Hi guys,
As the mid-tier of the consulting industry consolidates, can anyone speculate what might be in store for other firms who are left behind by PwC and Deloitte's moves to provide a full service consulting offering?
At a recent networking event with Booz (now Strategy&) employees, one told me that we are likely to see defensive moves from the top-tier..
How might firms like EY, KPMG and Accenture respond? Are more major acquisitions likely as they attempt to keep pace?
What are your thoughts? feelings?
Yes, I think there will be more acquistions in the future. This article in the Harvard Business Review has some really interesting points on the future of the consulting industry http://hbr.org/2013/10/consulting-on-the-cusp-of-disruption/ar/1
I've read that article, interesting stuff. Anyone have insights into if tech/data driven firms like Palantir could compete for traditional consulting client work? I work at a pretty small firm and I'll be the first admit we're not the most efficient. Nothing can replace years of knowledge and experience at the MD level but as far as run of the mill data analyses and modeling I feel some of these tech firms could do better, and some clients might even benefit from SaaS or related products. Not only would that be cheaper in fees but there could be more accountability in the long-run. I feel like the only barrier to entry is access to proprietary data and the fact that most experienced consultants work for traditional consulting firms.
I used to work for Palantir in a role which would be considered the closest to a "consultant", and I can't really see them substantially worrying the big players - the software is built for specific tasks, i.e., finding fraud, etc. Although I could see it complementing strategy work. Another firm doing similar work is Quid.
Having worked with Palantir people, they are very smart in many cases, but won't ever be competing against traditional consultancies writ large. Their management structure (or near lack thereof) is an utter mess. Most non-tech people I've met who went to work their post undergrad or post-MBA left within a year or two. Plus honestly they all seem a bit...odd.
mm great article, they mention that it may be some of the bigger consultancies who are caught off guard by the disruption in the industry: "there may be nothing as vulnerable as entrenched success". McKinsey Solutions is also an interesting development I had not heard of and an obvious defensive move.
What about Roland Berger? Top tier in Europe and attempting negotiations between PwC, Deloitte and EY that have all been rejected, choosing instead to focus on independence and 'large-scale restructuring'.
There seems to be a great incentive for the Big 4 to expand their consulting offering - all are seeing substantial growth in their respective practices.
There is also a good easy read economist article out there if anyone is interested - WSO will not let me post for fear of spam but the title is: "To the brainy, the spoils"
Why is ATK the likeliest target for "something big"?
Yeah I agree, I get the feeling that other big 4 firms are hesitant to pursue an acquisition on the scale of PwC + Booz due to the risk involved. Smaller, capability/relationship building, regional acquisitions are probably more likely.
I was thinking maybe L.E.K might be another option? According to wikipedia has 900 employees worldwide and is heavily strategy focused. Could be a quick way to build strategy capability quickly.
Can anyone from inside these firms give any insights as to their strategies?
I agree L.E.K. would be an asset to a Big 4 firm looking to bulk up their strategy practice, but I don't see the upshot for them. Monitor was running in the red, Booz was surviving, ATKearney seems to flagging, but L.E.K. is thriving. They are smaller and more agile than the others, and are easily in the top 4 (maybe higher) for PE work, which makes up a huge portion of their business.
LEK is pushing heavily into more operational work, which leads me to believe that they're trying to survive on their own.
Also, just as a random FYI, to say that they're top 4 for PE work is skipping a lot of important context. From what I know, their PE due diligence work (which indeed is a huge portion of their business) is decidedly MM. Bain and McKinsey dominate the higher end of the market, and I wouldn't call LEK a serious competitor to either when it comes to due diligence projects
Recruiters from EY and KPMG reached out to me. They said their growth strategy was that instead of spending money to acquire a company like Booz, they would spend their money hiring partners/staff away from other firms
just another data point
Yeah I'm not sure we'll see another major acquisition anytime soon, KPMG, EY & others will likely be watching the PwC + Booz merger quite closely to see how it pans out.
In my dealings with EY I asked their strategy to deal with the changes in the industry considering their major growth plans (Vision 2020). They were understandably coy but I was told it would be a combination of organic growth (hiring/promotions) and inorganic growth (smaller, regional acquisitions).
I think for anyone considering joining these firms the strong organic growth push would be attractive. If only for the speed of advancement their careers could see.
I know KPMG is about to announce a buy out of Rothstein Kass so im not sure EY and others are really going to lay back and watch things unfold...
Yeah I'm sure EY, KPMG, Accenture all have big plans.
Consider the 10 - 15 year position of the consulting industry - what are we looking at? The direction the firms are moving suggests it will end up with 4 - 5 big players offering strategy through implementation work (imagine a McKinsey, BCG, Deloitte, EY, Accenture type landscape with the rest amalgamated along the way).
What will we see in getting there? Consolidation of the top tier? If it is true that BCG + Booz we're considering a merger prior to the birth of Strategy& then why not BCG + ATKearney now?
