M&A in the consulting industry Continental Western & Southern Europe

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1 QUARTERLY BRIEFING SEPTEMBER 2015 EUROPE M&A in the consulting industry Continental Western & Southern Europe

2 Foreword In the third of our quarterly briefings on M&A in the consulting industry we focus on Continental Western & Southern Europe, a region which includes Austria, Belgium, France, Germany, Italy, Luxembourg, Netherlands, Portugal, Spain and Switzerland. Our analysis includes deals completed in that region involving consulting firms either as acquirer or acquiree during the period from 2013 until July It excludes UK & Ireland and the Nordics. We hope you find these briefings helpful and would love to hear from you either if you have any suggestions about how we can make them better or if you d like to speak to us about helping your firm with its growth strategy. Margaret Cameron-Waller Head of Growth Strategies and Solutions 2 Source Information Services Ltd 2015

3 Growth in the Continental Western & Southern European consulting market The Continental Western & Southern European consulting market grew by 3.9% in 2014, to a value slightly in excess of 16.5bn, as the region s economies continued to pull themselves clear of the financial crisis that had engulfed them for so long. But the extent to which growth had taken hold varied quite considerably from one country to the next, leaving any consulting firm with a pan-regional presence facing tricky decisions about where to direct its investment. The highest growth was found in Switzerland (7%) and the region s biggest market, Germany (6.5%), while Italy limped into positive territory by recording an underwhelming 0.4% growth. Meanwhile the Benelux consulting market seems, finally, to be moving in the right direction: it grew by 2.5% in 2014, following a long period of stagnation and ongoing concerns about the impact of competition from a huge freelance population (Netherlands) and companies moving headquarters overseas (Belgium). And the French consulting market achieved something similar growing by 2.4% even if most activity was driven by a small number of big multinational clients and benefitted big multinational consulting firms. The small Austrian market remains a concern it grew by just 2% in 2014 as the impact of a downturn in Eastern Europe and Russia hit the prospects of Austrian banks and there s little to suggest that the coming year won t be just as tough. But better news was to be found in Spain, another of Europe s most beleaguered consulting markets in recent years: the Iberian market as a whole (including Portugal) grew by a respectable 3.4% and growth in Spain was almost certainly higher than that. It s a recovery which starts from a significantly reduced base, but at least it s a recovery. Source Information Services Ltd

4 Continental Western & Southern Europe market structure We estimate there is a total of just over 9,000 firms in this region, with Germany having the most at 1,918. As we have found with other mature markets, the majority (90%+) of these firms employ under 200 people including many that are under 10 employees. Germany and Austria have a larger number of medium sized firms (200-1,000 staff) than we have found elsewhere in Europe. Figure 1 Total number of consulting firms in Continental Western & Southern Europe, and split by size Netherlands 984 Belgium & Luxembourg 690 Germany 1,918 France 1,429 Switzerland 1,045 Austria 307 Italy 1,422 Portugal 466 Spain 904 Total firms # firms by staff size Under ,000 1,000+ Austria (93%) 16 (5%) 5 (2%) Belgium & Luxembourg (96%) 13 (2%) 14 (2%) France 1,429 1,338 (94%) 56 (4%) 35 (2%) Germany 1,918 1,776 (93%) 95 (5%) 47 (2%) Italy 1,422 1,361 (96%) 54 (4%) 7 (0%) Netherlands (96%) 26 (3%) 14 (1%) Portugal (97%) 13 (3%) 2 (0%) Spain (95%) 30 (3%) 12 (1%) Switzerland 1, (96%) 31(3%) 15 (1%) 9,165 Source: Source global database; market estimates Excludes micro firms (under 10 consultants and freelance consultants) 4 Source Information Services Ltd 2015

