While M&A in consulting has taken a hit from the Covid-19-induced downturn, a new report from Boxington Corporate Finance says that deal making activity has recovered over the past months, as the sector emerges as a counter-intuitive beneficiary of the global pandemic.
As Covid-19 arrived, valuations across the consulting sector were particularly hard hit, with investors expecting the sector to be exposed to the pandemic given the service-based nature of consulting work and its reliance on onsite meetings and delivery.
Despite the fears, the sector has proven resilient and its valuations are now well on the road to recovery, with average quoted company share valuations increasing by circa 31% in the past six months to 30th September 2020, and in some cases even surpassing pre-Covid valuations. To come to its finding, Boxington Corporate Finance analysed a cross-section of 20 global listed consulting firms, including Accenture, Booz Allen Hamilton, Capgemini, FTI Consulting, Wavestone and Wipro.
According to the researchers – Tim Evans, Alex Cooper and Satnaam Kaur Virdee – the recovery has been driven by two key factors. Firstly, new client demand for Covid-driven change and transformation projects as companies seek to re-adjust operating models and achieve cost efficiencies.
Other services seeing high demand include supply chain (managing risks, volatility and redesigning supply chains), procurement and human resources (cost cutting and reorganisations), working capital management (freeing up cash), restructuring (due to the growing number of administrations and companies facing financial hardship) and M&A (in particular defensive deals).
Secondly, the sector’s ability to transition to remote working rapidly without loss of service quality. Consultants were always pretty adept in working remotely, and consultancies have in no time been able to support their teams with adopting digital tools for project delivery as well as internal activities including business development, knowledge sharing and operations.
Boxington’s researchers noted that the strong valuation gains were also buoyed by the positive trading signs from consulting firms based in the Asia Pacific region (which have enjoyed on average the biggest valuation gains to-date of circa 58%) because social and economic restrictions have been lifted there at a faster rate compared to other regions.
Confidence in the sector is also reflected in M&A deal activity, which has remained unexpectedly active over the past six months. Since the start of April, Consultancy.org’s database of deals in consulting shows that over 140 transactions have been closed, with many of the industry’s biggest players bolting-on smaller rivals in areas of high demand, while notably downsizing their teams across less resilient service areas.
According to Alex Cooper, an Assistant Director at Boxington, “buyers are increasingly searching for deals that give them niche, technology-enabled solutions, that can be used to enhance their traditional services, optimise remote working capabilities, and accommodate client demand for Covid-19 driven change and transformation projects.”
Examples of deals that bolstered technology offerings are plentiful, including 12 tech-related deals by Accenture, PwC’s acquisition of Tyconz in the Middle East, and Deloitte’s purchase of Ekulus in Australia. Meanwhile, US consultancies Altman Vilandrie & Company and Credera bought European counterparts Solon Management Consulting and DMW Group respectively as part of a geographic expansion strategy.
Illustrating how consulting firms are tapping into the remote working trend, BearingPoint moved quickly to acquire Steerio, a French start-up that helps companies improve how their teams collaborate. In another strategic deal, Arthur D. Little surprised many when it acquired two on demand consulting platforms, but the deal has since been described by some analysts as “innovative” and even “a disruptive” move.
For more information on Boxington’s analysis, follow this link to download its latest Consulting Valuation Tracker report.