Callan, Mercer deal threatens independent consulting model

Ben PhillipsThe future of independent consulting firms in the US is under threat as one of the largest truly independent firms, Callan Associates, signs a definitive agreement to merge with global giant Mercer.

Ben Phillips, partner at management consulting firm, Casey Quirk, said the latest merger puts a chill into the future growth of independent consulting.

Callan, which is owned by 64 employee shareholders, was the largest of the independent US consulting firms not offering services such as implemented consulting, and Phillips – who was previously managing director and head of strategic analysis for Jefferies Putnam Lovell, the financial institutions M&A practice of Jefferies & Co. – said this latest merger announcement could mark the end of this model.

“Consultants have been looking at revenue models for some time, and beyond lifestyle firms this could be the end of independent firms not offering some product,” he said.

The defined benefit funds that have fed a lot of the general investment consulting services are not growing, and instead there has been a trend to using more specialised consulting services, something the larger firms have been offering for some time.

Phillips said independent consulting firms typically have low margins and as such find it difficult to retain the talent for
specialised offerings.

“This merger means independent consulting is under threat, but not dead, as we will likely see independents break away from the combined operations,” he said. “There are not many independents left, and those that are, are mostly lifestyle firms.”

Callan, which was founded in 1973, has more than 170 employees including 35 general consultants and 50 dedicated research specialists, operating across five distinct business lines.

Callan has more than 300 fund sponsor clients, more than 200 investment manager clients and has five US offices.

Mercer employs more than 18,000 people across 40 countries and is a global provider of consulting, outsourcing and investment services including investment consulting and multi-manager investment management.

The merger is expected to be completed at the end of the first quarter in 2009.