5 Merger & acquisition activity in Continental Western & Southern Europe (July) major acquisition deal activity overview Having reviewed 31 months M&A activity by the major consulting firms in Continental Western & Southern Europe between 2013 and July 2015, we have identified 64 noteworthy deals both acquisitions and key strategic alliances. This figure includes deals where a Continental Western or Southern European headquartered consulting firm was either acquirer or acquiree. However, for KPMG, with a global HQ in the Netherlands, we ve only included deals in which the acquired organisation was based within the region (there were seven). The most notable large deals multi-billion Euro transactions were undertaken by technology firms, namely Atos and Capgemini. Atos made two major acquisitions: firstly, buying Bull IT consulting and services, headquartered in France and with over 9,000 staff, and secondly the outsourcing division of Xerox. The Bull deal strengthens Atos position in Europe, particularly in respect of cloud, cyber and big data, while the Xerox acquisition offers further services for clients on these areas. Capgemini also made the substantial acquisition of igate Corporation in April This US-based technology consulting and services provider has significant operations in India and will give Capgemini much greater scope there. It will also considerably increase their presence in the US, particularly in the healthcare market. Who s in the market to buy and what do they want? A starting point here is to outline the totality of consulting M&A in the region from 2013 to July In Figure 2 below, we can see that from the 64 overall deals completed, there were 39 where the acquiring firm was headquartered in the region and 25 where the firm was headquartered elsewhere. For example, the US-based Manpower Group bought a specialist HR firm in Germany. Roughly a third of all deals involved European firms buying others within the region but only ten involved a firm buying another headquartered in the same country (e.g. Roland Berger s acquisition of FMC Consultants). This suggests that international expansion and capability build remain a key driver of M&A activity. Figure 2 Overview of M&A activity in Continental Western & Southern Europe Acquiree firm HQ Continental Western & Southern Europe Ex W & S Europe Acquiring firm HQ Continental Western & Southern Europe Ex W & S Europe 25 Total deals Source: Source analysis; based on 64 total deals Source Information Services Ltd

6 Looking initially at the type of firm making acquisitions in this region, and using a segmentation originally pioneered by the UK s Management Consultancies Association and subsequently updated by us (see notes), it is apparent that Type A (which includes the Big Four accounting firms) were the most active category, as they have been recently in the US: they were involved in 34% of all transactions (22 deals). As well as the Big Four, BDO and Mazars completed several deals during this period, including acquisitions made by both firms in the African sub-continent. (Figure 3) Amongst Type O firms, two major advertising agencies, Omnicom and Publicis, both made acquisitions in the consulting arena while Type E firms (those with engineering businesses) made several purchases that increased their scale and depth of services. But it was Type T firms (technology firms) that, despite a relatively small number of deals, were responsible for the largest acquisitions, mostly buying other technology firms. Figure 3 Profile of deals undertaken by acquirer firm type July Type Number of deals % of total deals (by volume) A Audit 22 34% E Engineering 6 9% M general 10 16% O Other 6 9% P HR 3 5% S Strategy 2 3% T Technology 15 23% % Source: Source database; industry sources; Source analysis 6 Source Information Services Ltd 2015

7 Turning to the types of firm being acquired, some distinguishing features emerge (Figure 4). While technology firms account for the highest level of M&A activity (38% of all deals), niche consulting firms and non-consulting firms together account for almost half of all deals (41%) and in almost two-thirds of deals they are being acquired by Type A firms (largely the audit firms). There is no pattern, however, as to the specific type of capability being sought; in fact it s the range of capabilities being acquired that it arguably the most noteworthy thing about the deals being done. What we can say, however, is that a clear picture emerges of Big Four firms extending out into new or non-traditional areas to increase the depth and reach of their capabilities. We would expect to see this trend continuing over the next few years. Acquiree firms were headquartered across nineteen countries: nine in the region and ten in the rest of the world. Germany, France, Netherlands and USA were the country headquarters where the most deals were completed (60%), largely driven by acquirer activity by the Big Four, BDO and Atos. Figure 4 Profile of deals undertaken by acquiree firm type July Type Number of deals % of total deals (by volume) A Audit 6 9% E Engineering 5 8% M general 16 25% O Other 10 16% P HR 2 3% S Strategy 1 2% T Technology 24 38% % When the acquirer and acquiree profiles are compared (Figure 5), it is apparent that Type A and to a lesser extent Type T firms are generally buying outside their existing areas of expertise. Only six of the 22 deals done by Type A firms involved them buying other Type A firms: instead they tended to be buying niche management consulting expertise or technology firms. And while Type T firms did buy other firms of their type, they were also active in trying to acquire data and analytics capabilities, as well as specialist expertise in areas like automotive safety. Type E firms, by contrast, have tended to be buying firms within their existing area of expertise (that was the case in five out of six deals) and Type P and S firms also seem to be showing a preference for buying firms like themselves. Source Information Services Ltd

