over 1 year ago • 3 mins
Professional services firm Deloitte reported record annual revenues on Thursday.
What does this mean?
Deloitte’s the biggest of the “Big Four” professional services firms, a group of top-tier brain-for-rent companies that lend accounting and consulting expertise to businesses. And now that firms are shaking things up – improving online customer support, updating systems, toughening supply chains, you name it – in the wake of Covid, the big dog’s services have never been so sought after. That might explain why consulting revenues are up 24% in the last financial year from the one before, taking gold as the firm’s fastest-growing segment. Auditing and assurance revenues were up 9% too: after all, with more companies sharing information about their environmental impact, more auditors are needed to review those riveting reports. For Deloitte, that means record-breaking total revenues, jumping 18% to within touching distance of $60 billion.
Why should I care?
The bigger picture: Pivotal partnerships.
A big chunk of those sales – a cool $16 billion – came from partnering with huge tech groups to bring services like AWS and Salesforce to more customers. Not every “Big Four” titan can take this tack: rival firm EY audits a whole host of tech companies, so conflict of interest rules mean it can’t form the same lucrative partnerships that Deloitte’s hoovering up. That’s one of the main reasons EY’s planning to separate its audit and advisory businesses, so it can bid farewell to those constraints and say a cheery hello to beefed-up consulting revenues.
Zooming out: Take a hike. Or ten.
Still, Deloitte might struggle to repeat that success this year. The European Central Bank increased interest rates by 0.75% – taking them to their highest since 2011 – on Thursday, and warned more hikes are likely on the way to help control inflation. With the Federal Reserve likely to follow suit in the coming weeks, the next few months could feature more hikes than a weekend in Yosemite, making loans more expensive for businesses and leaving them with less cash to splash on Deloitte’s special services.
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Melrose Industries announced plans on Thursday to spin off GKN’s automotive business.
What does this mean?
Melrose is a well-known turnaround specialist, meaning the FTSE 100-listed company acquires struggling firms, tightens their operations, and re-sells them for a healthy profit at a later date. (Think house flipping, but for businesses instead of buildings.) So when Melrose bought GKN – a British car and aerospace parts manufacturer – for £8 billion ($9 billion) back in 2018, investors knew it would eventually want to cash in on its work. Looks like that time has come: Melrose has spent those years carefully crafting GKN’s auto business – one of the world’s leading suppliers of vehicle drive shafts – into a slimmed-down, polished-up version of its former self. Now it’s planning to separate it from GKN’s aerospace arm completely, and list the newly independent spin-off on the stock market as soon as next year.
Why should I care?
The bigger picture: United we fall, divided we stand.
This is a clever play by Melrose: breaking up GKN lets it focus in on the aero segment while freeing up resources for other potential deals. On top of that, it should help GKN’s businesses steer clear of the dreaded “conglomerate discount” phenomenon, when investors – skeptical about how effectively sprawling conglomerates can manage their various offshoots – tend to value straightforward, “pure-play” businesses more highly. So by splitting up GKN, Melrose is hoping to get more for two parts than it would for one whole.
Zooming out: (Dis)united in our grief.
The pound fell to its lowest level against the dollar since 1985 this week. That’s bad news for the economy, but not so much for GKN and other UK businesses with major business overseas. After all, a weaker pound makes their offerings cheaper to international buyers, so don’t be surprised if a few British CEOs seem less than dismayed by the news.
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