By Jian Wee Soh, Kai Ye, Bharath Sivakumar, Aaren Tan, Arfred Garcia (Imperial College London), Devina Aggarwal, Atin Narain, Omar Ali, Nathaniel Matthew, Shreyas Mehta (Yale University)
Photo: Kevin Matos (Unsplash)
Overview of the deal
Acquirer: Bain Capital
Target: Guidehouse Consulting
Total Transaction Size: $5.3 billion
Closed date: 6th November 2023
Target advisor: Guggenheim Securities, Jefferies and Goldman Sachs & Co. (financial), Milbank and Covington & Burling (legal)
Acquirer advisor: Baird (financial), PricewaterhouseCoopers (accounting), Kirkland & Ellis (legal)
On Monday 6th November, the McLean consulting provider, Guidehouse, announced its plan to be acquired by the private equity giant Bain Capital for $5.3 billion. Bain Capital's financing will help the company achieve its strategic goals as it continues to expand its market share throughout the world. Guidehouse, which was previously owned by Veritas Capital, offers extensive expertise in risk consulting, technology, and management as well as business process outsourcing and digital services. Guidehouse has 55 worldwide locations and 17, 000 employees. The Bain Capital team aims to leverage these resources and operational expertise to establish a contemporary consultancy practice and provide its customers with the flexible, creative solutions required to flourish in an increasingly complicated and digital environment.
The Bain transaction takes place in the midst of a decline in private equity investment in the consulting sector and the marketplace at large. However, Joe Robbins, partner at Bain Capital, remains optimistic in saying that Guidehouse has established a clear leadership position in its space using a differentiated model built on collaboration, expertise, and great execution.
“[Bain] is excited to partner with Scott McIntyre, and his proven management team to continue growing organically and inorganically in an industry with strong, long-term fundamental tailwinds,” Scott McIntyre, CEO (Guidehouse)
Company Details (Acquirer - Bain Capital)
Bain Capital is recognized as one of the leading private investment firms in the world, boasting approximately $180 billion in assets under management. This firm, established in 1984, has made a lasting impact on its investors, teams, businesses, and the communities in which it operates. Bain Capital is known for pioneering a consulting-based approach to private equity investing, working closely with management teams to offer insights that challenge traditional thinking and contribute to building successful businesses and enhancing operations. Over time, Bain Capital has naturally extended this approach across a range of asset classes, cementing its position as a formidable player in the alternative asset sector.
Currently, Bain Capital's teams are focused on creating value through diverse investment avenues, including private equity, public equity, fixed income, credit, venture capital, and real estate. These investments span multiple sectors, industries, and geographies. The firm attributes its competitive advantage to its people and the shared values that have been a cornerstone since its founding. This philosophy has enabled Bain Capital to deliver lasting impact to a wide array of investors, including pensions, endowments, foundations, and individual investors.
Founded in: 1984 headquartered in Boston, Massachusetts
CEO: John Connaughton
Market Cap: $971.02 million
EV: 5.87 billion
LTM Revenue: $284.37 million
LTM EBITDA: $267.91 million
LTM EV/Revenue: 20.64
LTM EV/EBITDA: 21.91
Recent Transactions: Navigant (2019), Dovel Technologies (2021), Grant Thornton's public sector advisory (2022)
Company Details (Target - Guidehouse)
Guidehouse is a management consulting firm, offering an innovative blend of technology, management, and risk consulting services. The firm's unique approach merges public and private sector expertise, empowering its clients to overcome complex challenges and adapt to regulatory changes. Recognised as the third-largest healthcare consulting firm by Modern Healthcare, Guidehouse has made a significant impact in this vital sector.
Initially part of the PricewaterhouseCoopers (PwC) network, Guidehouse's trajectory shifted remarkably following its acquisition by Veritas Capital. This transition marked the beginning of an expansive phase, with strategic acquisitions such as the government arm of Grant Thornton and Navigant, further broadening the firm's expertise and reach.
Guided by CEO Scott McIntyre, whose leadership and prior role at PwC have been pivotal, Guidehouse has navigated a path of growth and success. Under his stewardship, the firm is not just growing its business but is also dedicated to fostering resilience and innovation for clients across the globe.
Founded in 2018, headquartered in Washington, D.C.
CEO: Washington, D.C.
Number of employees:
Number of employees: 12,000
2022 Revenue: $5.5bn
Projections and Assumptions
The acquisition of Guidehouse by Bain Capital comes at a time when the overall consulting market is witnessing a moderation in growth rates, and a decline in private equity investment in the consulting sector, both in the U.S. and globally. Despite this slowdown, Bain Capital sees substantial potential in the consulting domain. This deal represents a strategic move in an asset class that is currently facing challenges in finding exits and fulfilling capital returns to limited partners.