8 Figure 5 Firm profile comparison of acquirers and acquirees 34 % 38 % 25 % 16 % 16 % 9 % 9 % 8 % 5 % 3 % 9 % 3 % 2 % 23 % A Audit E Engineering M General consulting O Other P HR/Change S Strategy T Technology Acquirers Acquirees Source: Source database; industry sources; Source analysis; n=64 If we breakdown the largest group Audit firms (Type A) making acquisitions in Continental Western and Southern Europe (22 deals), we can see that general consulting firms (Type M) were the largest firm type acquired followed by technology firms (Figure 6). Examples include BDO buying a consulting firm in South Africa, and KPMG buying a German chemicals consulting operation. Figure 6 Profile of firms acquired by Continental Western and Southern European based audit firms only (Type A) Technology consulting Type T 27 % 23 % Advisory Type A Non- consulting Type O 14 % 36 % General consulting Type M Source: Source database; industry sources; Source analysis; n=22 8 Source Information Services Ltd 2015

9 What s also worth looking at is deals where a Continental Western or Southern European headquartered consulting firm was being acquired. US-based firms were behind these acquisitions in almost a third of all cases, followed by French firms, with 20% of deals. More than 50% of deals involved purchases of specialist consulting firms or non-consulting businesses. Examples include property consulting, life sciences, cloud consulting, payments technology and cyber services. Amongst the US firms making purchases, the marketing services conglomerate Omnicom purchased a digital consulting business based in Germany and AECOM Technology acquired an economic and social consulting firm with interests in Africa. These examples suggest that firms are seeking consulting that can deliver very specific capabilities in areas where the talent or expertise cannot easily be developed in-house. Figure 7 HQ location of firms acquiring in Continental Western & Southern Europe Sweden India Denmark Ireland Italy Germany 2 % 4 % 2 2 % % 4 % 4 % 31 % USA UK 13 % 16 % 20 % Netherlands France Source: Source database; industry sources; Source analysis; n=45 deals Source Information Services Ltd

10 Merger, acquisition and alliance activity by major firms July 2015 An analysis of M&A activity by major firms reveals that they were behind 17 of 64 deals (Figure 8). As mentioned previously, we have only included here those deals done by KPMG in the region, so acquisitions in other parts of the world are excluded. Although PwC was unique amongst the Big Four in making no acquisitions in the region during this period, neither did IBM or any of the top strategy firms. The majority of deals conducted by the other major firms (Accenture; Capgemini; Atos ) were to acquire technology consulting firms and specialist non-consulting capability. In the latter category, data and analytics, and assurance services were the services acquired. Figure 8 HQ location of firms acquiring in Continental Western & Southern Europe Acquiree firm type Major firm making acquisition A E M O P S T Total by firm Notes Accenture Atos 2 2 Includes major deals with Xerox ITO and Bull Systems Capgemini 1 0 $4 bn deal with igate Corporation Deloitte 2 2 EY KPMG Includes alliance 17 Source: SFC analysis 10 Source Information Services Ltd 2015

