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

01 August 2018 Consulting.us 5 min. read
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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.