Acquistion by the Management Consulting Group gives KSA the strategic capital it needs to go global
In consulting, mergers and acquisitions can be rough business. There's no shortage of firms—both the acquired and the acquirers—that have fallen victim to the M&A minefield. To hear Mark Wietecha tell it, consulting mergers have been, in a word, "brutal."
It stands to reason then that when Wietecha, chairman of Kurt Salmon Associates, started to look into possible suitors for KSA, he moved with extreme caution. Wietecha was well aware that KSA needed to secure more capital to give the firm the global presence it desperately needed to sustain its future growth plan.
"I know the history of mergers in this profession, but we had embarked on a plan a few years ago of going global, and that included the Far East, India and some diversification of services both in terms of consumer products, retail and healthcare," Wietecha says. "Financing that as a small, private firm was a real challenge. You can't just start Shanghai on a tiny, incremental basis. You need to commit significant working capital to the venture. You can't just open an international office with seven or eight people like you could do here in the U.S."
The other factor in play, Wietecha says, is that KSA needed to quell the capital concerns of the partners—particularly the ones nearing retirement—over its ability to fund its future. "Those types of distractions make it hard to run a business," he says. "[Our finances] were impacting our stock holding and our value."
However, Wietecha is quick to point out that even as a small, private firm, KSA was very successful and, by no means, failing as a business. "We were quite prepared to go ahead as an independent firm if we couldn't find a suitable arrangement with MCG. It certainly wasn't a do-or-die situation for us," he says. "We just had a capital issue with our global strategy initiative. We knew we needed help and that help would most likely have to come in the form of a merger."
It did. Late last year, Wietecha and KSA leadership decided to join forces with the Management Consulting Group, a London-based umbrella organization now made up of six consulting firms that's projected to earn $600 million this year. MCG owns Ineum Consulting, KSA, Parson Consulting, Proudfoot Consulting, Salzer Consulting and Viaduct Consulting. KSA is MCG's most recent—and most significant—acquisition. At the time of the acquisition, MCG was led by Kevin Parry. He has since stepped down and, as of press time, no replacement has been named. Wietecha, meanwhile, has been appointed to the MCG board as an executive director.
The immediate impact of the deal, Wietecha says, is the ability to put some capital behind a couple of key growth areas for the business. Those areas include healthcare in Europe and Asia, which have populations that are "affluent, but aging and eating up a lot of healthcare," he says. "Similarly, the Eastern world is going to open up increasingly. In India and China, the number of affluent, upscale consumers in the retail consumer products sector is skyrocketing. I'm not sure any of our Western consulting-based companies have figured out yet how to make money there, but everyone is going to try. And we are, too, but we expect do more now, and do more quicker, than would have been the case before the deal."
Initially, Wietecha says, KSA was very careful about how it publicized the MCG deal to clients. "We didn't want to disrupt the business of KSA," Wietecha says. "Now that we're through the initial phase of the merger, we're starting to let clients know because we can now expand the type of services that we can bring to them through our sister companies. We've got capabilities that we didn't have before—in finance through Parsons, in productivity through Proudfoot—and these new offerings add value."
The Leader of the Brand
Even though KSA needed some financial lift, Wietecha was very meticulous about finding a fit for KSA, an Atlanta-based management firm founded in 1935 by German textile engineer Kurt Salmon. The firm has grown into an established market leader in its retail, consumer products and healthcare practices—three-quarters of the leading retailers and 100 percent of the top 10 hospital groups are clients. Wietecha says he wasn't about to throw that all away just to secure a little extra capital.
"Protecting the KSA brand and all that it stands for was a huge factor in determining what roads we were willing to go down," he says. "And practically, I'm not sure we could have even gotten the deal approved if it resulted in losing a 70-year-old brand. So I knew I needed to find a firm that had a brand strategy—or at least had a way for us to take our family of practices and operate those as we always had," Wietecha says.
MCG, which has a history of a hands-off management approach, fit the bill. It allows its firms to keep their brand and management in place, something that eases the transition. "That piece of it was huge for us," Wietecha says. "Most of the failed mergers are because one firm tries to force its brand, its culture and its way of doing business on another firm."
In mergers, combining cultures is often the most difficult thing to do, often leading to the departure of many top consultants, Wietecha says. "We knew we didn't want that to happen at KSA. We actually had a couple of offers that were quite attractive financially, but these deals were clearly going to be about group hires for the acquiring firm. We were going to be homogenized. We think far too much of our own people to let that happen."
Those types of deals, Wietecha says, may look good on paper, but end up hurting a firm in the long run by robbing it of its biggest asset—its people. "Clients are relationally based, not firm based—so the clients walk away with the consultants," he says. "We actually had a few firms say to us, 'If we agree to buy KSA, we know three quarters of your people will be gone within the first year.' Then, they went ahead and put an offer together anyway. We were just baffled by the line of thinking."
It's a line of thinking that needs to change, Wietecha says. "The entire M&A model needs an overhaul. I'm not sure why, but in consulting the dogma remains that you have to bring everyone under a single model," he says. "I think it would make sense to shift our focus to a more brand-based model. The industry needs to start looking at smaller brands and seeing the value that they bring to the table."
Once it does, he says mergers will go more smoothly. "Of course, our people know the history of failed mergers, and I think they're all sort of waiting to see what will happen with us," he says. "That's certainly been one of our biggest management challenges. We all know that it's still early in the process, but so far, so good."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.