M&A deals for professional services firms on the up as PE appetite grows
The number of M&A deals for professional services firms rose from 76 in 2019 to 89 in 2020 – including 19 acquisitions backed private equity funds – with the appetite of PE houses for deals in the sector growing, says Mayer Brown, the global law firm.
Mayer Brown says the recent sales of the restructuring arms of Big Four accountancy firms KPMG and Deloitte have highlighted the increased interest in professional services firms from PE funds. KPMG sold its restructuring practice to HIG Europe, while Deloitte sold its restructuring practice to professional services platform group Teneo, owned by CVC Capital Partners.
Both of these sales were likely influenced by the Big Four’s desire to divest business units as part of reforms of the audit profession.
While PE funds have long seen the appeal of the reliable, recurring revenues delivered by the traditional parts of the professions such as accountancy firms, recent years have seen them target acquisitions of firms in other areas of professional services such as advertising and public relations.
Two of the biggest PE deals for professional services businesses in 2020 were for communications businesses. PR group Huntsworth was acquired by Clayton Dubilier & Rice for GBP514 million, while health communications consultancy Cello Health was bought by Arsenal Capital Partners for GBP175 million to add to its health-focused professional services platform Pharma Value Demonstration.
Other PE-backed deals for professional services firms in 2020 included two advertising agencies, two marketing consultancies, an economics consultancy and a social impact consultancy. Mayer Brown says that improved revenue modelling by PE firms has given them increased confidence to invest in subsectors of professional services that are seen as higher-risk than accountancy and consultancy.
Perry Yam, Partner and co-leader of the global Corporate & Securities practice at Mayer Brown, comments: “Some PE firms have developed a real taste for the professional services sector over the last couple of years as they look further afield to deploy capital.”
“Reliable streams of recurring work make consultancy firms an appealing acquisition for a lot of PE houses. What we’ve seen over the last couple of years is that rationale being applied to newer subsectors of professional services like PR.”
“Building ‘platform’ businesses is one way for PE funds to scale their professional services investee companies quickly. Adding another PR or advertising agency to an existing group is likely to be relatively simple and repeatable.”
“Some PE houses are also building diversified businesses in professional services. There are clear synergies between different areas of professional services like restructuring, consultancy, PR and recruitment – some firms are betting on being able to deliver profitable growth that way.”