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Nelson Ogunshakin, CEO, ACE

Mergers: still the way of the world

Nelson Ogunshakin is heading to the FIDIC conference in Dubai and it has set him thinking about the shape of international business in the future.

We, as an industry, have reached a time when we must question if our current industry business model possesses the finesse and agility in order to respond, as well as succeed within global markets. Much as earthly pressures turn coal into a diamond the hope is always that domestic and international market pressures will force business models to become refined, and better able to cut through future political, economic, social, technological and environmental challenges to ensure continued sector growth and success.

"Evidence from 2015 activity levels confirms mergers and acquisitions will continue to occur in the consultancy and engineering sector, not just horizontally but also vertically within the sector, as well as across continents."

Within these increasing challenges, adaptation and business model flexibility is key. If a business does not adapt to the changing circumstances under which it operates, that business will be crushed beneath market pressures.

Mergers and acquisitions (M&A) are one form of potential growth options open to major management; however, this is not the only means of generating sustainable growth and adaptation for the industry. I am speaking on the benefits of the ACE European Benchmarking programme and M&A at the FIDIC conference in Dubai which is happening this week, and as I prepared for that it became apparent that in order to move forward the industry must understand the implications for globally minded business needs.

Evidence from 2015 activity levels confirms mergers and acquisitions will continue to occur in the consultancy and engineering sector, not just horizontally but also vertically within the sector, as well as across continents. Most of the M&As are being driven by the need to increase scope of service and footprint, whether creating a one point solution for multiple services, diversification or increasing the local reach of an international company. This stresses the need for the industry to think global and act local, in order to ensure client needs are met around the world.

UK based consultancy and engineering companies are often sought after as M&A targets by major international players. This is because there is a growing domestic project pipeline, London is the leading centre for project finance deals, British expertise travels very well and it is able to deliver major projects. In addition, the UK is a stable economy that has business friendly regulations, strategic centres of excellence, respected skillsets, as well as renowned international engagement.

"This push towards M&A will continue until it reaches a point of optimum consolidation and manager fatigue, when large scale businesses will break into smaller entities."

Essential to the success of any international consultancy and engineering company is the acceptance of cultural ownership conditions as well as the increased need for cultural understanding. Naturally, if engaged in a project abroad, local and cultural knowledge is essential for project success. Often, this results in the merger, acquisition or collaboration of any large international company with a local firm to provide the increasingly demanded local content by clients.

The 2015 location of the FIDIC conference, Dubai, witnessed a tipping point in 2007-2008 after developing greater understanding of its institutional capacity. This led Dubai to the successful involvement of international companies within the infrastructure sector. Key to this success is those international companies enabling local content, whether through M&A or collaboration with knowledgeable local service providers. This local as well as cultural knowledge better enables international companies to succeed in the unique needs of an international project.

International mergers, acquisitions and collaborations often occur with those countries facing domestic pressures, with a need to export their expertise internationally. Japan is a classic example of this. In domestic recession for the last 20 years, Japan maintains the third largest economy, positioning itself internationally through the acquisition of companies around the world as well as increased investments in international collaborations.

This push towards M&A will continue until it reaches a point of optimum consolidation and manager fatigue, when large scale businesses will break into smaller entities. Without knowing when such a tipping point will occur, the industry going forward needs to embrace beneficial pressure points for adaption to global demands.

In conclusion, M & A, as well as other business growth strategies, such as an alliance, joint venture and organic development have changed the industry landscape in order to meet client needs. Adoption of any of these growth strategies enables major companies to address both domestic and international opportunities and no longer limits consultancy and engineering companies. However, there is a clear and justifiable business case for both large and small to medium sized consultancy business to co-exist in the future as we respond to the increasing domestic, international and global challenges. 

Nelson Ogunshakin is chief executive of the Association for Consultancy and Engineering