As 2024 starts, the U.S. stock markets are at or near their all-time highs. The S&P 500 has recently traded near 4800, close to its record at the end of 2021. It has taken two years to return to those levels, after 2022 and 2023 were burdened with interest rate hikes and fears of a recession. In that environment, very few firms sought IPOs, and there was a major slowdown in overall exits, whether private or public.
With interest rates looking like they may have peaked, and fears of a recession greatly reduced, will 2024 see a reversal of this trend? And will that mean that some of the privately held management consulting firms or other professional services companies will choose an IPO this year?
There are only a few publicly traded companies in specialty consulting. FTI Consulting and CRA International (Charles River Associates) initially come to mind. But those companies have been public for more than 20 years. Huron Consulting Group is almost that old as well. It has been some time since a professional services firm chose a public offering as a liquidity strategy.
In fact, the trend has been the reverse. The business we know today as Kroll, when it was previously known as Duff & Phelps, went private in 2013, selling to Carlyle Group and other investment partners. And Navigant Consulting, a well-known publicly traded company, finished going private in 2019, after first selling its Disputes, Forensics and Legal Technology practice to Ankura in 2018, and then selling its remaining divisions to Guidehouse.
About the only new entrant to the public markets has been KLDiscovery, a provider of e-discovery, information governance and data recovery services, which went public via a special purpose acquisition company (SPAC) transaction in 2020. While the company generated over $260 million in revenues through the first three quarters of 2023, its stock price is trading under a dollar a share, as the company is burdened with substantial debt.
So, is a public offering even a consideration for some of the large, privately held consulting companies?
It seems that the trend is to stay private. And, at least in recent years, there has been enough capital at private equity firms to handle any liquidity needs. But there are some specialty consulting businesses that have grown dramatically under PE ownership over the last four or five years. It would be interesting to see if one of these PE firms decides to launch an IPO in 2024. If the stock market remains near all-time highs, it might just be too attractive to pass up.
Kelly Kittrell has more than 30 years of merger & acquisition and corporate finance experience. He advises business owners on sell-side and buy-side transactions, valuation analysis, corporate finance and equity and debt financing. Contact Kelly at [email protected].
