| | 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 | |
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| | 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
moments when a trickle | |
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| | 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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| | to acquire Ineum, the
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 together. | |
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