Public sector consulting: Firms need to find and follow the growth areas
A proposed deal in which private equity firm Allegro Funds will buy PwC’s public sector business raises questions about the future of a globally important consulting market.
Although this sale is driven by a very specific set of circumstances, private equity firms are increasingly active in the professional services space. The outcome of those investments, whether they involve a trade sale or a public offering, depends on being able to demonstrate to investors that there’s a sizeable addressable market for a firm’s services that’s likely to grow at above average rates. And the deal between Allegro and PwC makes us wonder: Is that true for public sector consulting?
The answer to the first part of the question—size—is relatively straightforward. We estimate that public sector consulting will account for around 10% of all consulting globally in 2023, approximately $25bn. North America dominates, with around 41% of the market, some way ahead of the Europe and APAC markets, which we estimate to have about 29% and 21% of the total, respectively.
The answer to second part—growth—is much more contentious, not least because the size of many firms’ public sector practices means that potential changes here will always be carefully scrutinised and often hotly contested. Growth rates vary substantially by country, reflecting different national approaches to the use of external advisers in public institutions. There’s also a roughly positive correlation between the rate of growth and the proportion of consulting revenues that come from the public sector in a given market. Twenty-four percent of the Middle East consulting market (primarily the UAE and Saudi Arabia) comes from the public sector, more than twice the average percentage, and public sector consulting here is expected to grow at a CAGR 2022-24 of 10%, compared to 7% across all other regions.