Background

In April 2020, as CohnReznick’s advisory platform continued to expand, firm leadership decided to reorganize advisory into three pillars: Value360, Global Consulting Solutions, and Public Sector. The intention was to make the group more manageable by having practices that shared similar characteristics including clients and go-to-market strategies. 

The initiative has been a solid success. It has led to stronger collaboration and the ability to service our clients in a more structured and seamless way. For leadership, it has driven more informed decisions, sharpened focus on where to prioritize investments, and allowed us to react quicker to changing market conditions. 

Value 360 has been able to develop a more diversified service offering to help us weather business and economic cycles. Like our clients, we are in business to grow and create value for our stakeholders. 

At the time of the advisory reorganization, Value360 had four practice areas (Transaction Advisory, Restructuring and Dispute Resolution, Valuation Advisory, and Project Finance Consulting). The goal was to provide turnkey services to clients across the lifecycle of their business, typically involving a transaction or business event. Value360 has since expanded to offer three new practice areas: M&A Insurance Advisory, Financial Modeling and Decision Analytics, and Performance Improvement/Value Creation. Our growth, with the exception of M&A Insurance Advisory, has been organic. 

2023: Analysis of a Transitional Year

Following almost a decade of year-over-year growth, 2023 ended as a difficult year for Value360 and our clients. A year earlier, the economy emerged from the COVID-19 pandemic with high consumer demand fueled by outsized government stimulus and a low interest rate environment. Our practice supported a record number of transactions in both the public and private sector. There was easy access to “unlimited capital” for both debt and equity, and we can look back on this time as a “mini gold rush”. 

The flip side of this activity was that, starting in the second half of 2021 and through 2022, demand for labor was unprecedented. People had to step up and work harder and longer hours than before. With robust demand for labor, wage growth grew exponentially, and employees could name their price. Voluntary attrition hit record levels. Despite this, Value360 emerged with flying colors, achieving record results and profitability. 

While we did see cracks in the armor emerging during the middle of 2022, I don’t think anyone was prepared for the slowdown we experienced in 2023. Inflation rose to levels we had not seen in decades and the Fed attempted to counter this by significantly raising interest rates. COVID stimulus, which not only contributed to spending but allowed businesses struggling prior to the pandemic to weather the storm, had run out. With that came uncertainty, all of which doesn’t bode well for the financial markets. 

During Q1 2023, Value360 predicted that it would not be another growth year for the practice. If anything, it was determining how steep the decline in revenue and profitability might be. About 60-65% of our revenues are driven from the M&A and Capital Markets, primarily from Transaction Advisory Services (Due diligence/QofE), M&A Insurance Advisory (RWI underwriting diligence), and Valuation Advisory. 

According to the Wall Street Journal, this assessment from Bain & Co. speaks to the headwinds we and the deal-making community experienced last year: “Global M&A is on track to fall 20% in 2023 compared with 2022, to a total value of about $3 trillion…Deal making was down especially for venture capital and private-equity firms, which saw estimated 39% and 35% declines, respectively. Strategic deals—in which a company buys or sells all or part of another company—fell by an estimated 14%.”

Overall, Value360 revenue is on track to end the year down by about 8%. Growth in our Dispute Resolution, Valuation Advisory (non - M&A), Performance Improvement, and Project Finance Consulting and Infrastructure Advisory allowed us to diversify the risks in M&A, which declined by approximately 20% profitability and is on track to decline by a higher percentage due to excess capacity in our teams as a result of the slowdown. Luckily, we were able to redeploy our resources into areas that were growing within Value360 and across the broader CohnReznick advisory platform. 

Looking Ahead

As I think about leadership challenges in a year of decline, there were important lessons learned. While none of us can control a negative macroeconomic environment, we can adjust our business model to lessen the impact. This includes deepening our bench strength and further diversifying our services. What we discovered was that we were too heavily weighted in M&A coming into 2023. Instead, like many others, we had been drinking from a firehose in a crazy M&A environment, knowing that it could not sustain itself forever. 

So, how are we approaching the year ahead? In 2024, we are focused on investing in all areas of our practice. However, we are prioritizing the investment and are focused on reducing our exposure to M&A while also looking for other areas to expand. I am optimistic that if we execute our strategic plan, even if M&A and Capital Markets are slow to come back, 2024 will be a growth year for Value360.

We know where the opportunities are, and our team is ready.