Guidehouse, a firm with a robust presence in the government consulting market, is considered an attractive acquisition due to its strong footing and expertise in advising government organizations on various issues, including healthcare, energy, defense, and financial management. Under Veritas Capital's ownership since 2018, Guidehouse has seen considerable growth, partly through strategic acquisitions such as Navigant Consulting, Dovel Technologies, and Grant Thornton’s public-sector advisory practice.
This acquisition is expected to reshape the landscape of government and business consulting, with both entities poised for a new phase of growth and collaboration. The deal signifies the continuing trend of consolidation and expansion within the consulting and advisory services sector, highlighting the resilience of the industry despite broader economic challenges.
Consulting revenue in the U.S. is slowing overall. Revenue is expected to grow by 8% to $94 billion this year after rising 10.5% in 2022 and 11.1% in 2021 (Source Global Research).
Bain’s acquisition of Guidehouse presents a chance for Bain Capital to consolidate their position in the professional services industry whilst leveraging their own operational capabilities in the governmental and risk consulting sub-sector. This presents an interesting opportunity to both companies in utilising their complementary capabilities for future growth, which may be crucial for future survival especially considering the current slowdown in overall revenue within the consulting industry.
With the geopolitical climate in the Middle East, Ukraine and many prescribing the relations between China and the USA as a classic case of Thucydides Trap, Guidehouse’ defence and energy expertise coupled with military intelligence presents strong opportunity for ‘inorganic and organic growth’ in an industry with ‘strong, long-term fundamental tailwinds’. These events are only brief heuristics surrounding the nature of the future of the US in which Guidehouse can position themselves as leading advisors. Coupling this with the expertise in operations by Bain, it presents numerous accretion opportunities in the next few years for both parties.
The US Department of Defense's (DoD) capital allocation, whether for supporting foreign interests against adversaries or focusing on homeland security, has shown cyclic trends over the past two decades. It appears that we have been at the lower end of this spending cycle since the midterms of Obama’s administration, and this coupled with the DoD’s desire to spend record amounts on R&D for FY2024 , suggests capital spending has shown little sign of slowing. Thus, this increases consulting opportunities for both Bain and Guidehouse to capitalise on, allowing them to combine their expertise to generate more revenue amidst the industry-wide slow down in consulting.
Risks and Uncertainties
The biggest uncertainty resides, firstly, in the growth prospect of the management consulting industry. According to various market research providers, the CAGR of the management consulting vertical is projected to be around 4.96% from 2023-2028, declining from 8.96% between 2015-2022. Provided that management consulting firms are cyclical in nature, Guidehouse’s management would require outstanding efforts to navigate the business operations such that they can outperform the market and deliver a reasonable risk-adjusted return for Bain Capital.
Secondly, despite having an edge at providing technology-driven consultancy, Guidehouse’s core business strategy is facing increasing competition from larger management consultancy shops such as Mckinsey, BCG and Bain & Co. Following the acquisition of Iguazio by Mckinsey, the partnership of Ashling Partners with Bain & Co and the partnership of Responsum with Elixirr, large management consultancy shops have indicated clear strategic intention to place themselves in the growing market of machine learning-driven or data analytics-driven consultancy solutions. Consequently, Guidehouse's ability to withstand this intensifying competition poses a significant uncertainty, putting pressure on both its EBITDA margin outlook and Bain's investment IRR.
Last but not least, considering the challenging margin situation, the $5.3bn transaction value, by far one of the largest occurred in the management consulting industry, inflicts a critical question – what are the exit options? To achieve a desirable IRR, Bain Capital might be compelled to sell at a substantially higher valuation for its exit. However, this implied exit valuation could prove unpalatable for other private equity investors, even if organised as part of a consortium. Moreover, given the rarity of transactions in the management consultancy vertical that match Guidehouse's scale, either financially or strategically motivated, it might be difficult for Bain Capital to exit to a strategic partner in the future. To this end, as the last conventional exit solution, IPO seemingly becomes a promising option. However, the lengthy and complicated process of IPO also entails a large amount of uncertainty that might hinder Bain Capital from deriving optimised return.
With everything said, despite challenges, many factors that currently drive uncertainties might turn into beneficial conditions for Bain Capital in the future. For example, the escalated competition in the management consultancy vertical is also driving consolidations, which will boost the likelihood of a strategic partner exit that promises favourable terms for Bain Capital.
“Guidehouse has established a clear leadership position in its space using a differentiated model built on collaboration, expertise, and great execution. We are excited to partner with Scott and his proven management team to continue growing organically and inorganically in an industry with strong, long-term fundamental tailwinds. It’s a very big market where there’s real runway growth.” Joseph Robbins, Partner (Bain Capital)