Consulting firm hot sectors

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The consulting firm M&A market has been heating up considerably in 2014, and we’ve seen some particularly ‘in demand’ specialisms emerging.

Serial buyers of consultancies have highlighted to us three key areas of interest:

1. Cyber security / cloud configuration / data analytical capabilities

Seismic advances in technology and the pivotal role this plays in business means IT presents more challenges and opportunities for commerce:

  • Cyber: While IT security has been around a long time, online channels of business have increased the levels of threat and heightened the demand for IT and cyber/online security services;
  • Cloud: Cloud-based delivery of software has been present in consumer markets for many years (Gmail), and it is increasingly common place for businesses as well, with the popularity of firms like Salesforce.com (CRM) and Workday (HR).
  • Analytics: Data has amassed exponentially with an increased business reliance on IT, and this presents fertile ground in which new insights can be obtained. However, the right strategy, skills and tools are required to mine and make use of the data.

Consultancies therefore need to keep pace with these technology changes and be able to advise their clients on making use or reacting to these changes, in order to remain relevant through this transition and in a competitive technology consulting market. Ultimately, buyers of IT consultancies are looking to gain expertise and insights into these areas through acquisition, and having profitable, scalable, ‘leveragable’ and secure technology-based intellectual property associated with the above areas will be an important aspect of what buyers are looking for beyond the buzz words.

2. Operational excellence

Managing businesses so that they are running at peak efficiency, minimum costs, maximum capabilities, and making the best use of technology are business priorities that increase in demand in tough economic climates, but which are also highly relevant in economic up cycles to maximize profits. Consultancies that have a track record in helping organizations achieve this are of particular interest to buyers. However, it is not enough to simply have capabilities in operational excellence. Buyers are looking for firms that leverage technologies to help deliver these capabilities.

3. Customer channel management

Servicing customer needs and delivering products and services through the multiple customer channels currently available, including web, social media, mobile and e-commerce platforms remains a critical and evolving business priority. Traditionally, media and marketing consultancies have been the home for advice on customer needs. However, with the ongoing reliance on technology for customer channels, the need for both media and technology skills in this space have become commonplace for customer journey mapping and content marketing.

Hot or not, fundamentals are the same.

How does this translate into M&A activity?

It is important to recognize that regardless whether you are in a hot area, the fundamentals of what buyers look for remains the same.

Firstly, it’s not enough to give lip service to the areas above on your consultancy’s website or in marketing materials. Buyers are looking for more than just expertise. Demonstrable capabilities, unique market presence and profitable propositions are key to buyer attractiveness. Without these, a buyer could see your firm as a collection of skilled individuals that could otherwise be hired in.

For a consultancy to be attractive to buyers, it is important to have both a market focus and a set of unique capabilities that can be leveraged across the buyer’s network – regardless of whether you’re in a ‘hot’ sector or not.

Intellectual property (IP) built into your firm, a strong Unique Value Proposition (UVP), growing sales…these are all key parts of building a successful and investable firm and are explained in our 8 Levers of Equity Value. The 8 levers contain 80 of the most important measures that a sophisticated buyer would look at to evaluate the risk in your business.

For more insights from buyers, read the 2014 Equiteq Buyers Research Report here.

Consulting Sector M&A Deals for week beginning 6th October

businessman doing handstand on the beachAubay Société Anonyme (France) acquired 76% stake in Norma 4 Sa (Spain)
Deal Size: Unspecified Industry: IT consulting Date: October 2014
Aubay Group has announced the acquisition of a 76% stake in Spanish company Norma4, which is primarily located in Madrid and which specialises in software development, production support and technological consulting services. Generating revenues of around €15 million, Norma4’s 285 employees work essentially within the banking sector for strategic accounts such as Banco Santander and BBVA. The acquisition will strengthen Aubay’s position in the banking industry in Spain, and means that the Group now works with virtually all of the financial institutions of the countries in which its consultants operate. Following the acquisition which is financed entirely in cash, Aubay now employs over 500 members of staff across Spain and Portugal, leaving it ideally placed to capitalise on the recovery that is progressively taking shape across the region. The acquisition will be consolidated in the Group’s accounts from 1 October 2014. NORMA 4, SERVICIOS INFORMÁTICOS, S.A. offers software development, production support, and technological consulting services. Aubay Société Anonyme, an integration and technology consultancy company, specialises in information and industrial systems, networks, and telecommunications in France, Belgium, Spain, Portugal, Italy, and Luxembourg.

