused on the wealth innovation consultancy, gravitytank, which management sector. In addition, The Boston builds on their acquisition of ÄKTA last year. Consulting Group announced the acquisition of The buyer also reportedly continues to plan Inverto, a 130-person German procurement aggressive group expansion across Europe. and supply chain management consulting specialist. * As we go to press, KPMG are yet to announce their global financial results for FY 2016.
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
Selected M&A transactions Acquirer: Verisk Analytics
Acquirer: Dentsu Aegis Network
Target: Greentech Media Information services provider for the nextgeneration electricity and renewables sector.
Target: Merkle Performance marketing agency.
Rationale: Greentech will be combined with Wood Mackenzie, who offer research for the energy industry. The acquisition deepens the buyer’s existing capabilities to create a market-leading, full-service, data analytics and insights offering for the energy sector.
Rationale: Merkle’s data management and analytics capabilities will further reinforce Dentsu Aegis Network’s transition away from legacy media. The acquisition also creates leverage and operating scale in the US, continuing parent company Dentsu’s drive to reduce its dependence on revenue generated in its relatively sluggish Japanese home market.
Acquirer: PwC Target: Handson & Partners Provider of financial consulting and tax services. Rationale: The acquisition deepens PwC’s presence in Belgium, particularly with smaller and medium sized clients. This target market is considered a growing segment which is currently underserved by the firm.
Acquirer: Accenture Target: MOBGEN Digital consultancy focused on mobility strategy. Rationale: The acquisition strengthens Accenture’s mobility capabilities in Europe. Demand for these services is rapidly increasing and as IoT grows, capabilities will need to be developed for an increasingly complex range of devices.
July
Acquirer: Huron Consulting Group Target: HSM Consulting A specialist in healthcare information technology and management consulting. Rationale: The acquisition strengthens Huron’s ability to implement technologies to improve quality and reduce cost of care for healthcare providers.
Acquirer: Savills
Acquirer: EQT Target: Press Ganey Provider of patient experience measurement. Rationale: Press Ganey is considered a leader in patient surveys and marks EQT’s first acquisition in the US. Healthcare-focused consulting is an area which private equity see as benefiting from the reforms created by the Affordable Care Act (ACA) of 2010. In addition to the provision of traditional consulting and outsourcing services, analytics models and tools are important for healthcare providers to consider the necessary organizational changes required as part of the ACA reforms.
Target: GBR Phoenix Beard (Equiteq advised)
UK property services and consulting. Rationale: The companies can combine to strengthen their positions in Birmingham and the wider Midlands market. GBR's high quality staff, strong client base and stream of recurring revenue attracted Savills to the acquisition opportunity.
August
Note: Bubble size illustrates comparative headcounts of target companies. Acquisitions highlighted are those announced in the quarter.
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
Selected M&A transactions (Cont’d) Acquirer: Accenture Acquirer: McKinsey & Co Target: PriceMetrix Data analytics firm focused on the wealth management sector. Rationale: McKinsey acquires a comprehensive and detailed dataset on 60,000 financial advisors across North America. The buyer can scale PriceMetrix’s proprietary models and online tools to create a world-class, dataenhanced consulting offering for the wealth management sector.
Acquirer: Boston Consulting Group Target: Inverto Specialist in procurement and supply chain management. Rationale: BCG will benefit from Inverto’s digital consulting offering focused on procurement, which is considered to be a rapidly growing segment of this market. The acquisition is also complementary to BCG’s existing operational consulting services.
Acquirer: Parthenon-EY Target: OC&C Strategy Consultants (Benelux) The Benelux operations of a global strategy consulting network. Rationale: The acquisition forms part of EY’s overall expansion of its consulting practice and leverages from its 2014 acquisition of The Parthenon Group. The deal develops EY’s presence in the Benelux by acquiring an established practice with a strong cultural fit.
Target: Kurt Salmon Specialist in operational strategy consulting for the retail sector. Rationale: Accenture expands its strategy capabilities and can leverage Kurt Salmon’s capabilities with its recent acquisitions of dgroup and Javelin, to develop a leading global retail and CPG consulting team with deep expertise in strategic, operational, IT, and digital media consulting. Acquirer: Accenture Target: DayNine Global Workday consulting and deployment services provider. Rationale: Accenture acquires a prominent Workday partner and enables it to strengthen its position as a leading enterprise cloud services provider, leveraging its acquisitions of Cloud Sherpas, New Energy Group, CRMWaypoint, Tquila UK, and ClientHouse.
