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Two in the bed, and the little one said “Roll Over”

Cardinal Q 29 Jun 15

“Human Capital” businesses rarely make for good long-term acquisitions. By human capital, I mean businesses that don’t actually make anything, but offer intellectual services; accounting for instance, lawyers, consultants. It is even more stark when a large firm gobbles up a small one.

KPMG Boxwood
I noted the acquisition of Boxwood by KPMG with interest. KPMG is a $25bn turnover, 160,000 global machine. Boxwood is a decent UK-based consulting firm, with less than 100 people, that specialises in ‘business transformation’. It reported a turnover of £11.4m in FY14. Whilst their turnover is a bit down on its previous year, the performance of a consulting firm is always subject to the vagaries of the clients they serve, and whether the CEOs who favour them are in gainful employment or not. Perhaps a few CEOs who favour Boxwood are currently out of work. Or maybe fewer of their clients need transforming anymore, which suggests that they must have been doing a good job.

To be honest, yours truly knows precious little about the deal, or the commercial implications of it. However, I can’t help thinking that we’re witnessing the re-birth of a very odd practice: large professional services firms acquiring lots of small ones. I find it puzzling. It’s a practice that has few victors, and the vanquished … usually the staff of the small firm … start feeling the sting almost immediately.

David versus Goliath, my favourite bible story, resonates in the modern day business world too. You see the thing that drives smaller firms is their entrepreneurial spirit, their run-through-walls-to-get-things-done mentality, the lumbering giant versus fleet-of-foot banter. If you want to be in a big corporate, you join a big corporate. You don’t join Boxwood.

Talented people who join smaller firms, be it a law firm, an accountancy, or a consultancy, have different motivational needs to those who join the global firms with thousands of employees. They have chosen to be there. Small firms typically contain a vibrant college of like-minded people who have taken a leap of faith (a spiritual one, like mine), and are hard-wired with similar ideals and beliefs.

The KPMG Boxwood arrangement might be a terrific piece of business for the leaders at Boxwood, who have seemingly cashed in their chips. KPMG leaders might think that gaining 50 or so people with Business Transformation skills fills a hole in their general ledger for the next 6 months. But in a couple of years time, I can’t imagine any of the Boxwood leaders will still be at KPMG, and their faithful flock, who loyally nailed their colours to the mast, will have long floated off, no longer Boxwood, but driftwood …..


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