What’s behind the growing M&A market for UK professional services firms?

Despite the shock caused by the rapid emergence of COVID-19 across the world in early 2020, the professional services sector was among the industries which weathered the immediate crisis and went on to record strong performance in the face of the pandemic.

In Europe and the UK, professional services firms have continued to register strong growth, while M&A activity in the sector – which was already growing before the pandemic – has naturally followed suit. According to figures from MergerMarket, there was solid, ongoing growth in professional services dealmaking in the midst of the first waves of COVID-19.

From 2019 to 2020, M&A in the business services market increased by 57 per cent, while in financial services dealmaking grew by 118 per cent over the same period. And that’s before we even get to the sub-sectors of professional services which have been most responsive to the challenges of the pandemic, namely those relating to technology and healthcare.

Beyond the obvious strong revenue growth that professional services firms have been racking up for years now, there are a diverse array of factors driving M&A in the sector and which point to this growth continuing in the medium to long term.

Defining professional services

Given the wide net that the term “professional services” covers, it’s important to provide some background as to what the industry comprises. Professional services is a broad designation that covers a range of highly diverse sub-sectors, generally grouped around the fact that they contain knowledge-intensive businesses providing specialist support to other businesses (B2B).

Professional services firms may include companies providing consultancy, strategy, advisory, legal, audit, accountancy, financial and market research services, as well as some firms specialising in areas such as architecture, engineering and advertising.

Of course, in the modern world, this is a sector with huge strategic and economic importance to any developed economy and the UK is no different. In 2017, the sector was calculated to contribute almost 11 per cent of the UK economy’s gross value added (approximately £186 billion) and accounted for roughly 13 per cent of UK employment (4.6 million).

According to Anjalika Bardalai, Chief Economist and Head of Research at TheCityUK: “The financial and related professional services industry is a pillar of strength for the UK, making a substantial contribution to employment, tax receipts, and the balance of payments. It’s not only a vital economic asset, but also makes a real difference to people in their daily lives, helping them save for the future, invest in a business and protect and manage risk.”

What’s been driving M&A?

PE firms with appetite and capital
A common feature among many of our sector-specific insights over the past year or so has been the growing activity spurred on by private equity firms. During the first wave of COVID-19, dealmaking was widely put on hold, enabling private equity firms to amass record levels of dry powder (unspent capital).

As economies began to open up, these firms came under pressure to deploy this dry powder and, for many private equity operators, professional services acquisitions offered the perfect opportunity to invest their capital. Private equity has taken a strong interest in professional services for several years now, with reliable recurring streams of both revenue and work attracting them to sub-sectors such as consulting and accountancy.

Of late, however, private equity has started to broaden its interest in the sector. According to law firm Mayer Brown, factors such as improved revenue modelling in higher-risk sub-sectors have seen private equity firms take a growing interest in firms such as PR and advertising agencies. Another contributor to this has likely been the challenges posed by COVID-19 attracting private equity firms to responsive sectors of professional services, such as cloud consultancy and healthcare advisory.

Overall, for acquisitive private equity firms, the professional services sector offers strong revenues, synergies between diverse businesses, the ability to acquire adjacent capabilities responsive to changing market conditions and evolving trends and the chance to acquire and consolidate businesses at scale.

Of course, private equity investment also spurs ongoing M&A activity, with private equity-backed businesses among the most acquisitive in the professional services sector.


Founded in London in 1968, consulting and technology firm Davies has grown to be a leading provider of operations, consulting and tech to the insurance industry, with around 5,000 staff operating across five countries.


A key part of the company’s growth in recent years has been M&A activity, with the business operating a buy-and-build acquisition strategy that has seen it acquire twenty consultancy and tech businesses since 2017.


This ambitious growth strategy has not gone unnoticed and, in March 2021, a majority stake in the group was acquired by private equity firm BC Partners. Announcing the deal, BC Partners said: “This new partnership will diversify and strengthen Davies shareholder base, as it seeks to drive further global expansion, increase investment in technology and digital transformation, and to continue to partner with complementary businesses via M&A.”