11 Conclusions The notable feature about recent M&A activity in Continental Western and Southern Europe is the variety in the types of consulting firm that have been acquired. Only 10% of deals involve firms buying within their own country headquarters. Instead, whether it is firms headquartered outside the region or European based firms, both are looking to expand their global footprint and demonstrate the multi-country service offering that can be delivered to the world s largest corporates. Notes on definitions and methodology Our definition of the market includes strategy, HR/change consulting, operational improvement, financial management/risk, and technology consulting. It doesn t include systems development and implementation. For the purposes of this report, we also include a special category of engineering consulting. Our report is based on research undertaken in the region during the period. We interview consulting firms in these markets on a regular rolling basis along with representatives from their clients. Our model (which we use to size the industry and its growth rates) is based on data from 52 major consulting firms and publicly available information. In this document Source for has used its standard categorisation for consulting firms which is as follows: Source for firm categorisation Type A Audit Type E Type M Type O Type P Type S Type T Engineering general Other types of firm eg private equity, marketing and advertising, insurance brokers; property firms etc HR Strategy Technology Source Information Services Ltd

12 Appendix list of deals where a consulting firm headquartered in Continental Western or Southern Europe made an acquisition or was acquired, 2013-July 2015 Acquirer HQ Acquirer main Source Acquiree HQ Acquiree Source business class main business class Accenture Ireland T ClientHouse Germany Specialist in T salesforce.com Accenture Ireland T i4c Analytics Italy Data & analytics O AECOM USA Engineering design E ACE Spain Economic and social M Technology International consulting Corporation Consultants (ACE) Altran France Engineering & E SiCon Design India Engineering services E innovation consulting Technologies company specialising in semiconductor design Altran France Engineering & T Concept Tech Austria Automotive safety O innovation consulting Altran France Engineering & T TBD China Telco M innovation consulting Alvarez & USA M Captiva Germany Property M Marsal Capital Management Atos France Technology T Bull France IT Services T Atos France Technology consulting T Blue Elephant Germany Software T Systems Atos France Technology consulting T Xerox ITO USA Outsourcing T BDO Belgium Audit firms A Firm in Reunion M Reunion BDO Belgium Audit firms A Firm in South Africa M South Africa BDO Belgium Audit firms A KPMG Australia Audit firms A Sunshine Coast BDO Belgium Audit firms A Nurul Faruk Bangladesh Accounting A Hasan & Co BDO Belgium Audit firms A SS&G USA Audit A BDO Belgium Audit firms A Stone Carlie USA Audit A & Co Capgemini France Technology consulting T igate USA Technology consulting T (USA) Corporation CGG France Engineering consulting E Taurus Canada Reservoir and E Reservoir geomechanical Solutions Ltd simulation and engineering technology & consulting 12 Source Information Services Ltd 2015

13 Acquirer HQ Acquirer main Source Acquiree HQ Acquiree Source business class main business class Charles USA M Cepton Germany Life sciences / pharma M Rivers Strategies consulting Associates GmBH Cotecna SA Switzerland Testing, inspection O CoalLab Pty Ltd South Africa Testing, sampling E and certification (TIC) systems design and service management, and consulting services for coal and other sectors D'Appolonia Italy Engineering consulting E SC Sembenelli Italy Engineering consulting E Spa and design and design Deloitte USA Audit firms A Herve Schauer France Assurance services O Consultants Deloitte USA Audit firms A Licetus Germany Assurance software O EY UK Audit firms A Centre Netherlands Enterprise performance M & Management (EPM) CFORS EY UK Audit firms A Corporate Germany IT T Quality GmBH EY UK Audit firms A Integrc Netherlands SAP Governance, Risk T and Compliance Partner EY UK Audit firms A J&M Germany Supply chain consulting M FIS Global USA Banking and payments M Clear2Pay Belgium Payments technology O inc Capco FTI USA Turnaround S Global VAT Netherlands Tax A Compliance GECI France High tech engineering E Eolen Group France and IT T International specialist engineering services Grant UK M BeAligned Belgium Operational T Thornton improvement H-Farm Italy Digital startup O Nuvo Italy M Ventures accelerator IPSOS SA France Research and M Research Data USA Market research O consulting Analysis Inc. KPMG Netherlands Audit firms A BrainNet Germany Procurement consulting M KPMG Netherlands Audit firms A Crimsonwing Netherlands IT focus on Microsoft T Dynamics and e-commerce KPMG Netherlands Audit firms A McClaren Portugal Technology consulting T KPMG Netherlands Audit firms A P3 Germany IT Services/Cyber security T KPMG Netherlands Audit firms A Safira Portugal Technology consulting T KPMG Netherlands Audit firms A Stratley Germany Chemicals consulting M KPMG Netherlands Audit firms A Trompenaars Netherlands Culture and leadership M Hampden-Turner Source Information Services Ltd

