Consulting M&A continues at pace heading into 2024
The appetite for deals involving consulting firms has shown no sign of slowing in line with the wider M&A market, according to new research from Boxington. The consulting market of the UK and Ireland accounted for more than one-fifth of the deals through the last year.
Pressures from the global economy saw investors favour caution in their dealings over the last year. As a result, major merger and acquisition activity fell off a cliff for much of 2023 – with the number of high value M&A moves tumbling by 27%. However, a new report from Boxington suggests that this was not a trend which was mirrored by deals involving the consulting sector.
Kashif Beig, a senior analyst at Boxington, and co-author of the report, summarised, “Over the year 2023, as during Covid and the post-Covid period, consulting sector valuations outperformed most share indices despite global economic headwinds. EBITDA valuation multiples however were stable over 2023 as markets, buyers and investors look to the future and anticipated lower demand and growth rates. Finally, M&A deal activity was strong over the year to date, with strategic buyers being the sector’s most acquisitive buyer category.”
Source: Boxington, Refintiv
Many consulting firms spent the last year using M&A moves to secure their current position in the market, or move into other areas to insulate them from future uncertainty. This led to a number of companies making ‘super-strategic’ acquisitions, including McKinsey & Company’s move for Iguozio, Elixirr’s deal for Insignium, and L.E.K Consulting’s purchase of Hi Mum! Said Dad – each of which allowed for both geographical and sector diversification.
With the geopolitical picture looking increasingly divisive, however, the majority of deals prioritised opening up new sectoral opportunities, as opposed to cross-border opportunities. Moves including Kearney’s buy of Silicon Foundry, PwC’s deal for Schuh & Co, and Accenture’s purchase of Anser Advisory were noted as deals which catered mostly to markets the firms had existing presences in – but allowed them to tap into new lines of demand.
Consulting has traditionally strong fundamentals – particularly in hard times. As economic uncertainty emerges, clients tend to turn to external experts for advice, so many consulting firms continued to benefit from strong client demand for strategic and digital transformation, adoption of artificial intelligence, the move to sustainability, restructuring needs, as well as additionally from demand arising from clients’ continued acquisitions strategies. By looking to move into new sectors within markets they are already present in, firms can find new ways to increase revenues and win market share – making their own position more secure in the process.
According to the researchers, this also led consulting sector valuations to outperform most share indices despite global economic headwinds – driven by several key areas in particular. While the story of the last year in consulting has been the importance of technology and AI-enabled consulting, only 16% of deals involved these delivery models. Instead, 78% of deals focuses on more traditional, multi-faceted advisory services.
Geographically, the largest number of deals came from North America – the world’s largest consulting market. However, the UK and Ireland also performed strongly. Around 20% of all deals came from buyers with headquarters in the UK and Ireland – accounting for almost as many moves as the whole continent of Europe. This was also the case for where purchased firms were based – with 23% of them being based in the UK or Ireland – suggesting the market is becoming disproportionately attractive to investors.