Since then, the buy-and-build strategy has continued, with Davies making its 20th acquisition in December 2021, with the takeover of international financial services consultancy firm Sionic. The deal added 340 consultants to Davies’ staff and further bolstered its consultancy offering.


Announcing the deal, Davies Group CEO Dan Saulter said: “Diversifying our solutions and expanding our operations globally is an important plank to our growth strategy. Through the addition of Sionic we can become more valuable to our 1,000+ global insurance and highly regulated clients.”

Impact of COVID sees new trends emerge
COVID-19 not only enabled private equity firms and other buyers to build up acquisition war chests, it also fundamentally changed the professional services market, with the pandemic creating challenges in which some areas of professional services have flourished.

Strategic advisory and M&A services firm Equiteq has noted that a defining feature of the resurgence in professional services M&A has been that certain sub-sectors have been far more buoyant than others, indicating how the pandemic has impacted the acquisitions that buyers are targeting.

Notably, one of the most significant and lasting impacts of the pandemic has been digital transformation. Companies have embraced digital transformation (or had it forced upon them) during the pandemic amidst the massive rise in working from home and the accompanying increase in cybersecurity risk.

In order to accommodate widespread flexible working, many companies have turned to cloud-based solutions, which offer both improved communication and collaboration for employees working remotely, as well as heightened cybersecurity and disaster response protocols.

One of the key trends within this has been Software as a Service (SaaS), a software licensing model in which users can access a centrally hosted (typically by a cloud provider) software infrastructure on a subscription basis from external servers.

According to Equiteq, SaaS saw the strongest demand among professional services firms during 2020, as companies sought to diversify their services offerings in the wake of rapidly escalating demand.

As well as SaaS, Equiteq also reported strong cross-sector interest in many technology-adjacent areas of professional services, including marketing, communications and information services and technology services and outsourcing, with firms keen to acquire companies offering relevant capabilities.

As with SaaS, professional services firms working in life sciences and healthcare had been popular targets even prior to the pandemic, as illustrated by Amazon’s 2019 takeover of symptom triaging platform Health Navigator. However, as noted by Equiteq, the fluctuating and ongoing nature of the pandemic had made life sciences and healthcare even more attractive to buyers in professional services, with 49 per cent saying it was their priority vertical for 2021, up from 25 per cent at the start of 2020.

Of course, COVID-19 isn’t the only factor driving M&A trends within professional services. As we’ve noted elsewhere, increasing climate awareness, corporate responsibility and tightening regulation have made environmental, social and corporate governance (ESG) a key process for many companies and this has been reflected in strong interest in ESG consultancies.


Founded in 2020 through the private equity-backed merger of three existing cloud firms, Kerv Group has rapidly become one of the fastest growing, and most acquisitive, cloud and digital services firms in the UK.


In November 2021, the group hit £50 million in turnover with the takeover of network and security firm Gyrocom, it’s third post-merger acquisition. Gyrocom is an SD-WAN specialist, providing network and security solutions to a range of high-profile clients including Dell, Cisco and Wickes.


As with its May 2021 acquisition of digital transformation firm cloudThing, the takeover of Gyrocom reflects Kerv Group’s strategy of acquiring companies with complementary organisations and capabilities.


Alastair Mills, Executive Chairman of Kerv Group, said: “Gyrocom brings important new and strategic skills to Kerv across SD-WAN and SASE in particular. Their growth trajectory and ability to win major network transformation contracts are testament to their capabilities and their product-market fit.”


Aylesh Patel, Investment Director at Kerv’s private equity backer LDC, added: “Kerv’s acquisition is a great example of a buy and build strategy in action, bringing in a complementary business to further enhance its capabilities and increase market share. We are working closely with Alastair and his team to explore more acquisitions to further expand the business.”

