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Management consulting firms are doing well despite the economic gloom. Earnings in fees are recovering back to pre-crisis levels. A dip in public sector spending has been replaced surprisingly well by private sector demand and by the internationalisation of the business.

Is the UK economy doing better than it looks? In terms of GDP, the economy has not grown since the last quarter of 2011. But there is a sector that may prove to be a bellwether for the rest of the economy. According to figures from the Management Consultancies Association (MCA), the UK consulting industry has had a surge this year, with growth in fee earnings of 5 percent, taking it back to pre-crisis levels. The MCA forecasts continued growth in fee earnings of 4 to 5 percent next year, too.

Usually, consulting is a pro-cyclical industry. It does well when times are good. But this time, something is different. The UK, like much of Europe, is in crisis. Yet, it has been a good crisis for consultants. Why is that? “Overall, businesses are surprisingly robust. It looks like trading sentiment is worse than economic fundamentals,” says Andrew Embury, EMEIA advisory leader at Ernst & Young. As in many other countries, the UK public sector, traditionally a big consumer of consulting services, is now a drying market as public austerity takes a toll on consulting spending. Somewhat surprisingly, however, this has been replaced by demand from the private sector, in which the consumption of consulting services increased by 14 percent in 2011. In the UK, demand for consulting services has been particularly strong in two sectors – manufacturing and financial services. The former accounts for 21 percent of the growth in fee income, the latter 40 percent.

John Goddard, head of Europe at L.E.K Consulting, says that the source of this demand is from “transactional activity from corporates that have taken the opportunity presented by depressed valuations to make strategic acquisitions and by investors who have held assets throughout the recession and are now looking to realise profits as conditions improve.” A spate of new regulation in the United States and the United Kingdom has also been a boon for consultants, especially in banking, financial services and healthcare.

Article from: CFO

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