Acquirer: salesforce Target: gravitytank Chicago-based innovation consultancy. Rationale: Salesforce built on their acquisition of ÄKTA to develop a creative agency hub in Chicago. These acquisitions continue to broaden their technology consulting offering into an adjacent customer-focused advisory segment.
Acquirer: IBM Target: Promontory Financial consulting and risk management firm. Rationale: IBM acquires a leading financial consulting business, which it will combine with Watson, the buyer’s artificial-intelligence system. This combined offering will help financial institutions with rising regulatory burdens in areas like anti-money-laundering and bank “stress tests”.
September
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
Stock market review The Equiteq Consulting Share Price Index performed strongly Equiteq Consulting Segment Share Price Indices
Share price index, 1st June = 100
June 23: Britain votes to exit the EU and David Cameron announces intention to step down as PM.
Q3
Q2
120
Sept 21: The Fed leaves interest rates unchanged. Fed Chair indicates US growth was looking stronger and rate increases would be needed to keep economy from overheating.
July 4: Data indicates UK construction output falls in June.
14%* 13%*
115 110
7%* 6%*
105 100
4%* (1)%*
95 90 85 80
July 13-14: Theresa May appointed as new PM of Britain. The Bank of England signals August stimulus.
01-Jun-16
16-Jun-16
01-Jul-16
Aug 15: Oil prices continue to rise as speculation increases that OPEC may freeze output.
16-Jul-16
31-Jul-16
Sept 28: OPEC agrees to in principle to a deal that will cut oil production for the first time in 8 years.
15-Aug-16
30-Aug-16
14-Sep-16
29-Sep-16
Management Consulting Index
Engineering Consulting Index
HR Consulting Index
IT Services Index
Media Index
Equiteq Consulting Index
Equiteq Stock Market Indices*
EV / LFY Revenue (x)
EV / LFY EBITDA (x)
July 1st
Sept 30th
July 1st
Sept 30th
July 1st
P/E (x) Sept 30th
Management Consulting
1.0x
1.1x
9.8x
10.0x
19.0x
18.9x
IT Services
0.9x
0.9x
10.5x
10.5x
19.5x
18.7x
Media
0.7x
0.8x
8.5x
8.9x
18.2x
18.4x
HR Consulting
0.4x
0.6x
8.6x
9.3x
18.9x
21.2x
Engineering Consulting
0.7x
0.7x
9.5x
9.5x
22.3x
26.0x
* Valuation metrics in the above table and the percentage changes of each index, shown adjacent to the graph, are representative of Q3 only.
The Equiteq Management Consulting Share Price Index was the best performing segment, up 14% over the quarter. Its performance was supported by notable increases in the share prices of Management Consulting Group Plc (LSE:MMC), following their sale of Kurt Salmon to Accenture, as well as Navigant Consulting Inc. (NYSE:NCI) and the Advisory Board Company (NASDAQ:ABCO). The Equiteq Engineering Consulting Share Price Index was another strong performer. Its rally appears to be reinforced by robust market fundamentals supporting growth and consolidation in the overall Engineering & Construction industry. Many players may also be benefiting from rising oil
prices, which were most recently supported by an OPEC-led plan to cut output. Equiteq’s Media and HR Consulting Share Price Indices increases were more modest and the Equiteq IT Services Share Price Index fell slightly. The fall was led by the share prices of Indian IT outsourcers: MindTree Ltd. (BSE:532819), Wipro Ltd. (BSE:507685) and Infosys Ltd. (NSE:INFY) who all undershot earnings expectations in the quarter. Cognizant Technology Solutions (NASDAQ: CTSH) also declined after it announced an internal probe into payments relating to facilities in India and whether they may have violated the US Foreign Corrupt Practices Act.
Note: The Equiteq Consulting Share Price Index is the only published share price index which covers the consulting industry. You will be able to receive further information on the index and its performance by joining Equiteq Edge at equiteq.com/equiteq-edge. The Index is continually revised to consider new listed consultants and to remove businesses that are no longer focused on consulting in a given quarter.
