When will strategy firms make more acquisitions?

By Fiona Czerniawska

Now would be a good time.

In our peregrinations through the offices of the world’s consulting firms, the talk is all about consolidation.  That’s neither new nor surprising.  It has escaped no one’s attention that the pace of organic growth in many markets won’t meet consulting firms’ ambitions.  The acquisition of boutique firms by bigger ones is an important way in which the latter build their capabilities in specialist areas.  Supply-side fragmentation results in diseconomies of scale; internecine competition is bringing down margins.

But familiar problems breed complacency: we doff our hats to our assumptions and move on.  In this context, Booz & Company’s recently announced acquisition of the mid-sized German consultancy, Management Engineers, should give us pause for thought.

Most of the conversations I’ve had – with all sorts of firms – have centred on the Big Four firms’ acquisitive tendencies.  Stuttering growth, spiced with a degree of sibling rivalry, means that these firms have come to be seen as the aggressors du jour, absorbing smaller firms in the unending quest for greater market share.  If anything, this attitude is more marked this year than it has been before: everyone’s waiting to see which Big Four firm will trump the others; everyone wants to know who’s going to be first on the menu.

It’s a narrative which makes all other firm potential victims and perhaps that’s a dangerous assumption.  Why do we – for instance – automatically assume that strategy firms will be among the bought, not the buyers?  So let’s pause for a moment and consider what the world might look like if we upended this logic.  An obvious scenario – at least on paper – would be for a one big strategy firm to buy another, decisively reshaping this part of the consulting industry and (because these firms are already sizeable by industry standards) creating an unassailable lead when it comes to winning large-scale, global projects.  However such deals stumble on culture, egos and ultimately money: an alternative picture might be for the big strategy firms to absorb mid-sized players.  Actually, I suspect the value of doing this will be limited: the gap in terms of size and scale between first and second tier strategy firms is sufficiently large that the increase in market share will barely register.  A more plausible scenario – illustrated by Booz’s move – will be to acquire firms in adjacent markets, gently allowing strategy firms to diversify at a time when demand for traditional, top-down corporate strategy is declining.  Here, strategy firms face the same problems the Big Four do: a shortage of eligible, willing candidates (the Czerniawska Law of Acquisitions states that the attractiveness of acquisition targets is always in inverse proportion to their availability: the companies you want to buy don’t want to be bought and you wouldn’t want to touch the ones which do want to be bought).  Moreover, mid-sized acquisitions are never game-changers: specialist brands become absorbed; the competitive edge is blunted.

That leaves us with two other possible choices.

A strategy firm could make an acquisition outside the consulting industry: a creative agency, a market research or data analytics company.  It’s an intriguing possibility and not unprecedented (Lippincott Mercer, NM Incite) but I suspect the initiative will come from the other direction: a creative agency will buy a strategy firm.

So we’re left with possibility, barking though it may sound, that a large strategy firm could buy the consulting practice of a Big Four firm.  I’m using the term ‘buy’ rather loosely here: historically, the only people with enough cash to do this kind of thing have been publicly-traded companies and the probability that several hundred partners in a strategy firm would dip into their admittedly deep personal pockets to fund such a move is vanishingly small.  But think of it more in terms of a merger in which the strategy firm is in the driving seat and you’ve got a rather more attractive option: the strategy firm acquires implementation muscle and a vast network of offices in soon-to-be-emerging markets (Africa for instance).  The Big Four consulting practice gets to separate itself from its audit business without having to fall into the now tarnished clutches of a technology firm, leverage the board-level relationships of strategy firms at a time when the number of big ‘transformation’ projects is increasing, and become part of a more integrated global structure.

What’s not to like?