Acquisitions are becoming one of the most recurrent ways for companies to continue their growth. A clear example is Accenture, which continues with its ambitious acquisition strategy with the latest purchase of Fairway Technologies. In this post we analyse the great activity that the consultancy firm is having in corporate finance, as well as the impact on its valuation.
Accenture is a multinational company headquartered in Ireland which provides consultancy, digital, technology and strategy services for thes business in more than 120 countries. Listed in the Fortune Global 500, it is considered one of the largest global consulting firms.
Its customers include more than 75% of Fortune 500 companies and more than 80% of IBEX companies. Its business is divided into six different divisions:
Looking at Accenture's different lines of business, it can be seen that in the early 2010s the company changed its approach to the services it provides. It undertook a major transformation of its business, investing heavily in technology, leaving behind the more traditional consulting services and committing to digital transformation.
With an investment of more than 600 million in the digital space, Accenture is responding to the strong growth of the digital environment through the internet and mobility, having been able to position itself as a benchmark in the provision of services in the digital transformation of companies.
Accenture has made a strong commitment to acquisitions over the past year, budgeting close to $$1.5 billion in its latest annual accounts for the purpose. With more than 15 acquisitions so far this year, August has undoubtedly been the most active month, with the procurement of 5 companies:
These latest acquisitions confirm the strategic direction Accenture has been taking over the last decade in its commitment to the digital world.
However, such intense corporate finance activity may have implications for your financial statements, your valuation and its performance in the financial markets. We turn to Accenture's expectations for the future.
The strong global development experienced in recent years across the world following the 2008 crisis coupled with increased demand for consulting services has helped Accenture achieve steady and consistent sales growth in recent years. Last year it achieved a 14% increase in sales led by its technology businesses across North America, Europe and emerging markets.
All other items grew at a similar pace, underscoring Accenture's ability to continue to grow steadily and without impacting margins.
Special mention should be made of ROE, which is particularly high compared to other industries. In the consulting sector this ratio is usually high due to the very nature of the business, although in the case of Accenture it is slightly higher than that of the sector, which is around 35%.
Moreover, estimates for the coming years are along the same lines, indicating that Accenture's strategy of inorganic growth will pay off.
As far as the balance sheet is concerned, it can be seen that the increase in assets has been partly financed with own funds and partly with borrowed funds, without the latter representing an excessive percentage as they follow the same line of growth.
Importantly, although the likely slowdown in global growth over the next few years may affect Accenture's business, its long-term contracts reduce this risk. Also, its strategic position as a leader in outsourcing services may be enhanced by its clients' efforts to reduce costs and increase savings.
As can be seen, Accenture's multiples are above the average for the sector in which it operates. Moreover, the current premium over these multiples is even higher than the historical premium it has been offering.
Thus, despite being high ratios, due to the current financial statements and forecasts, as well as the acquisitions it has carried out in the last year that can create important synergies, it can be thought that Accenture's price does not yet reflect the full value it is managing to create.
As can be seen in the chart, Accenture's share price has risen sharply since the beginning of the year, when the company's ambitious acquisition strategy began, which may indicate that the share price has begun to reflect the value created by the acquisitions.