Strong exit prospects for buyers
For many buyers looking at the professional services sector, a key factor in their acquisition plans will be their prospects for eventually making an exit. Strong exit routes will prove tantalising for a majority of buyers, particularly private equity firms, who will typically seek to make an exit within a predetermined timeframe.

The professional services market offers owners a number of viable prospects for a successful exit and this is bound to be playing a role in the current M&A resurgence. Fundamentally, of course, the strong buyer interest in professional services firms means that owners are likely to have little problem finding willing bidders and achieving a strong valuation.

Over recent years, certain sub-sectors of professional services have seen a significant number of companies undertake IPOs and this can be a potentially extremely lucrative exit strategy for buyers. Listed law firms, in particular, are a growing market and could offer a highly attractive future exit option for buyers considering investing in a private firm.

In other professional services such as architecture, a growing number of owners are making their exits through Employee Ownership Trusts (EOTs). EOTs offer a number of upsides for owners, with the chance to sell to a ready, capable buyer that knows the business. Crucially, amid widespread expectation that capital gains tax is set to increase, EOTs offer owners the chance to exit without incurring any CGT liability.

IPO proceeds enable acquisition drives
The popularity of IPOs among professional service firms over recent years is also possible driving M&A in other ways. As we mentioned earlier, public listings can be extremely lucrative for companies and, for those with the inclination to go out and target acquisitions, an IPO can generate the capital required to do so aggressively and at scale.


Legal and professional services group Gateley went public in a 2015 IPO and, since then, hasn’t looked back as it pursues an ongoing acquisition strategy. The group recently closed the £2.5 million acquisition of Adamson Johnson, its 11th takeover since the IPO.


Founded in 2000, Adamson Johnson is a specialist in the software, pharmaceuticals, biotechnology and engineering spaces, serving a wide range of clients including national and multinational organisations, SMEs and universities.


Gateley Chief Executive Rod Waldie commented: “Gateley Legal already has an existing and strong relationship with Adamson Jones with whom we have worked previously to support clients on their patent and trade mark applications and protection requirements. We see great growth opportunities in our combined offering, with a focus on assisting our clients in protecting and commercialising their IP assets being a key element of the ongoing development of our Business Services Platform.”


“The [acquisition] means that the group has now acquired consultancy businesses, complementary to its legal services, on all four platforms. This strategy continues to differentiate Gateley, to widen our breadth of services and enhance our appeal to both existing and potential clients. We are actively appraising opportunities to further grow each platform both organically and by acquisition.”

Operators look to divest
In several other pieces, we’ve mentioned how one effect of the pandemic has been companies targeting divestments through carve-outs. Through divestments, companies can streamline their operations, shed non-performing assets and generate funds to invest in their own business or for future acquisitions.

There have also been other factors motivating divestments within professional services. For example, last year the “big four” accounting firms came under significant pressure to divest parts of their business in order to manage perceived conflicts of interest between their audit and advisory operations.

This led to several sales, including KPMG’s £360 million divestment of restructuring business Interpath Advisory. Not only did this sale enable KPMG to avoid potential conflicts, it also made strategic sense, with the company using the opportunity to later begin building a new restructuring arm.

Finally, of course, with private equity interest in the professional services industry having been strong for several years now, there will be plenty of private equity owners in the sector that are beginning to turn their attention to exiting their investments.

With private equity-driven activity in professional services only continuing to grow, divestments by private equity firms should become an even more prominent aspect of the professional services M&A landscape over the coming years.

The resurgence in professional services M&A is being driven by a range of diverse factors that look set to remain relevant over the medium to long-term.

Broadly speaking, professional service firms not only supply the fundamentals that businesses require year in year out (whether that’s accounting, consultancy or legal advisory), the sector also covers emergent firms that are proving particularly responsive to the challenges thrown up by issues such as COVID-19 and the environmental crisis.

As a result of this enduring necessity and ongoing relevance, it seems a safe bet that professional services will remain an active, thriving M&A marketplace for some time to come.

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