Global consulting sector M&A rises 1 percent in Q3 2017, reveals new report

BY Fraser Tennant

Mergers & acquisitions (M&A) activity in the global consulting sector in Q3 2017 rose 1 percent year-on-year (YoY), with large variations across market segments, according to a new report by Equiteq.

In ‘Q3 2017 Marketing Update – The Global Consulting M&A Report’, Equiteq notes that the media & marketing and management consulting segments experienced the strongest M&A activity during the quarter.  Elsewhere, despite notable deals occurring in human resources and IT services, deal activity fell in these segments. In engineering consulting, deal activity rose strongly in comparison with the previous quarter.

Among the report’s key findings: (i) there were 609 M&A deals in total in the consulting sector in Q3 2017; (ii) North America saw strong deal flow, with 288 deals (up 7 percent (YoY) and with a median deal size of $20m); (iii) Europe saw 228 deals (flat YoY and a median deal size of $7.5m); (iv) Asia-Pacific and Australia saw 63 deals (down 21 percent YoY and a median deal size of $3.5m). Furthermore, despite continuing tensions between the US and parts of Asia, cross-border deal flow fell only slightly compared to Q2 2017.

“We are seeing strong and accelerating activity across our global platform in North America, Europe and Asia,” said David Jorgenson, chief executive of Equiteq. “Current market conditions are favorable for owners of knowledge-led businesses who are investigating their strategic and liquidity opportunities.”

In addition, the report found that private equity activity continues to remain strong despite fierce competition and strong pricing from cash rich strategic buyers. Notable financial buyer investments in Q3 2017 included Apax Partners’ acquisition of ThoughtWorks and Vista Equity Partners’ acquisition of The Advisory Board Company’s education business.

The Boston Consulting Group’s acquisition of digital design and innovation consulting lab MAYA represented another high-profile example of a move by a leading management consulting firm to capitalise on the huge opportunity for providing advisory services around digital transformation initiatives. In terms of technology M&A, global professional services company Accenture continued to be the most acquisitive buyer, acquiring seven businesses, with notable deals in spaces like communications strategy, creative media, asset management consulting, agile software-development, cloud-based mobile, and big data and analytics.

Mr Jorgenson concluded: “We are experiencing strong deal flow across our global business, which has accelerated over the last two months. The current market conditions are favourable for sellers of sale ready consulting businesses.”

Report: Q3 2017 Marketing Update – The Global Consulting M&A Report

BASF sows seeds with $7bn Bayer deal

by Richard Summerfield

German chemicals giant Bayer is to sell parts of its crop science business to BASF for about $7bn, the companies have announced. The deal has been designed to assuage the concerns of the EU competition authority over Bayer’s planned $66bn acquisition of US agrochemical and agricultural biotechnology corporation Monsanto Company.

The deal will see BASF pay in cash for “significant parts” of Bayer’s seed and herbicide businesses. BASF is paying 15 times earnings before interest, taxes, depreciation and amortisation. BASF said the deal will be earnings per share accretive in the first year.

For BASF, the deal is a surprising one. To date, the company has avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licences to seed developers. However, Bayer’s Monsanto acquisition has opened up opportunities for rival firms. Bayer has confirmed that proceeds from the seed unit sale will help finance the Monsanto acquisition.

“With this acquisition, we are seizing the opportunity to purchase highly attractive assets in key row crops and markets. We look forward to growing these innovative and profitable businesses and to welcoming the experienced and dedicated team in crop protection, seeds and traits. These businesses are an excellent match for BASF Group’s portfolio,” said Dr Kurt Bock, chairman of the board of executive directors of BASF SE, in a statement.

“I am very pleased that, in BASF, Bayer has selected an acquirer that, like our company, attaches a great deal of importance to social partnership and values its employees. I welcome the fact that BASF has committed to offering comparable employment conditions for our colleagues,” said Oliver Zühlke, chairman of the Bayer Central Works Council.

In August, the European Commission opened an investigation to assess the proposed acquisition of Monsanto by Bayer under the EU Merger Regulation. Bayer had offered to sell assets worth around $2.5 bn. The European Commission said in August that the divestments offered by Bayer so far did not go far enough and opened an in-depth review of the deal.

News: BASF to buy Bayer units for $7bn

European M&A dealmakers in positive mood, claims new survey

BY Fraser Tennant

Dealmaking sentiment for the year ahead across the European M&A market is positive despite the ongoing impact of last year’s Brexit vote, according to a new report by CMS in association with Mergermarket.

The report, ‘Changing tides: European M&A Outlook 2017’, which canvassed the opinions of 230 Europe-based executives from corporates and private equity firms, found that 67 percent expect European M&A activity levels to increase over the next 12 months while 5 percent anticipate a slowdown.

In comparison, last year’s survey, which was conducted shortly after the Brexit vote, was met with a subdued response from dealmakers as to upcoming European M&A, with 66 percent expecting activity to decrease over the forthcoming year and 24 percent anticipating an increase.

That said, M&A in Europe has been showing signs of stabilisation this year, with Mergermarket data revealing that M&A deals in H1 2017 sharply increased in value compared to the same period in 2016, rising 33 percent to €443bn.