Luxoft Holding, Inc. (Switzerland) acquired Radius Inc. (USA)
Deal Size: Unspecified Industry: IT consulting Date: October 2014
Luxoft Holding, Inc said that it has acquired Radius Inc., a US-based solution provider focused on the growing Internet of Things industry. The Radius technology team and solution portfolio will bring in-depth technical capability that is complementary to Luxoft´s current technology profile. Luxoft will now have the ability to offer specialty expertise around sensor data acquisition, real-time analytics and modern cloud platforms. Further, IoT-related domain knowledge will create enhanced productivity and time-to-market for Luxoft´s existing clients in automotive, energy, technology and telecom verticals. “We consider the acquisition of Radius to be instrumental to further differentiation and development of our company as an innovation driven provider of complex services and solutions,” said Luxoft CEO and President Dmitry Loschinin. “The subject of IoT is a very new concept which we believe has a tremendous potential for large and small enterprises around the world. Radius is a fast growing company with advanced engineering expertise and impressive client base of Fortune 500 accounts, both of which are complementary to Luxoft. We are excited about this opportunity, which allows us to expand cross-vertical, end-to-end offerings we bring to our clients globally.” Luxoft Holding, Inc., together with its subsidiaries, provides software development services and IT solutions to multinational corporations primarily in Western Europe and North America. Radius provides mobile, cloud, data, business intelligence and project management solutions.

UST Global Inc. (USA) acquired TCP (Spain)
Deal Size: Unspecified Industry: IT consulting Date: October 2014
UST Global announced that it has acquired TCP, an IT consulting company specialising in the development and integration of advanced technology solutions and IT services. TCP provides the scale of operations that UST is looking for in terms of serving both Spanish and European markets, as it reinforces the company’s strong focus on the Banking and Telecom verticals. The acquisition gives UST Global access to the largest companies operating in Spain and opens up prospects of expansion into European, Latin American and African markets. With this acquisition TCP employees will benefit from UST Global’s local and international professional development opportunities. Commenting on the acquisition Manu Gopinath, UST Global’s Head of Emerging Markets and Global Head of HR, said “Both companies perfectly complement each other. This is UST Global’s second acquisition in Spain and the deal will reinforce our market presence, contributing to better serving our current and prospective Spanish, Latin American and European customers. For UST Global this is the best way to consolidate our presence in the Spanish market, gearing our operations towards growth. TCP employees will also have opportunities for career development in a global organisation that is committed to promoting talent management.” UST Global is a leading provider of end-to-end IT Services and Solutions for Global 1000 companies. TCP Sistemas e Ingenieria SL provides Information Technology based consulting services. Continue reading

Run your company as if it’s for sale

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Tony Rice, Partner at Equiteq, shares some advice.

I spoke with the owner of a consulting firm this week who said something that resonated very strongly with me and our work here at Equiteq. He said, “We are not selling our firm, and may never do so, but we run it as if it’s for sale”.

I wish I could have coined that phrase! It’s a mantra I highly recommend for the following three reasons, depending on your strategy for the future:

  1. Never to sell the firm – It’s great for cash flow, sales and profit growth, and sustainability of growth. By running your company as if it’s for sale, you will always be improving performance, reducing risks in the business and making it a more secure place to work for you and your employees. If you are never planning to sell your firm you may not want to make it an attractive acquisition target, but by default you will make it a more attractive place to work for employees, and for clients to ‘work with’.
  2. To sell or not to sell – We often meet owners who have not yet crystallized whether a future sale of the business is the chosen direction; exit strategy is not yet, or may never be on the agenda. In our experience things often change. Time moves on, people get tired of 18 hours days, circumstances alter. If you are not convinced that your business will never be for sale, then why risk having an unsellable or low value business if and when your mind changes?
  3. Planning to sell – It’s never too early to start the process of preparing for a sale. You may have a plan to do it in three or five years’ time, but most quality firms get approached by buyers before that. It may be an opportunity too good to miss and if you delayed the start of turning your business into a more desirable asset, then you are also delaying your value growth and the probability of a successful sale will be reduced.

If the mantra resonates with you as it does me, then a great place to start is understanding the 8 Levers of Equity Value and download our book, 100 Tips to Accelerate Profit and Value Growth.

Consulting Sector M&A Deals for week beginning 29th September

businessman doing handstand on the beachBP3 Global Inc. (USA) acquired Modexe Ltd. (UK)
Deal Size: Unspecified Industry: IT consulting Date: September 2014
BP3 Global, an Austin, TX based provider of business process management (BPM) services and solutions, announced that it has acquired the interests of Modexe Ltd, a London, UK based consultancy focused on IBM BPM and Operational Decision Management implementations. The union of the two geographic leaders provides customers with an unparalleled range of IBM Smarter Process services and tools. The purchase of Modexe further increases BP3’s footprint in the BPM services market. Founded in 2007, BP3 has become the premier IBM Smarter Process software and services partner in the US and has more experience deploying BPM throughout the Fortune 500 than any other independent firm. The acquisition of Modexe, a European partner for IBM BPM and ODM, positions BP3 as the leading provider of BPM services across both North America and Europe. “We’re excited about our official expansion into the European market and welcome the Modexe staff and customers to our unique culture,” said BP3 CEO and Co-Founder Lance Gibbs. “While we currently have consultants based in Europe, a European headquarters will allow BP3 to both continue the rapid growth we have experienced over the past several years and to add more effective customer service for international customers. Modexe employs a group of dedicated BPM delivery professionals and I am confident that their addition to our team will further our mission to provide great customer experiences with BPM around the world.” Modexe Ltd. operates as a specialist consultancy focusing on IBM business process management and operational decision management technologies.

