Consulting Landscape – Market Overview and M&A Activity – September 2023

Market Overview

The UK consulting market reported 25% growth last year, bringing around £18bn in revenues. Growth was led by medium-sized firms at 26%, followed by large at 23%, and small at 19%.

For 2022, Financial Services and Government and Public Sector remain the largest areas as they have been for many years. Manufacturing (43%), Infrastructure (36%) and Retail and Leisure (28%) sectors saw the largest growth in 2022 and were all sectors that were significantly impacted by the pandemic. Sustainability and ESG are seeing strong growth with both specialist focus consultancies and within the wider remit of the subsectors above.

Whilst the wider economy faces issues with inflation and falling consumer confidence, the advisory market will continue to thrive, with the MCA, the trade body covering all strands of public and private sector consultancy, still predicts double-digit growth of 13% for 2023 and 12% for 2024, as the private and public sectors utilise consultants to guide them, particularly with digital transformation and meeting sustainability targets.

Polestar has seen significant interest for consultancies offering niche expertise as clients look for firms to help them manage commercial risk in difficult geographies and newer technologies, against a back-drop of high interest rates and associated financial risk.

Source: https://www.consultancy.uk/news/34708/consulting-industry-heading-for-13-growth-in-2023

Growth in consulting activity

Consulting Landscape

Time to Exit? The Value Clock

What drives value?

• Business model and scalability
• Software and automation
• Metrics: financials, growth rates and KPIs
• Quality of earnings: customer spread, repeatability
• Barriers to entry: proprietary knowledge, IP, brand recognition
• Competitive environment: geographies and competition
• Niche specialisms
• People: team culture, leadership, energy

Market Valuations

The sector has retreated significantly from the highs of Dec-21 as investors revaluated company profitability growth prospects, faced with increased economic uncertainty and declining interest in outsourced services.

Business performance and opportunities in the sector have been strong over the LTM, with public companies trading between 11-12x EBITDA, whilst private companies are between 6-12x, with a view commanding even greater premiums.

One stand out is Booz Allen Hamilton (BAH) which trades at the peak multiple of 24.7x EBITDA. BAH, who have particular strengths in defence contracts and technology/IT consulting, are benefiting from rising military spending. This demonstrates the high premium for consultancies offering specialist services.

Public Markets

Private Markets

3 Year EBITDA Multiples

3 Year Revenue Multiples

Source: S&P CapitalIQ as of 15 September 2023, Pitchbook

Notes: Polestar Consulting Index comprising of 26 Global consulting firms

Consulting M&A Activity Q121-Q223

Trade vs Private Equity Activity

Consulting Subsector Breakdown

• Deal volume fell by 22% in Q2 23 compared to the same quarter last year. Deal value also dropped from £1.1bn in Q2 2022 to £245m in Q2 2023.
• Private equity activity increased relative to overall deal activity versus the previous period, driven by growth in the sector and heightened interest in the combination of repeat revenues and specialist knowledge that consultancies offer.
• The business planning subsector, comprising of strategy consulting, management consulting, and investigations firms, made up the largest portion of deal volume over the last 12 months.
• ESG & sustainability deal volume increased over the past two years, showing a growing demand in this subsector.

Active Buyers

Active Investors in the Past 12 Months

Source: Pitchbook

Most Active PE Investors

• BGF was the most active investor in the past 12 months, particularly in the sustainability and environmental consulting space (6 investments).
• CBPE is adding bolt-ons for its platform investment in financial advisory services.

Active Acquirers in the Past 12 Months

Source: Pitchbook

Most Active Strategic Acquirers

• RSK was the most active acquirer in the past 12 months, with 7 acquisitions across the sustainability and environmental space.
• Other demand in the space stems from the construction and engineering sector, across building consultancy and technical inspections and certifications.

Selected Transactions – PE

Source: Pitchbook

Selected Transactions – Corporate

Source: Pitchbook

Polestar Deals

Business Planning

Exit

J.S. Held — Acquired — Africa Matters Limited

J.S. Held acquired Africa Matters Limited, an Africa-focused strategic advisory firm providing business intelligence, stakeholder engagement, and sustainability consulting services.

The acquisition expands J.S. Held’s Global Investigations Practice in Africa.

Business Planning

Exit

J.S. Held — Acquired — GPW Group

J.S. Held, a specialised, global consulting firm, acquired GPW Group, a leader in complex global disputes and investigations, asset tracing, sovereign debt advisory, business intelligence, and political risk.

The addition of the GPW team brings leading intelligence and disputes experts into JS Held’s Global Investigations Practice and bolsters its presence in Europe, Asia Pacific, and the Middle East.

ESG & Sustainability

Exit

Bridges Fund Management — Invested in — EVORA

EVORA Global, a UK company which works with influential names in real estate, gained substantial backing from international investors in a funding round led by Bridges Fund Management, a specialist sustainable and impact investor.

The equity investment round will enable EVORA to expand its offering to support clients globally, while further developing its tech platform.

Technology

Exit

US Tech buyer — Acquired — eDrive Engineering Services

eDrive, an engineering consultancy/R&D team that designed technology for the fitness sector, was sold to a US tech buyer.

Details of the deal are confidential.