Business Services Sector Comment – October 2015

September saw the announcement of two further mega deals in the consulting market as both corporates and private equity look to capitalise on favourable market conditions…

It felt like it was only going to be a matter of time before another transformational deal was announced in the consultancy market. Few people, however, would have expected it to come in the form of PA Consulting who this month was acquired by US private equity firm Carlyle Group. PA Consulting is one of the globe’s largest management and IT consulting firms with over 2,600 professionals operating in 18 countries. The company has particularly strong expertise in public sector work which represents about half of its revenues. Reported at a value of €905m, the price tag suggests an operating profit multiple of approximately 12.0x based on FY14 financials.

In another cross-border deal involving the US, executive search firm Korn Ferry International bought Dutch based HR strategy and organisation performance firm Hay Group. The deal looks like a natural fit for Korn, who will reduce its reliance on the highly cyclical executive search market and build significant scale in the leadership and talent consulting market. Furthermore, with Hay Group generating 80% of its revenue internationally, the deal will stretch Korn’s geographic footprint outside of North America where it currently generates 70% of its revenue. The price tag for the acquisition is €409m, comprised of €228m in cash and €181m in stock, and represents an EV/EBITDA of 12.3x.

The deals come at a time when three of the “big four” – Deloitte, EY and PWC – have recently reported strong growth driven primarily by their consulting divisions. Deloitte, the only one not to divest its consulting arm following the Enron scandal, continues to lead the pack with 35 per cent of its €31.9m attributable to its consulting division. PWC’s consulting arm, which accounts for 30 per cent of total revenues, grew by 18 per cent to €10.1m.

The “big four” have been actively reshaping the consulting landscape over the last few years as they have embarked on an acquisition spree, together completing over 60 deals in the last two years. The tidal wave started with Deloitte’s purchase of Monitor Group in January 2013, which was followed by PWC’s acquisition of Booz & Company, and later EY’s merger with management consultants Parthenon Group in July 2014. To fully understand the scale the big four have grown to, one only needs to take a look at the UK consulting market where is it estimated that combined the professional services firms account for 38 per cent of the market.

Here at Clearwater International, we continue to see key drivers in the market being scale and global capability, sector specialism and the development of a future-proof business model. We believe the big-four will continue to be highly acquisitive, but with their attention very much on in-fill acquisitions. Mid-tier consultancies like A.T. Kearney and Oliver Wyman are also likely to become more active as well as private equity firms seeking a platform investment.

Notable Business Services Deals

Pearson Plc, the listed UK-based media and education group, has agreed to acquire the e-assessments business of learndirect Solutions Ltd., the UK-based online teaching company and a portfolio company of LDC.

Staffline Group Plc, the listed UK-based company engaged in providing services in staffing and training, has acquired Milestone Operations Limited, the UK-based recruitment business specializing in jobs for professional drivers and warehouse staff

arwe Service GmbH, a Germany-based automotive services company which also acts an outsourcing partner for car hire companies, automotive manufacturers and dealers, and a portfolio company of Triginta Capital GmbH, a Germany-based private equity firm, has acquired Direct Valeting Limited, the UK-based car valet and contract car cleaning service provider, from NVM Private Equity Limited.

Clyde & Co LLP, the UK-based law firm, has acquired Simpson & Marwick LLP, the UK-based law firm, for an undisclosed consideration. The transaction enhances Clyde & Co’s position as an insurance sector law firm in the UK and also provides it with its first presence in Scotland.

Lakehouse plc, the UK-based company engaged in providing construction and maintenance services, has acquired Sure Maintenance Ltd, the UK-based heating maintenance services provider, from Graphite Capital Management LLP, the UK-based private equity firm, for a consideration of GBP 8.85m.

Progress to Excellence Group Ltd,. UK-based youth training provider has acquired Education & Youth Services Ltd (EYS), the UK-based national youth training provider for an undisclosed consideration.

CPL Resources Plc, the listed Ireland-based employment placement company, has acquired 89.8% stake in Clinical Professionals Limited, the UK-based company engaged in providing recruitment services, from Mr. James Nyssen and Mr. Vicky Nyssen.

Proman Group, the France-based company engaged in providing temporary staffing services, has acquired Heads Recruitment Ltd, the UK-based recruitment company engaged in providing temporary staffing services.
The Innovation Group plc, the UK based and listed software and outsourcing services provider, announced it reached an agreement to be acquired by The Carlyle Group, the US based and listed private equity fund.