14 Acquirer HQ Acquirer main Source Acquiree HQ Acquiree Source business class main business class Krones AG Germany Bouight by Syskron T Triacos Germany on SAP T Holdings, part of Krones solutions Manpower USA Workforce solutions P 7S Group GmbH Germany HR resource services P Group Inc. (USA) Mazars France Audit firms A Global Morocco Strategy, M Intelligence Information Partners Monitoring and Business Intelligence Mazars France Audit firms A Roever Germany Audit firms A Broenner Susat Mazars France Audit firms A Sarah Butler UK Immigration expertise O Mercer USA HR consulting P SCM Switzerland Alternative O investments experts MI-GSO France PPM consulting M Pcubed UK Programme and M project management Mobiquity UK Mobile consulting M Morgan Clark Netherlands Business/IT consulting T Inc specialty & Company Moviltas USA Technology consulting T Naxxos Group Belgium SAP consulting T Omnicom USA Marketing services O Torben, Lucie Germany Digital consulting M und die gelbe Gefahr GmbH (TLGG) and transformation Publicis France Advertising O Excipient Inc USA Omni channel M Groupe SA marketing services QS Germany Software T Trissential, LLC USA Programme T Software management Quality consultancy in the Systems AG Mid-West USA Ramboll Denmark M Putz & Partner Germany O Roland Germany Strategy S FMC Germany Restructuring S Berger Consultants advisory specially Salesforce USA Technology T Kerensen France Cloud consulting T Solucom France Management and T Arthus Switzerland ICT consultancy T SA IT consulting Technologies Solucom France Management and T Hudson & Yorke UK Management T SA IT consulting consultancy focused on strategic ICT advisory & sourcing Solucom France Cyber security T HAPSIS SA France Risk management T SA and digital security Sopra France Digital transformation M CIMPA SAS France Project lifecycle T Steria consultants 14 Source Information Services Ltd 2015

15 Acquirer HQ Acquirer main Source Acquiree HQ Acquiree Source business class main business class Sopra France Digital transformation M COR&FJA Germany O Steria Sweco AB Sweden Engineering consulting E Grontml NV Netherlands Engineering consulting E and design Synechron USA Technology O Team Trade France Software integration T Inc Groupe and consulting Tech India Technology services O Sofgen Cyprus/ 2nd-largest pool of T Mahindra Holdings Switzerland Avaloq consultants Limited Limited Towers Watson USA HR consulting P Trianon Switzerland HR outsourcing P Source Information Services Ltd

16 About Source Source Information Services Limited (Source) is a leading provider of information about the market for management consulting. Set up in 2007 with offices in London and Dubai, Source serves both consulting firms and their clients with expert analysis, research and reporting. We draw not only on our extensive in-house experience, but also on the breadth of our relationships with both suppliers and buyers. All of our work is underpinned by our core values of intelligence, integrity, efficiency and transparency. Source was founded by Fiona Czerniawska and Joy Burnford. Fiona is one of the world's leading experts on the consulting industry. She has written numerous books on the industry including: The Intelligent Client and The Economist books, Business : A Guide to How it Works and How to Make it Work and Buying Professional Services. For further information please visit Source Information Services Ltd 2015 Source Information Services Ltd and its agents have used their best efforts in collecting the information published in this report. Source Information Services Ltd does not assume, and hereby disclaims any liability for any loss or damage caused by errors or omissions in this report, whether such errors or omissions result from negligence, accident or other causes. Notice: This document is protected by copyright law. It is illegal to copy any of the contents of this document without permission. 18 King William Street London EC4N 7BP Tel: +44 (0) PO Box Dubai United Arab Emirates Tel: +971 (0) info@sourceforconsulting.com