Accenture’s $1.3B M&A Plan: Maximum Return With A Focus On ‘The New’

‘We will never be irrational in overpaying for an asset in the market,’ the company’s interim CEO says. ‘On the other hand, we look at things through a strategic lens, and we understand that if something has significant strategic value and there’s a scarcity of the skill in the marketplace, then we make the judgment of paying a little more in those instances.’

Accenture’s interim CEO gave investors a glimpse into the company’s M&A strategy during an earnings call Thursday, saying Accenture is “very return focused” in its methodology, and has so far spent about $1.1 billion of the $1.3 billion it has budgeted for acquisitions this year.

“We will never be irrational in overpaying for an asset in the market,” interim CEO David Rowland said. “On the other hand, we look at things through a strategic lens, and we understand that if something has significant strategic value and there’s a scarcity of the skill in the marketplace, then we make the judgment of paying a little more in those instances. And there have been instances where we’ve done that. By and large, we focus on valuation because we’re very return-focused on how we execute our strategy.”

Rowland said in areas like applied intelligence, the analytics space, and Industry X.0 -- a division of Accenture that focuses on digitally transforming manufacturing -- the valuations are “super high” and the company has a “willingness” to pay more where it is the right strategic play. He said Accenture Interactive has completed nine acquisitions this year, the highest profile among them was, Droga5, a creative agency with a-list clients such as Amazon Prime, and The New York Times, which the company bought in May.

“If you look at what we’ve done year to date, I’m really pleased with how we’ve executed that,” Rowland said. “Over 80 percent of what we’ve done is focused on the new. We’ve done several deals in interactive as I called out, but we’ve also done deals in both Industry X.O and applied intelligence. We’ve also done several deals in Accenture technology, in both our intelligent platform services where we were strengthening our skills and differentiation in a few of the platforms. And then we’ve also done deals to acquire high end software engineering capabilities, again in our intelligent software engineering services.”

Accenture said all told, the acquisitions will contribute about 2 percent to growth this year. Rowland said the company is constantly checking its return on investment when it comes to acquisitions.

“As a management team we do it very rigorously, we actually review that with a finance committee of the board every quarter so it is a big focus,” he said.

Accenture posted third quarter earnings of $11.09 billion in the quarter ended May 31, up from $10.64 billion in the same quarter last year. The company had a net income of $1.26 billion for an earnings per share of $1.96.

“I couldn't be more pleased with our overall performance as we continue to execute our growth strategy and create significant value for all of our stakeholders our clients, employees and shareholders,” Rowland said. “We again delivered revenue growth well ahead of the market as well as strong profitability and free cash flow, while continuing to make substantial investments for long-term market leadership.”

Despite the good news, investors sent Accenture shares lower by $1.04 to $182.27 in afternoon trading. The company suffered a huge loss earlier this year, when long-time CEO Pierre Nanterme passed away following a lengthy battle with cancer. Rowland has stepped into the role while a search committee looks for a replacement. Rowland told investors that search should be complete by the end of August.

“Our CEO succession process is going very well,” Rowland said. “And as I said last quarter, we expect to complete the process by the end of this fiscal year.”