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Questioning Market Leaders For Long Term Investors


KEVIN PARRY - MANAGEMENT CONSULTING GROUP - (MMC.L)
CEO Interview - published 01/22/01

DOCUMENT # LAP014

KEVIN PARRY is the Chief Executive Officer of Management Consulting Group PLC. He joined the company on 1 January 2000 having previously been a senior partner at KPMG, London. At KPMG he was the managing partner responsible for the Information, Communications and Entertainment practice (about 15% of the UK firm). He has extensive international experience in providing professional services to clients in those sectors. He holds an MA in Management Studies from Cambridge University and is a Chartered Accountant. Editor’s Note: Management Consulting Group PLC is the umbrella organisation for the combined business of Proudfoot Consulting and the European operations of IMR (Institute of Management Resources).

Sector: Business Services

TWST: Could you just set the context for our discussion with a quick corporate profile of Proudfoot, which is now been renamed Mangement Consulting Group PLC?

Mr. Parry: Proudfoot Consulting started following a new corporate strategy on the 1st January 2000. That strategy included substantially investing in the core business of Proudfoot Consulting to improve its performance, and also making selective acquisitions in its core business and in other types of consulting businesses.

TWST: The most important of these new acquisitions has been IMR; is that right?

Mr. Parry: That’s correct. The first acquisition we made was the European operations of IMR, which stands for the Institute of Management Resources; it is a consultancy that is very similar to our own. It started in 1976 in North America and in Europe in 1986, and is headquartered in Paris.

TWST: Why does their disposal of the European operation prove so convenient from their perspective and from yours; what are they going to do outside Europe?

Mr. Parry: They’ve only got very small operations inside North America, so I think to all intents and purposes we’re buying the majority of their business. It’s owned by two Americans who started up 25 years ago, and they are retiring. From our perspective it gives us a great enhancement of the European operations: a substantial French practice that we don’t have and good-sized German and UK businesses to add to our German and UK practices. And so in the big three economies of Europe we’ll now have good-sized practices, and also smaller practices in the low countries — the Netherlands and Belgium; and in Spain and Portugal.

TWST: IMR Europe is a relatively profitable company; can you take me through what its financial highlights look like?

Mr. Parry: Its revenue is about GBP18-19 million, and it operates at a margin of about 15%, a good consulting margin. In terms of its turnover, it’s about twice the size of our European turnover and about two-thirds the size of our group turnover.

TWST: How many people does IMR Europe employ?

Mr. Parry: Just shy of 150.

TWST: If the founders, who are in the senior management team, are retiring, how will the new entity be managed; what’s going to happen at that level?

Mr. Parry: The two founders, the two vendors, in fact are not involved in management; they’re passive investors in the business, and so they are not crucial in any way to the future of the business. The management team that we’ve been dealing with haven’t been equity holders. Going forward, we are merging their European business with our European business, which incidentally is not what we intend to do with most acquisitions; it’s only because the IMR business is so similar to the Proudfoot business. The majority of the management positions going forward will actually be ex-IMR managers rather than ex-Proudfoot managers; they are bigger, they had more management infrastructure than Proudfoot had in Europe, and we were happy to give them a majority of the management positions.

TWST: One of the schemes that you’ve put in place to retain the key people is a retention pool; can you give me some details on what you’re doing there?

Mr. Parry: We’re putting $5 million worth of shares into a trust that will, over time, provide share-based incentives to people in the combined business, individuals coming either from IMR or from Proudfoot, and it will mirror exactly the existing share scheme that we have on an unfunded basis.

TWST: How is the deal going to be financed?

Mr. Parry: Partly in cash and partly in shares. It’s $19 million of cash payable on completion and $6 million of shares to the vendors, and those will be issued at the market price at the close of business on the day after the announcement of the transaction. The deal is that if those do not double in value by March 2003 we will make up the shortfall with cash or shares, at our choice.

TWST: In parallel with the acquisition, you also disposed of Proudfoot in Japan; can you tell me what happened there?

Mr. Parry: We disposed of Proudfoot Japan back on the 30th June 2000. I think that in my previous interview with you we probably noted that we were looking to sell Japan if we could get a full price for it. We eventually sold it for GBP30 million, which we judged to be a very full price, and that was settled by GBP28.5 million in cash and potentially deferred consideration of a further GBP1.5 million. So the Japan disposal significantly enhanced our balance sheet as a result of a large profit on disposal and substantial cash coming into the company. Roughly half of that was used for the cash element of the IMR acquisition.

TWST: That therefore leaves you with a fairly strong balance sheet for further acquisitions going forward?

Mr. Parry: That’s correct; the balance sheet at the end of December will still have something like GBP18 million of cash on it, with no debt. The balance sheet itself has dramatically improved from the position at the last year-end, when it had net liabilities of GBP10.5million; it will now have net assets in excess of something like GBP15 million.

TWST: As a result of the acquisition and disposal, the company is going to change its name; what’s the thinking behind this, the branding?

Mr. Parry: What we’re doing is changing the name of the Group as far as the City is concerned, although we will continue to keep the Proudfoot name for going to market for our client purposes. The reason we wanted to do this is that in time we wish to have a collection of consultancies with their own brands operating in their own particular parts of the marketplace. Our feeling is that it is better not to confuse the name of the holding company with one particular consultancy offering, namely Proudfoot, but better to have a relatively bland but hopefully descriptive name for the company, and then we’ll have any number of brands underneath, that go to market with their own particular offerings.

TWST: Post-acquisition, how will the revenue streams of Proudfoot look; how will they be split geographically?

Mr. Parry: It will be relatively even. Something in excess of around 37%-38% of the revenue will come from Europe, about 33%-34% from North America and the remaining balance will be Asia-Pacific, if you include our Japanese affiliate. That gives us not as heavy North American revenue as I would like to see, but it’s inevitable when you’re making a European acquisition that the percentages are distorted, at least in the short term. But it remains our view that something like 60%-65% of our revenue should be from the North American marketplace.

TWST: Turnover growth is expected to be 15%-20% over the second half; is that reasonable?

Mr. Parry: Very much so. What we have said is that we are firm in our view that we will exceed market rates of growth in the second half, and I would share your view that market rates of growth will be 15%-20%, and therefore I think it’s fair to say we will exceed that.

TWST: With the strategic review complete and largely implemented, what’s going to be the next task on your desk?

Mr. Parry: First, we’ll continue to drive it forward. Whilst a lot of progress has been made in 2000, I still think there is a lot more progress to come, and that clearly remains a core priority for 2001. Secondly, one should never forget how many people-acquisitions actually fail, and time, effort and clearly hard work are required to make sure this isn’t another one to add to that pile. And thirdly, we will be continuing with the acquisition strategy, most likely looking to diversify into other types of consultancy, although I would never rule out a good tactical infill, but most likely diversification into other types of consulting.

TWST: Thank you. (OK)

KEVIN PARRY
Chief Executive Officer
Management Consulting Group PLC
11th Floor
21 New Fetter Lane
London EC4A 1AW
United kingdom
+44 (0)20 7832 3700
+44 (0)20 7832 3601—FAX
Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This Interview with Kevin Parry, CEO, Management Consulting Group Plc, is accompanied by an Investors Brief containing corporate information.

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