Hewitt Associates' plan to purchase premier independent investment consultant Ennis Knupp & Associates should accelerate merger-and-acquisition talks in the sector, as the prospect of a new global heavyweight prompts competitors to critically assess their own capabilities.
Executives at some of the consulting firms cited by industry observers as the leading acquisition targets — including Cambridge, Mass.-based NEPC LLC and Callan Associates LLC of San Francisco — have sworn to maintain their independence, even as cynics insist that everyone ultimately has a price.
Until July 20, when Hewitt and Ennis Knupp announced their plans to unite, Chicago-based Ennis' status as an employee-owned firm was widely seen as a cornerstone of its culture.
But top executives at both firms said combining Lincolnshire, Ill.-based Hewitt, a global human resources and benefits consulting giant with a relatively small U.S. defined benefit investment consulting operation, and Ennis, a U.S. investment consulting heavyweight with global ambitions, would provide a quantum leap for their respective business plans.
Terms of the deal weren't disclosed.
A Hewitt-Ennis combination capable of boasting $3 trillion in worldwide assets under advisement will prompt all players to “re-examine the competitive landscape,” and ask themselves if they're where they want to be, noted Tim Barron, president and CEO of Darien, Conn.-based investment consultant Rogerscasey LLC.
The acquisition could light a fire under potential acquirers, some predict. Market watchers say deep-pocketed benefits consulting firms, including Towers Watson & Co., Mercer LLC and Hewitt/Aon could remain on the hunt, along with high-net-worth players such as Morgan Stanley Smith Barney and Wells-Wachovia and some foreign players as well.
Executives with bulge-bracket firms, saying an ever more complex investment environment should play to their strengths, seem open to further consolidation.
The market is at a point where a strong global player who understands both sides of the balance sheet — with human resource/actuarial expertise and strengths in investment consulting like Hewitt — will enjoy growing opportunities, said Ari Jacobs, Hewitt's global retirement strategy and solutions leader. He didn't rule out the possibility of further acquisitions by Hewitt.
With the cost of researching the plethora of investment opportunities continuing to climb, access to capital and economies of scale is increasingly important, said Carl Hess, global director, investments, at Towers Watson in New York. With the goal of being a “significant player” in every business it competes in, Towers Watson will do whatever it takes to ensure that, he said.
Executives at Hewitt and Ennis said the strengths of their two firms complement each other, setting the stage for a more perfect global competitor.
Stephen Cummings, president and CEO of Ennis Knupp, said in an interview that his firm, with $2 trillion in U.S. tax-exempt institutional assets under advisement, was dedicated to becoming a global player and developing a delegated consulting business, where a consultant assumes fiduciary oversight of a client's portfolio — two areas where Hewitt offered a ready-made solution.
Mr. Jacobs said Hewitt was looking to become a bigger player in the U.S. investment consulting market — where it ranked only 15th as of June 30, 2009, with $151 billion in assets under advisement — and develop expertise in alternative asset classes, including private equity, hedge funds and real estate. Ennis Knupp's relative strengths in those areas made it a “wonderful fit,” he said.