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
Taking a longer-term perspective Deal volumes remain significantly above long-term averages. The Equiteq Consulting Share Price Index achieves a ten-year high
800
120
700 600
100
500
80
Average Share Price Index: 99
60 40
300 200 100 Sep-16
Jan-16
May-16
Sep-15
Jan-15
May-15
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
Jan-09
May-09
Sep-08
Jan-08
May-08
Sep-07
Jan-07
May-07
Share Price Index (LHS)
Sep-14
Average Quarterly Deal Volumes: 544
20 0
400
0
Quarterly Deal Volumes (# of Deals)
140
Sep-06
Share Price Index, 1 Sep 2006=100
Q3 2006 to Q3 2016: Equiteq Consulting Share Price Index and Equiteq Consulting M&A Index
Deal Volumes (RHS)
Complementing The Equiteq Consulting Share Price Index’s strong performance, the total number of deals announced in Q3 2016, as tracked by the Equiteq Consulting M&A Index, approached a ten-year high following strong deal activity this quarter. Looking ahead, the US Presidential Election and expected changes to the country’s interest rate environment will attract significant media attention. These changes will have the potential for FX and share price volatility. However, anecdotally buyers are pressing ahead with deals and the last quarter of 2016 is expected to be strong. Brexit clarity will be some time coming and with several years to go, the FX market may react to fresh news flow. A referendum on Italian constitutional reform is being held in December. The vote could add a new source of challenge for the EU if the Italian government loses the vote and Prime Minister Renzi steps down, as he said he would. Early elections could benefit the opposition Five Star Movement, a Eurospectic party promoting a nationalist agenda.
Note: The Equiteq Consulting Share Price Index considered on a ten-year basis only includes those listed consultants that traded continuously throughout this period.
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
About Equiteq Equiteq is the global leader in providing strategic advisory and Mergers & Acquisition services to owners of knowledge rich, often people dependent businesses There are unique challenges to value growth and equity realization for shareholders and investors in this space. We help owner transform equity value and then realise maximum value through global sale processes. Selected Recent Equiteq Transactions :
(SAP Data Management) Sold to
(Private Equity) Invested in
(Property Consulting) Sold to
(Health Strategy Consulting) Sold to
Equiteq advised on the sale
Equiteq advised on investment
Equiteq advised on the sale
Equiteq advised on the sale
2016
2016
2016
2016
(Operations Consulting) Sold to
(IT Consulting) Merged with
(Market Research Consulting) Merged with
(IT Consulting, IBM) Sold to
Equiteq advised on the sale
Equiteq advised on merger
Equiteq advised on merger
Equiteq advised on the sale
2016
2016
2016
2016
Further Resources Join Equiteq Edge, our free source of information, advice and insight to help you grow and sell your consulting firm. Equiteq Edge gives you access to the findings of unique research conducted amongst buyers of consulting firms from around the world, insight from those who have sold their consulting firms and expert advice. Join Equiteq Edge at equiteq.com/equiteq-edge
Important disclaimer This report has been compiled using our proprietary news feeds utilising various third party information sources, other third party data services, and our daily activities in the market with buyers and sellers that provide us with unique intelligence. The analysis and synthesis of the data was undertaken by our dedicated Buyer Coverage and Research & Analysis teams within Equiteq who produce the insights and data required for serving the interests of our clients wishing to maximise valuations in the sale of their firms. Despite our diligence in compiling this information we can’t be responsible for how you use it. Remember, a sale is only achieved when a willing buyer meets a willing seller and they both agree to terms.
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The Global Consulting Market Update
Global M&A and Equity Market Trends in Q3 2016
Regional contacts
Nicodemo Esposito
Alex White
NORTH AMERICA
EUROPE
Managing Director, Head of M&A and Strategic Advisory
Managing Director, Head of M&A and Strategic Advisory
[email protected]
[email protected]
+1 (212) 256 1120
+44 (0) 203 651 0600
Jean-Louis Michelet
Pierre Briand
ASIA PACIFIC
AUSTRALIA AND NEW ZEALAND
Managing Director, Head of M&A and Strategic Advisory
Managing Director, Head of M&A and Strategic Advisory
[email protected]
[email protected]
+ (65) 635 27482
+ (61) 434 730 099
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Contact us If you would like more information on our company or the various services we offer please don’t hesitate to get in touch. Email:
[email protected] Website: equiteq.com Equiteq has global reach through its offices in New York, London, Singapore and Sydney. equiteqedge.com @consultingmanda © 2016 Equiteq Ltd. October 2016
