There have been two well documented acquisitions in the consultancy market this year but look a little deeper and there have been many more subtle changes to the way this market operates.
The trend towards consolidation in the industry continued with a couple of major deals. Canadian giant SNC-Lavalin bought Atkins in July, and US based Jacobs took on CH2M shortly afterwards.
These were the latest in a long line of acquisition deals, the overall trend driven by a number of factors including acquiring companies looking to broaden both their geographical offering to multi-national clients and diversify sectors in a volatile market. The weak pound, pension deficits and trading below shareholder expectations are the common causes of large sales.
For firms looking to compete for the largest contracts – size matters. Client procurement continues to favour frameworks made up of large multi-service consultancies that each cover more and more ground – clients are looking for consultants who can bring expertise of working in several geographies, sectors and disciplines.
Consolidation in the market, to a smaller number of very large (often plc) firms, has led to an increase in start-up consultancies.
The typical scenario includes Partners and senior work winners in the acquiree leaving, once they have received their sale proceeds, to then establish a new brand themselves and poach some of their old team to join them.
This is prevalent in consultancy markets with private sector clients, where new suppliers can be swiftly engaged as public sector procurement rules need not be followed.
3. Management consultancies entering the market
What we’ve also seen this year is increasing interest from outside the traditional market for major project advice and asset management services.
The so-called big four accountancy firms – PwC, EY, KPMG and the only one not yet known solely by initials Deloitte – are increasingly muscling in on this once specialist field. They’ve all grown capital project advisory businesses or similar over the past five years and are now working with major infrastructure clients.
This is an interesting development, and one that is accelerating, with big professional services giants seeing the opportunity to work in this high value area.
Often these newcomers to the market will look to advise on what the project governance, assurance and procurement processes should look like for a projects organisation, rather than just helping to manage a particular project. It’s a lucrative angle and one we expect to continue to be exploited.
And it’s not just major project advisory that is being offered. Asset management is another juicy area for the big four and their ilk. This is an expanding market as transport and infrastructure clients look to use big data and IT to improve the efficiency of their asset management to meet government productivity targets. It is certainly a space I expect more firms to look at, again putting pressure on multi-disciplinary technical consultants who have traditionally inhabited it.
4. Contractors encroaching on consulting and vice versa
These are not the only lines that are being blurred, however.
Contractors themselves, once happy to be handed a design, a budget and a deadline, are ever more interested in what goes on before and after the bricks are laid. Early contractor involvement is fairly common place now, with contractors seeking to get closer to clients sooner in the process.
This can only lead them in one direction and we have seen in recent years the interest contractors have in acquiring consultants. Balfour Beatty bought Parsons Brinckerhoff as far back as 2009, albeit selling it on five years later, but more recently Costain bought Rhead in 2015, the same year that Kier bought Mouchel.
At the same time, we are seeing some large consultancies (such as AECOM) growing construction management capability, to compete in contracting.
Contractors look at consultants’ margins, and consultants look at contractors’ turnover. They both want a slice of what the other side appears to enjoy. It is becoming harder to put companies like Mace or Bechtel neatly into one box or the other.
5. New charging structures
The efficiencies brought by advances in technology can be seen as a threat to consultancies; if smaller numbers of people are required to analyse data and recommend solutions that is not great for a business that charges on its people’s time.
Consultancies are trialling new models of charging clients such as outcome based fees (% of efficiencies) for example, or embedding a process which they own the IP for to gain recurring revenues.
So what does all this mean for senior level recruitment? On the one hand, all the interest and intrigue suggests that the transport and infrastructure industries are seen as ones worth targeting. The security of government spending and ageing infrastructure assets are attractive.
While consolidation can lead to duplication of roles and sometimes redundancies, there are new opportunities opening up at companies who previously didn’t work in this field, whether that be management consultancies or contractors.
In some instances management consultancies are hiring people from clients or traditional multi-disciplinary engineering consultancies and then charging them out to clients on greater rates than before. This can create demands and push up salaries.
The key as always is to fully understand the market, feeling the pulse of a quickly evolving, dynamic sector.
The consultancy market is evolving fast and we have seen a significant increase in executive hiring by consultancies over the last year, with the number of search assignments for consultancies, large and small, more than doubling compared to 2016.
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