By Brendan Williams
A new wave of European privatizations?
After almost 500 years of government ownership, last month the British government privatized Royal Mail. An IPO by an institution that is so closely associated with the government that it uses the royal crown as its trademark and has a likeness of the Queen on its most popular product is noteworthy in its own right, but what's really interesting is that this may be part of a broader trend with implications beyond Britain and the postal sector.
We may be witnessing the start of a new wave of privatizations, which will see governments throughout Europe significantly increasing their sales of assets across a wide range of economic sectors.
In contrast to the first wave of privatization in the 1970s and 1980s, however, this wave is being driven by pragmatism and necessity, rather than ideological conviction about the superiority of free markets. European governments are looking to divest of assets not because they believe that the state should play a reduced role in the economy, but simply because they need the cash.
With balance sheets battered by years of recession and expensive bank bail-outs, and with little room to further increase taxes or borrowing, the sale of state-owned assets is one of the few remaining fund-raising options open to cash-strapped European governments.
According to Privatization Barometer, divestments have been below trend in recent years, as governments (except those constrained by the terms of their bail-outs) have avoided selling into weak equity markets, but this is likely to turn around dramatically as markets rebound.
What will be the impact on the consulting industry?
One impact of the increase in privatizations is likely to be a corresponding increase in consulting work related to the asset sales themselves, such as advising on IPOs. Additionally, if changing from public to private ownership results in increased access to investment capital (as the UK government expects will happen with Royal Mail), then some of that capital would almost certainly be spent on consulting, although any net increase demand is likely to be modest, given that many public sector entities are already major consumers of consulting.
Even if the pending wave of privatizations doesn't result in a significant increase in spending on consulting, however, it could be a harbinger of a subtle but important shift in the nature of that spending.
At its core, the issue is that successfully managing Royal Mail requires choosing between competing priorities and pursuing radical and controversial changes—a task for which the government is poorly suited (the very fact that it opted for privatization is, in effect, a tacit admission of this).
Ideally, by liberating themselves from the control (and the protection) afforded by government ownership and subjecting themselves to the discipline of private shareholders, organizations like Royal Mail should gain the freedom to take more risks, to adopt some bolder strategies, and, crucially, to make the difficult decisions required to successfully implement those strategies.
Brendan Williams is an Associate Director, Lead for EMEA Consulting Research for Kennedy Consulting Research & Advisory (KCRA). For additional information, visit www.kennedyinfo
.com/consulting.
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