I know that this comment will most likely be dismissed / laughed away by most ppl, but a senior partner at one of the firms did mention that there are rumors of Accenture and Bain talking. The only reason this would be viable is because Bain is still quite a bit smaller than Mck/BCG and their partnership structure is much more concentrated (not one vote per partner), so provided the valuation is attractive, it would happen. Again, just a rumor, but one that no-one in these forums usually discusses.
To address OP....I think Accenture is less affected. They're $20B+ and that's all consulting; IT consulting/integration; and outsourcing. And their main competitors, while they compete with Deloitte and PwC, are more like Capgemini or IBM.
i think they'll stick to more organic growth
[quote=BigPicture] And their main competitors, while they compete with Deloitte and PwC, are more like Capgemini or IBM. Amusing thing is, IBM Consulting was effectively old-school PwC Consulting; Capgemini was former E&Y Consulting.
OW probably won't be snatched up. They're already part of the huge Mercer conglomerate, I can't see them letting OW go.
double post
Actually, Accenture has been trying to acquire a major strategy shop for several years. My understanding is that they tried seriously to buy Booz, but Booz was concerned about their lack of partnership structure (they are a public company). I wouldn't be surprised if they're still in talks with every other strategy firm listed in this thread.
@"devildog2067", @"pr0ficient", and @"pnb2002"
You're arguing over minutia. Perhaps I should have said #4, rather than top-4. "Top-4" wasn't meant to imply they might be number 1. Is MBB better respected in most fields in which they work? Sure. To think that L.E.K. doesn't bid against, and win against, MBB for PE work is not accurate. The context I meant to convey is that the gap between 2/3 or 3/4 is narrower than the one between 4 and 5. Can anyone even guess who #5 might be? For PE work, the top tier includes 4 firms. You certainly don't have to agree, but it's not a crazy statement.
@".._.."
ATKearney has a broad mix of offerings, well-respected name, and history of being open to mergers. The EDS deal and breakup probably didn't leave them wanting to rush into anything, but they were linked to a possible deal with Booz in 2010. They are very similar in many regards to Booz and, similarly, seem to have not quite found their niche in the current landscape as firms broaden their offerings. I could see Accenture (which was also in talks with Booz) or a new Big 4 contender (EY/KPMG) exploring a "merger" with ATK to beef up their strategy and procurement offerings.
Yes, I know exactly where you work. I'm not sure which part of the quoted statement you take issue with. MBB are behemoths compared to LEK; there's no question. No one is comparing them globally or across all service offerings, just PE.
Here's a thought exercise: Let's say LEK's revenue is $150M and PE is 50% of that (I actually think it's closer to 60%). That's $75M. Bain's revenue is something like $2B. If 10% of that is PE work, that equates to $200M or 2.67x LEK's PE rev.
McKinsey is more than twice as big as BCG, which is almost twice as big as Bain (ironically close the the rule of 3 and 4). Despite the disparity in size, Bain is still relevant (to say the least) in any discussion of consulting firms.
Having been on both sides of the table, I haven't really seen LEK be a direct competitor to Bain/McK in PE work. It's not quite as simple as "MF vs MM"-type distinctions (though I think that's part of it). Tends to be more around complexity of issues. If you as the sponsor have a good handle on the company save 1-2 targeted questions you might hire an LEK/Parthenon type. If you don't then you'll probably hire Bain or McKinsey (and frankly, Bain has something like 70%+ market share, so you're probably hiring them in any event on a numbers basis). Exceptions are if one firm has specific expertise in an area from corporate or other work, or potentially in a secondary transaction had diligenced the company the last time around.
My take on the broader question is you're unlikely to see MBB merge anywhere, but likely to have it continue in the "second tier" of firms. Those guys have been getting squeezed on both ends and so are more likely to be in a position to need to sell. Bain/BCG are still growing at double-digit rates, so hard to see them needing to sell, or another player be willing to pay an astronomical valuation given the huge risk of partner departures.
@"brj", @"pr0ficient"
LEK comes up very very very rarely as a competitor to MBB for due diligence projects (and @"Workhardplayhard"seems to agree). When a PE firm is thinking about hiring an MBB firm for DD, it's almost always a Bain vs. McKinsey decision.
And no, I don't think this is minutia at all. There is a huge gap between Bain/McKinsey and LEK in this space--and as someone already mentioned, there's a pretty big gap between Bain and McKinsey to begin with. I'd argue that the gap between 1, 2, and 3/4 in this space is just as big as the gap between 3/4 and the rest. The amount of revenue LEK generates and the types and numbers of deals they work on (vs. Bain and McKinsey) are simply very different. So to lump those three (and Parthenon) as "top 4", while technically true, is misleading IMO. That'd be like lumping Android, iOS, and Windows Phone as "top 3" smartphone operating system.
To answer the OP's question, I don't think MBB will be merging any time soon. Both BCG and Bain are doing very well and growing rapidly, and I don't see compelling reason for them to find a suitor right now. And the Bain rumor has been around for a while with various Big 4 names mentioned.
@"pnb2002" and @"Workhardplayhard"
Both of your posts seem credible and generally jive with my understanding of the market. It appears I've mis-estimated a few factors and concede that your logic is probably better-informed than mine.
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