| | By Mick James
There are two views
of the cyclical nature
of M&A activity. One is
that it’s part of the
normal business cycle.
The other is that it’s
more akin to binge
drinking, whereby people
can only drag themselves
back to the bar once the
memories of the last
horrendous hangover have
faded away.
Certainly the markets
don’t react to
acquisitions,
particularly in the
consultancy arena, with
any enthusiasm. Take
LogicaCMG, itself the
result of a remarkably
sensible merger between
Dutch group CMG and
UK-centric Logica. Last
year the group sensibly
filled out its UK
footprint with the
acquisition of French
group Unilog. Now it’s
making an equally
sensible move into the
Nordic market with an
£882m offer for WM-Data.
In fact, it’s hard to
think of anything that
LogicaCMG has ever done
that couldn’t be
described as sensible,
yet investors aren’t
exactly battering the
doors down as yet.
A similar tale could
be told with the
Management Consulting
Group, currently owners
of Proudfoot and Parson
Consulting, which is now
to acquire Ineum, the | |
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| | together. Consultancy
is very different from,
say, advertising, where
business models and
culture are very tightly
constrained, and it’s
possible (with a certain
amount of care and
flair) to stack the
pieces together like
Lego. This is why the
Saatchis succeeded in
building up a global
advertising empire, but
failed to repeat the
trick when they tried to
build a global
consultancy by cheque
book.
It’s very, very hard
to grasp the endgame in
consultancy. The nature
of the market – the
ever-changing pattern of
client needs – means
that consultancies must
twist and turn and flex
in often unpredictable
ways. This is why so
many consultancies end
up like Woolworth’s,
happy to sell you a bag
of toffees at one end of
the store and a laptop
at the other.
The other problem for
consultancy M&A is that
the whole logic of the
deals is topsy-turvy.
It’s always more about
synergies than savings.
Most acquisitions start
to work when the
duplicated staff are
sacked, the product
lines rationalised and
the real estate
portfolio cut down. In
consultancy the | |
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| | difficult bit is hanging
on to the staff and
making sure that the
service portfolio
doesn’t implode. And the
changing nature of
consultancy means that a
traditionally asset-poor
business is now trying
to find ways to compete
with the worldwide
footprint of delivery
centres associated with
the likes of IBM and
Accenture.
For the individual
consultant, the fear
associated with
acquisition is not so
much redundancy as
alienation. That tricky
collision of cultures –
far too subtle to be
captured on an analyst’s
scorecard – makes and
breaks not only the
merger, but often the
individual consultant’s
career. I’ve lost track
of the number of
consultants and
principals who’ve told
me that the great
watershed in their lives
was when their firm was
acquired or merged. The
problem is exacerbated
these days as so many
consultants find
themselves part of
larger entities, whose
long-term goals and M&A
direction may be
dictated by concerns far
from those of the
consultancy arm.
But I suspect we may
be on the edge of one of
those catastrophe-wave | |
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| | moments when a trickle
becomes a flood. Ones
to watch, in my view
are:
Deloitte
Consulting: Now that
the rest of the Big Four
have come out of their
shells and officially
re-entered the advisory
space, will its one-off
business model give it
the edge or will it fall
in line with its peers?
The rest of the
Big Four, who are still
being a bit mauve for my
liking. Watch tactical
acquisitions for signs
of a deeper strategic
intent.
HP: A
disappointed suitor for
consultancies in the
past, and surely its
appetite for post-merger
integration has been
sated? Maybe, but it is
now standing toe-to-toe
with IBM and needsto
build up services and
outsourcing muscle.
Capgemini: Now
that all the dust has
settled, it would be my
favourite candidate for
a mega-merger, either
with another European
partner, or for a “get
out of jail free” card
in North America.
Finally, expect an “I
didn’t see that coming”
moment. Isn’t it time,
for instance, that
LogicaCMG did something
that wasn’t sensible?
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| | former French operations
of Deloitte. Given that
MCG is set up as the
holding company for
potentially any number
of specialist consulting
groups, it’s long been
expected that another
acquisition would come
along. Yet even this
move, which will see
Ineum remain largely as
a standalone
consultancy, with its
financial consulting
capability moving to
Parson, has raised a few
eyebrows. Ineum is seen
as a more general
purpose business
consultancy, which in
one sense is highly
complementary to, say,
Proudfoot’s more process
and operations-oriented
focus. And it makes
sense to strengthen
Parson’s financial
capability to meet the
resurgent Big Four.
I think the problem
with getting investors
has many roots: one is
that the heterogeneous
nature of consultancy
makes it very difficult
to grasp what exactly is
being bought. Once you
grasp that, it’s even
harder to see how the
pieces will fit | |
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