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The saga of who will buy A.T.Kearney from EDS rolls on.
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First it seemed certain that the strategy arm would be bought out by its management. Then, as the consultancy market picked up, a trade sale seemed more attractive, and for a long time the consensus in the market was that the unit would be sold to the Monitor Group. Now that has fallen through and once again all options are on the table.
I suspect this saga will run and run. An anonymous quote doing the rounds talks of the struggle to “structure an equation that would make everyone happy” and this could pretty much sum up the problems of any disposal of Kearney. From EDS' perspective, and that of their stockholders, happiness is pretty easy to define. They’d like the $600m or so they paid for Kearney back, preferably with something to show for their investment.
Unfortunately this creates a problem when trying to keep the 3,200 Kearney employees happy. In an MBO situation, they’re essentially being asked to get into debt to acquire themselves, as most of the holders of EDS' original largesse will by now have departed. A trade sale will put them in the same or a worse position, as any acquirer will want to see a contribution to the overall business in addition to working off the cost of acquisition. In any normal MBO or acquisition growth would be the answer, but growth is notoriously difficult to achieve in strategy consulting, the sector being generally characterized by massive revenues per consultant but relatively stable firm size. Getting bigger holds little or no attraction to a strategy house, and while its conceivable that two might merge, a capital intensive acquisition makes no sense at all, diluting both brand and ownership while incurring debt. Sooner or later the brightest consultants at Kearney must surely see the benefits of being in a similarly autonomous position, and drift away to other strategy houses or to form their own boutiques.
Which leaves us with the trade buyer: who would want to buy a strategy consultancy, and how would they make it pay? If growth is out of the question then where is the return going to come from. All the possibilities of synergy with a larger IT/outsourcing entity must have been exhausted during Kearney’s journey with EDS. Many of the problems at EDS stem from strategy consultants’ incredible sensitivity to not being seen as a “sales front-end” to a larger entity, and its hard to see how that could work any better if they were bolted on to someone else. It’s possible that an Indian outsourcer such as Tata or Wipro might see Kearney as a useful entrée into boardrooms in the US or Europe, but frankly a loose partnership with an independent strategy firm would be far cheaper and probably more effective.
Many of the potential candidates in the IT /outsourcing space seem to be quite happy to have no strategy capacity at all. Those that have made inroads into this area, such as IBM and Accenture, might possibly be interested in Kearney’s capacity. However, given the numbers of people these firms recruit annually, picking up an extra 3,000 consultants is hardly a mammoth task—and one they can achieve for considerably less than $600m. It would seem that any disposal would have to be achieved at a massive discount on the acquisition cost. Consultancy firms, it would appear, depreciate faster than new cars – if you buy one it had better be for life.
At the moment AT Kearney’s value is pretty much locked up in the brand, and this is a brand that is becoming more tarnished by the minute as all attention is focused on the minutiae of ownership rather than the excellence of their offerings. There’s also the problem of a strategy firm being seen as unable to come up with a creative solution to a tricky portfolio problem. EDS may soon find themselves with nothing to sell!
Given that, on my analysis at least, nobody in their right mind would want currently to buy Kearney, the only answer may be to turn the question on its head, and ask, not what to sell but what to buy? If EDS believes there is, in the future of the consultancy industry, an entity which includes the Kearney resources and brand, is viable in itself and is capable of paying back its debt to EDS, then EDS will have to create that entity itself and sell the concept to the world. This might mean acquiring niche players, an established global consultancy or an IT services house. It could conceivably involve acquisitions from other areas of professional services entirely–law firms, advertising agencies, maybe even second-tier accountancy firms. It would be a high-risk strategy, and I doubt anyone at EDS has the appetite for it – but it could be the only way out of a terrible impasse.
Related link: Proven strategies to build & sell your consulting firm
All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.
Contact Mick with your views or suggestions at:
[email protected]
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