M&A in US professional services industry steady in H1 2018

01 August 2018 Consulting.us

A new report finds that mergers and acquisitions in the US professional services industry remained fairly steady in the first half of 2018, declining by 3% from H1 2017. Notable deals included Veritas Capital’s purchase of PwC Public Sector and Duff & Phelps’ acquisition of Kroll.

According to a new report from mergers and acquisitions advisory firm Equiteq, the number of M&A deals in the global professional services industry fell 5% in the first half of 2018 (compared to H1 2017). However, the median deal size in H1 2018 actually grew, rising to $13.6 million. With signs that quantitative easing is coming to an end in developed economies, firms are doing bigger deals at premium prices and current low interest rates – according to the consultancy's report.

IT services and management consulting accounted for the largest portion of deal flow, though deal volume dipped compared to the first half of 2017. Deals in the segments were larger, but less frequent, and many involved active private equity funds.

Deal flow rose in human resources – driven by a strong global economy and low unemployment in developed economies – while M&A activity also grew in the media agencies segment. M&A in engineering firms, however, continued to decline.M&A in the consulting industry (H1 2018)Equiteq reports that North America had the greatest volume of deals among the regions – unsurprising given the US’s centrality as a hub for professional services. North America had 568 deals in the professional services (knowledge economy) in H1 2018, a slight decrease of 3% from H1-2017. The decrease was the smallest registered among the global regions, other than the ‘Rest of the World’ (Africa/Middle East/South America) – which actually saw an increase in deal volume. 

Meanwhile, Europe saw deal volume decrease 5% to 454; Asia-Pacific’s deal volume fell by a significant 19% to 87; and Australia and New Zealand registered a drop of 8% to 33 deals. The rest of the world saw an increase of 3% in deal volume in the professional services sector to 39 deals.

Equiteq’s earlier report on the full 2017 year showed previous declines in M&A deal volume in the sector for most regions. US deal volume remained most steady, registering only a 3% decline in H1 2018 after posting 5% growth in 2017. In 2017, Europe’s deals volume dropped 8%, while Asia-Pacific’s dropped by 24%. Australia and New Zealand’s deal volume dropped by 14% in 2017, while the rest of the world’s dropped by 29%. As such, the declines in H1 2018 were less heavy than in the previous full year for Europe, Asia-Pacific, and Australia/NZ, while Africa/Middle East/South America saw a positive increase.M&A in the knowledge economy by region

Notable US deals in H1 2018

Limited opportunities for acquisition and record fundraising boosted prices from private equity buyers, according to the report. In the US, Veritas Capital’s acquisition of PwC’s public sector consulting practice was rumored to hit a value of $500 million. Meanwhile Indian PE firm ChrysCapital sold US digital consultancy LiquidHub to Capgemini for a fourfold return on investment.

Corporate finance advisor Duff & Phelps acquired investigation services firm Kroll from Corporate Risk Holdings, which had previously bought the American company in 2010 in $1.1 billion. Meanwhile, consultancy Ankura bought the Disputes, Forensics and Legal Technology (DFLT) and Transaction Advisory Services (TAS) divisions of Navigant Consulting. The growing firm also acquired Nashville-based management consultancy c3/consulting this year. Ankura’s acquisitiveness has been spurred on by $100 million of development capital from Madison Dearborn, invested in 2016.

In IT services, US-based Hewlett Packard Enterprises bought British cloud consulting firm RedPixie. The deal was sponsored by HPE Pointnext – where the firm’s remaining services business is concentrated following a restructuring at HPE. Pointnext has made cloud consulting a strategic priority, viewing it as lucrative and growing market.

In the area of media agencies – a particularly juicy target for consulting firms increasingly edging into the space – Bain & Company acquired US-based digital agency FRWRD. It was the first recent acquisition for the Big Three strategy firm, and follows similar digital consulting deals made by rivals McKinsey and BCG. Meanwhile, Accenture acquired Meredith Xcelerated Marketing, a content-focused marketing, strategy, and creative digital agency. Accenture has been expanding forcefully into the digital agency space, with other recent acquisitions including those of SinnerSchrader, The Monkeys, and Wire Stone.

Newtown, Pennsylvania-based EPAM systems, a software engineering and IT services firm, acquired US-based Continuum – an innovation design firm with expertise in robotics, engineering, and augmented/virtual reality.

In human resources, H.I.G. Capital acquired Conduent’s US-based human resources consulting and actuarial business (formerly Buck Consultants). Conduent is a tech-focused business process services firm formed by the 2017 divestiture of Xerox’s business services division. The deal was part of Conduent’s plan to get rid of non-core assets.

