Dusseldorf Christian Horn has long been more than just a consultant, but also an entrepreneur. When he set up his own consulting company in Düsseldorf in 2009, he had “zero customers and zero sales”. Eleven years later, Horn & Company has a turnover of almost 40 million euros and, as number 20 in the German market, is a so-called “hidden champion”, particularly active in the financial industry, industrial companies and retail.
Now the 58-year-old Horn is taking a further step in order to be able to expand more with his consultancy and thus to lead her out of her “growth and succession weakness”. He and his partners have entered into a 50/50 partnership with Dutch financial investor Waterland. Together they want to “find and integrate like-minded people” and thus create a new growth platform for medium-sized consulting firms.
“We’re growing 15 percent a year, but that’s not enough,” explains Horn in an interview with the Handelsblatt. “In the medium term, we need annual sales of EUR 100 million in order to be a major player in the fast-growing management consulting market with increasingly broad and international orders.” A consulting firm like his would need too much time for this growth on its own. With a growth financier like Waterland, this can be done more quickly.
With the commitment of a financial investor like Waterland, the consolidation of the German consulting industry is gaining new momentum. This has been reflected in many mergers and acquisitions for some time now. Medium-sized consulting firms join forces, take over smaller ones or join the big players in the industry.
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There are many reasons for the consolidation: Business is booming, the industry is highly fragmented, succession plans are pending in many places, economies of scale and synergy effects as well as internationalization are attractive. In addition, the top topics of digitization and sustainability offer fast and profitable business.
The founder and CEO of Advyce sees the market on the verge of consolidation.
And it’s not just financial investors driving consolidation. The strategy consultancy Advyce from Düsseldorf and the Perlitz Strategy Group are trying a similar approach to Horn and Waterland. They merge into a consulting firm with more than 100 consultants in Düsseldorf, Munich, Berlin, Mannheim, Hamburg and Zurich and, according to their own statements, an annual turnover of 20 million euros.
Burkhard Wagner, founder and managing director of Advyce, is reacting to the fact that the market is currently characterized by consolidation and the duality between the “big consulting factories” and the specialized management consultancies. As a medium-sized consulting firm, you are almost “forced” to act and strengthen yourself together and build platforms.
“The consulting business offers clear synergy and economies of scale”
The consulting industry in Germany is currently shaped, but not dominated, by the three leading international strategy consultancies McKinsey, Boston Consulting and Bain. With annual sales totaling around 2.5 billion euros in Germany, they account for less than ten percent of the overall market. The industry is medium-sized to small-scale. Only around ten consultancies that have their headquarters or the majority of the share capital in Germany generate more than 100 million euros in sales.
“The consulting business offers clear synergy and economies of scale,” says consulting analyst Fink. A consultancy can often only qualify for particularly lucrative large orders if it can provide a sufficiently large team within a very short time. Secondly, with increasing size management consultancies would be able to expand their range of services – i.e. not only to optimize the procurement of their customers, but the entire supply chain.
Investments in intellectual capital or in internal talent development are more likely to pay off for large consultancies. With increasing size, consulting firms are more visible and attractive to talent than the specialists. And ultimately, of course, a certain size is also a basic requirement for internationalization.
“The good industry situation is driving the consolidation”
The business of management consultants has recently picked up again significantly. Only the Corona year 2020 was negatively out of the ordinary. According to the industry association BDU, the consulting industry has already grown by a good ten percent to a turnover of 38 billion euros in 2021. The consultants surveyed are similarly optimistic for 2022. According to current forecasts, the business is expected to grow to 42.1 billion euros in sales.
“The good industry situation is driving the consolidation,” says industry expert Jörg Hossenfelder from market analysts Lünendonk. The order books of many consultants are well filled, only the people are missing to work through them. Recruiting new employees is becoming more difficult and time-consuming for all consultants in view of the increasing shortage of skilled workers. “The cooperation or the connection to a competitor with a big name can appear attractive in this situation.”
In the market, the following applies to the broadly positioned management and strategy consultancies: buy and cooperate or be bought. The list of smaller and medium-sized takeovers is long. For example, the largest German strategy consultancy, Roland Berger, recently acquired the 30-strong team from Polarixpartner, a consultancy specializing in the area of cost optimization. Roland Berger boss Stefan Schaible wants to get up to 400 million euros from investors in order to be able to continue acquiring and growing.
The number three in the German market, Q-Perior from Munich, also recently bought up withfeint Management Consulting. And the Etribes consultancy, which specializes in digitization, broadened its base with the merger with Orbit Ventures and is still actively looking for companies, agencies and consultancies to supplement its own offering.
The large auditing companies are also very willing to buy. They systematically strengthen their consulting business with takeovers. For example, Deloitte recently took over the Berlin-based Restructuring Partner company with 30 employees. Also very active as a buyer: Accenture. In 2021, the US IT consulting giant took over, among other things, the sustainability specialist Akzente from Munich and Berlin with 60 employees as well as the 73 strategists from Homburg & Partner from Mannheim.
A role model in this respect, but so far only very selectively active in Germany: the world’s top trio of strategy consultancies, McKinsey, Boston Consulting Group and Bain. The list of international takeovers is long. In Germany, BCG last used it in 2016. The global number two took over the Cologne purchasing consultancy Inverto.
Financial investor Waterland already has experience with consulting firms: “We are the rocket stage.”
For Gregor Hengst, partner at Waterland Private Equity, it is clear: “We see promising growth potential in the German consulting market, especially through takeovers.” For Waterland, the commitment is not an operational mandate. One does not interfere in the operative business, but shows expansion possibilities. Stallion: “We are the rocket stage.”
With Waterland, an investor is now active in the industry who has already gained experience with investments in process consultants, auditors and digital agencies in other European countries and wants to become even more involved in this so-called professional service segment.
Industry experts rate the entry of financial investors quite positively. Dietmar Fink, Professor of Management Consulting and Managing Director of the Scientific Society for Management and Consulting (WGMB) in Bonn, says: “Horn & Company has the intellectual capital, Waterland the financial means to equip such a platform with the necessary potency.” It is important in such a constellation that the financial investor really acts as a shareholder and not as a trader, i.e. is committed to the long term.
More: Roland Berger boss Stefan Schaible: “We want to play a global role.”