Can these two newly-weds weather the storm of a stagnant outsourcing industry?
Yes – that happened. We just had the biggest shakeup in the outsourcing advisory market since KPMG’s acquisition of EquaTerra in 2011.
The last two large independent outsourcing advisors (outside of the management consulting firms) realized they needed to stop killing each other and would be far better off becoming one. So now we’re left with an even bigger ISG and a few really small shops, like Avasant, Aecus and Everest, to scrap around for the remnants of demand for former EDS executives to negotiate a nice contract for them.
This is a really smart deal for both ISG and Alsbridge. ISG takes out its prime competitor to monopolize its space, while Alsbridge’s prime investor, LLR, makes out nicely on its 2013 investment within the typical 5-year window private equity firms give themselves.
This is a great deal for most the Alsbridge consultants. Many are welcomed back into the loving arms of their former employer and they have a bigger brand, global scale and presence to hone their craft.
This is a great deal for most the ISG partners. Now many of them will not have to suffer their fees eroded by a very aggressive competitor (or losing deals to it). They can still easily undercut the Management Consultants’ fees, and have access to more talent to win deals, especially in areas like telecom and Robotic Process Automation (RPA), where ISG was previously struggling.
This is not a great deal for all the employees. Large mergers of like companies always present rationalization opportunities. The new ISG will surely look to retain the cream of the Alsbridge talent and hive off its lower performers. The outsourcing market is flat and advisory firms are struggling to make the numbers of past years, with the $500m ITO mega deals becoming confined to history.
This is not a great deal for the management consultants. ISG’s principle competitors, KPMG, Deloitte, EY and PwC, now have a bigger badder ISG to contend with, that can no longer only undercut them on fees, but also can boast competencies in the emerging area of RPA, where the Big 4 are currently winning out. While the market is one player lighter, it is also one player stronger.
This will have mixed results for clients of advisory services. For those ITO buyers who loved to trade off ISG and Alsbridge to get their fees lowered, they will have to resort to really small firms like Avasant and Aecus as alternatives, who are good at some things, but will often struggle to scale up to meet client needs. For loyal clients of both ISG and Alsbridge, most will have a larger pool of talent to help them.
This might be good for the emerging RPA boutiques. While Alsbridge has been developing quite impressive capabilities in RPA, we’ve also seen a rapid emergence of RPA boutique advisors, such as Symphony, GenFour, Virtual Operations. They could be able to take advantage of the merger to scale up further and may be able to pick off some talent that comes available. On the flip side, I wouldn’t be surprised if ISG starts to look at swallowing up a couple of these shops as the RPA demand continues apace.
My personal view: This won’t be “Veritage 2.0”
I know both companies well, their leadership teams, and have many good friends in both. I was expecting one of the management consulting firms to buy up Alsbridge (especially EY, where the original Alsbridge founder, Ben Trowbridge, is a partner). So it’s always a surprise when two very fierce competitors bury the hatchet and see the business sense in becoming one. We’ve been so used to seeing both firms trying to take each other out on deals, it’s going to take a little while to get used to seeing them whispering sweet nothings to each other.
But cutting to the chase, these firms have some seriously experienced fellows who know this business inside and out. They know what they are doing and I would be highly surprised if we see a repeat of the now infamous “Veritage”, when EquaTerra and TPI failed to tie the knot after some very expensive offsites (and had chosen the lovely name “Veritage”).
Posted in : Outsourcing Advisors
Vintage Fersht. A quite brilliant assessment!
Nicely put. Next may be the MC firms in line for M&As.
Analysis with a twitch. A vintage (not veritage) Fersht indeed. By the way, there are also some solos out there Phil 😉
I was waiting for this article since hours! Confirmed some of my thoughts and makes me go away with some to think upon! Nice one.
Ho-hum. Two medium sizes firms struggling to remain relevant are now one large firm struggling to remain relevant. Similar to IBM and HPE merging their data center businesses.
@Pete – good to hear from you! The whole services industry is struggling to remain relevant. You have to credit Alsbridge with being the first advisor to make the push into RPA and how quickly (and efficiently) they grew their business since the LLR acquisition in 2013. If ISG can get this right, they could be well positioned to stay ahead of the curve at a time when many others are slipping behind… a hard task, but not impossible,
PF
This doesn’t really improve the prospects of the merged firm versus the Big 4 in the BPO space, where there is so much untapped potential for growth, does it? How much BPO Advisory work has either firm really done? Now you just have one even larger hungry beast eating from the same sized ITO bowl.
@JD – never really saw either ISG or Alsbridge as powerhouses in BPO – which was why EquaTerra was originally formed. In my view, the new ISG would be better served focusing on RPA at this stage, which is the "new BPO" for so many clients. They will need to add to their process and technical capabiities to really move this forward; RPA is murky, and technical and plagued with misinformation.
PF
As always, Phil Fersht provides timely insights and clarity with humor. The restructuring of the advisor market in global services reflects the increased maturity levels of global enterprise who take the best practices and actually internalize and apply them using internal resources. Maybe the enterprise customer still needs help on robotic process automation, but not too much traditional sourcing process as the enterprise has new DNA in integrating supply chain management and simplified LEAN administrative services in support of a more dynamic, agile global enterprise.
As a sourcing and international corporate lawyer, I have loved hearing the service provider’s sales team promote how they can "partner" with the customer. In ISG and Alsbridge, we have a partnering of advisors. What’s next? Maybe we look for ISG cum Alsbridge to partner with a technology partner to really shake up the sourcing advisory field.
Nice assessment. Having worked for both organizations I have every confidence that clients will greatly benefit from the joining together of this immensely talented group of consultants. Thanks for making me laugh with your creative picture of the newlyweds!
No mention of NeoGroup?
@Al – is NeoGroup a sourcing advisor? Atul’s showed me the supplier risk tool, but I’ve never seen you in a bake-off with the ISGs, KPMGs etc
PF
Congratulations Skip! I know Alsbridge well who has made good progress in the RPA space. Look forward in seeing future developments from the acquisition.
@Phil:
Yes – we have a small team of advisory Partners, both ITO and BPO. In fact, I am starting on an IT Transformation project with Neo on Monday. We agree with you that the merger should be good for the niche advisors (like us). Let me know if you’d like to learn more about our capabilities in the advisory space.
Good memory Phil! Wonder how much my Veritage branded notebook would get on eBay? More than my TPI branded baseball?
This is a great combination of two strong firms. Big winners will be the Clients and Service Providers who will have a bigger, better, stronger, more comprehensive Advisor to work with. Looking forward to working with some old friends again. Champagne toast to celebrate! (in my Alsbridge branded coffee cup).