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Configure, Price, Quote (CPQ) software tools market consolidating in US

11 October 2018 Consulting.us

The market for Configure, Price, Quote (CPQ) software tools is consolidating in the US, with industry leader Simplus having made five acquisitions since the beginning of 2016. On the back of projected double-digit market growth in the coming years – and with the cloud and artificial intelligence segments booming – mergers & acquisition activity in the CPQ arena is set to spike.

Configure, Price, Quote solutions (CPQ) are digital sales tools used by firms to quickly create goods and services packages, and then provide optimized price quotes to customers. CPQ solutions work with and draw on the data from customer relationship management (CRM) and enterprise resource planning (ERP) software systems. Prices and quotes are automated from rules considering variables like customer relationship, economic conditions, and volume purchased.

Meanwhile, the tools can make sure the product package elements are compatible with each other or dependent on prior purchases, while scanning for regulatory or company policy issues with the package combination sold.

First emerging in the 1980s, CPQ software has been enhanced in recent years by cloud computing and machine learning – which have spurred on the lion’s share of growth in the market. Firms are in the process of replacing old, on-premises systems with new cloud-based and automated CPQ solutions.

The advanced tools offer businesses a raft of benefits. For one, sales teams’ productivity is boosted by automating routine back office admin tasks. Furthermore, those CPQ tasks are done better through machine learning, optimizing quotes and discounts to improve profit margins. They can also increase revenue from guiding sales towards cross-selling opportunities, while creating a more efficient and accurate sales process. CPQ tools also ensure that sales teams follow company and regulatory regulations.CPQ Market Landscape

The market is now relatively mature. According to a new report on the market from global investment bank Equiteq, there are over 110 companies worldwide providing CPQ solutions – many of which encompass internet software and services. 60% of CPQ firms are located in the US, with 6% in the UK and 5% in the Netherlands.

Estimates from Gartner place the size of the Configure, Price, Quote software market at just over $1 billion this year. According to Accenture, a full 83% of companies are now using some form of Configure, Price, Quote.

Analysts at Equiteq say that the growing uptake of CPQ software has led to heightened M&A activity, and a consolidating market. Simplus has been a major acquirer, having bought CirrusOne, CRM Manager, Basati, EDL Consulting, and BaldPeak Consulting since the start of 2016. Meanwhile, technology and consulting giant Cognizant’s purchase of Advanced Technology Group highlights strong client demand for CPQ at large professional services firms.

The CPQ market leaders are currently Salesforce, Apttus, and Oracle. In 2016, Salesforce acquired CPQ provider SteelBrick, rapidly increasing its customer base and becoming one of the most prominent cloud-based CPQ vendors. Previously, the cloud services giant had used partner vendors like Apttus.

California-based Apttus – which had $150 million in revenues and grew by 60% in 2016 – was itself acquired by US private equity firm Thoma Bravo earlier this year. The leading platform has served over 600 organizations, and has received attention for its AI innovation and immersive technologies.

 

Gartner Magic Quadrant

Oracle, meanwhile, has the most established CPQ offering, expanding into the industry through its acquisition of BigMachines in 2013. Like its competitors, Oracle's products are integrated with Microsoft Dynamics and Salesforce Sales Cloud.

Globally, the CPQ market has also been heating up. In April 2018, German ERP giant SAP bought California’s Callidus Software – a leading CPQ vendor which had been growing rapidly through acquisitions. The $2.4 billion deal is part of SAP’s strategy to provide more customer-facing solutions as opposed to its previous focus on back office processes.

Other deals in the space included Swedish firm Tacton Systems’ acquisition of German Lumo Graphics, and German firms FCM and MXL’s investment in Singapore company In Mind Cloud.

Looking to the future, research consultancy Gartner expects the CPQ market will continue to grow at a CAGR of 20% through 2020, and at a higher rate for cloud-based solutions. The robust market growth will continue to drive M&A activity, says Equiteq.

According to the report, four emerging trends to look out for in the market are AI-based solutions, self-service options, low and no-touch fulfilment, and multi-cloud approaches. As mentioned before, AI in CPQ solutions reduces the need for manual interventions, while providing data-driven insights. It also enables accurate predictive pricing that incorporates complex discounting rules and customer data.

Self-service options are also gaining in popularity, as clients demand the ability to get quotes and configurations on their own. The development means improved sales agent productivity, as well as reduced customer service costs.

Low and no-touch fulfilment and invoicing entail those process that need little to no interaction with sales teams. This development also increases sales team productivity, though it requires very strong integration of CPQ tools with the client’s CRM systems. Finally, multi-cloud approaches recognize firms’ usage of multiple cloud services, and the importance of integrating designs to create a seamless user experience.