“The mood among deal makers is markedly different in 2017,” confirms Stefan Brunnschweiler, head of the corporate/M&A practice group at CMS. “While acknowledging some of the challenges they face, respondents are largely optimistic about deal making prospects for the coming year, with many suggesting they are ready to take advantage of opportunities stemming from dislocations that result from Brexit and from a return to economic growth in the eurozone.”

In addition, survey respondents indicated that European financing conditions are currently favourable and that this will drive large, transformational deals over the next 12 months. Indeed, 88 percent expect similar or more favourable financing conditions over the coming year. Furthermore, 66 percent of survey respondents expect to engage in M&A, including acquisitions, divestments or both.

The report also notes that overseas buyers have been setting their sights on the European market, with four of the top 10 European deals in H1 2017 led by bidders located outside the EU – a trend that 90 percent of executives believe will continue.

“European M&A in the first half of 2017 shows positive signs of recovery, with momentum gathering as we move through the year," said Kathleen Van Aerden, head of research EMEA at Mergermarket. “The €246bn total value recorded in Q2 2017 was up 25 percent on the previous quarter and was higher than any quarter in 2016.”

A market newly refreshed with confidence, dealmakers are currently adapting to a new normal in European M&A activity.

Report: Changing tides: European M&A Outlook 2017

Global Logistics expands with $2.8bn European acquisition

BY Richard Summerfield

Global Logistics Properties, which manages around $39bn of logistics assets in Asia-Pacific and the Americas, has expanded into the European logistics market by acquiring Gazeley for around $2.8bn from Brookfield Asset Management. The transaction is expected to be funded by about $1.6bn of equity and $1.2bn of long-term, low-cost debt.

Global Logistics itself is in the process of being taken over for $11.8bn by a leading Chinese private equity consortium which includes Hillhouse Capital and the Hopu Investment Management Company, and is backed by senior executives from Global Logistics. The consortium, which is known as Nesta, will take Global Logistics private in Asia's largest private equity buyout of the year. According to Global Logistics, the deal for Gazeley is not expected to impact the timeline for the company’s privatisation.

In a statement announcing the Gazeley deal, Ming Z. Mei, co-founder and chief executive of GLP, said: “We have been looking to expand to Europe and this portfolio presents an attractive entry point given the quality and location of the assets. This transaction adds a premier operational and development platform for us in Europe and is part of our long-term strategy to expand our fund management business.”

Gazeley’s existing management team, as well as the company’s brand, are both expected to be retained when the deal has been completed.

Global Logistics will be acquiring a considerable asset portfolio in the deal. The company will gain around 32 million square feet of property currently owned by Gazeley, which is concentrated in Europe’s key logistics markets, with 57 percent in the United Kingdom, 25 percent in Germany, 14 percent in France and the remainder in the Netherlands, according to Global Logistics. Europe has long been a focus for Global Logistics; indeed, the company has been talking about expanding into the market for more than 18 months.

The company, much like the wider logistics industry, has seen a rising demand for facilities, driven by a boom in e-commerce. Earlier this year, private equity group Blackstone agreed to sell European warehouse firm Logicor to China Investment Corp for $14.4bn in a deal which further reinforces the burgeoning interest in the global logistics sector.

News: Global Logistic Properties buys European logistics firm for $2.8 billion

EU queries proposed $54bn eyewear merger

BY Richard Summerfield

European competition regulators have launched an in-depth investigation into the proposed $54bn merger between eyewear maker Luxottica and lens manufacturer Essilor, amid concerns the move could stifle competition.

If approved, the deal, which was announced in January, would create a global eyewear powerhouse with a combined current market value of around €45bn, combined sales of about €15bn and staff of more than 140,000. The merged company could have a dramatic impact on the growing global eyewear industry. Luxottica, is the world’s leading consumer eyewear group and owner of Ray-Ban, Oakley and Sunglass Hut, while Essilor is the biggest manufacturer of lenses in the world.

The companies had hoped to have the deal completed by the end of 2017, but this now seems unlikely as the European Commission has until 12 February 2018 to approve or reject the proposed merger.

According to a statement announcing the probe, the Commission's initial market investigation raised several issues relating to the combination of Essilor's strong market position in lenses and Luxottica's strong market position in eyewear. The Commission is concerned that the combined organisation may “use Luxottica's powerful brands to convince opticians to buy Essilor lenses and exclude other lens suppliers from the markets, through practices such as bundling or tying. The Commission will investigate whether such conduct could lead to, adverse effects on competition, such as limiting purchase choices or increasing prices".

Margrethe Vestager, EU competition commissioner said: “Half of Europeans wear glasses and almost all of us will need vision correction one day. Therefore we need to carefully assess whether the proposed merger would lead to higher prices or reduced choices for opticians and ultimately consumers.”

Neither Luxottica nor Essilor opted to offer concessions to allay any of the EU’s competition concerns prior to the investigation annoucement. The companies had until 19 September to offer concessions to the European Commission after initial concerns were voiced by the EU about the deal.

Both Luxottica and Essilor declined to comment on the EU’s concerns. Competition regulators in the US are also examining the deal, which has already won approval from authorities in Russia, India, Colombia, Japan, Morocco, New Zealand, South Africa and South Korea.

News: EU to investigate $54 bln Luxottica, Essilor deal