HSMC Orizon LLC (USA) acquired It21-Consult Gmbh (Germany)
Deal Size: Unspecified Industry: IT consulting Date: September 2014
HSMC Orizon Technology announces the acquisition of IT 21, a perfect fit for the firm’s IT growth strategy. As the firm’s new leader, Michael Bohning’s first challenge was to find a technology consulting firm to strengthen HSMC Orizon Technology’s managed IT services business and, with the right opportunity, a firm that would increase their geographic coverage locally, nationally and internationally. He found both in Olathe-based firm IT21, founded by Chuck Nuffer and Rick Mentel. As of September 1, 2014, HSMC Orizon Technology acquired the assets of IT21, boosting the firm’s technology staff and services. “IT21 brings experienced staff, mature systems and proven procedures to proactively help clients manage technology. Their Quality of Service client service model fits perfectly with HSMC Orizon Technology’s client-centered approach to growing our managed technology services business,” explains Bohning. HSMC Orizon is an award winning accounting and consulting firm providing accounting, tax, audit/assurance and business advisory services. It21-Consult Gmbh offers managed IT services and information systems consulting services.

Huron Consulting Group Inc. (USA) acquired Threshold Consulting, Inc. (USA)
Deal Size: Unspecified Industry: IT consulting Date: September 2014
Huron Consulting Group Inc. a leading provider of business consulting services, announced that the Company completed its acquisition of Threshold Consulting, Inc. Threshold provides cloud-based Software as a Service (SaaS) applications, data warehousing and business intelligence (BI) solutions, as well as customer relationship management (CRM) consulting capabilities. Threshold’s business complements Huron’s existing enterprise performance management (EPM), BI and analytics offerings to the office of the CFO and adds deeper CIO-centric solutions including data warehousing, data modeling and information governance capabilities, while also providing an entry into Salesforce.com CRM implementation services. Threshold is a Salesforce.com registered Silver Cloud Alliance Partner and Huron is a Platinum level member of Oracle PartnerNetwork (OPN). Threshold Consulting Services, Inc. provides information asset management services to the United States and international clients. The company specialises in data warehousing, including data integration and repositories, as well as business intelligence, enterprise performance management, scorecards and dashboards, financial planning and reporting, and compliance solutions. Huron Consulting Group Inc. provides operational and financial consulting services in the United States. Continue reading

Is now a good time to sell your consulting firm?

research cropped Imagine you had the opportunity to sit down in front of potential buyers of your firm and ask them questions about their buying strategy, what would you ask them? That’s exactly what we went through in constructing the questionnaire for our first Equiteq buyers report. We wanted to make sure we were focusing on questions that would help you decide whether now is a good time to sell and also help you assess what expectations you should have. We even brought together chief executives of several consulting firms to ensure that our questions were right on the mark. The result is more than 100 interviews with some of the major buyers of consulting businesses in the US and Europe who provide some fresh and thought provoking insights. They help pinpoint exactly what buyers are looking for over the next two to three years, whether they’re looking to buy more or less, and what types of deal structures and earn-outs are being used.

Highlights from the research include:

  • More than a six percent growth in deals is expected over the next two to three years – heralding the first big growth rate for eight years.
  • Nearly a third of buyers said they expected their growth to come through acquisitions rather than organically and an equal number are seeing more opportunities to buy than last year.
  • The average budget over the next year for those doing two acquisitions or more is $90m and for those doing one acquisition it is $35m. Nearly one in six of the buyers surveyed have budgets in excess of $100m.

The 2014 Equiteq buyers report hopefully answers the questions you would want to ask. It will help you decide whether you’re likely to get a premium price or not. It pinpoints the problems in bringing a deal to a successful conclusion. And hopefully, it answers the question as to whether now is a good time to sell.

Read the 2014 Equiteq Buyers Research Report here.

Consulting Sector M&A Deals for week beginning 22nd September

businessman doing handstand on the beachRPS Group plc. (UK) to acquire Point Project Management (Australia)
Deal Size: $27.7 million Industry: Management consulting / Strategy Date: September 2014
RPS is acquiring the entire share capital of Point for A$31.0 million (€21.5 million), all payable in cash. Founded in 2006, Point Project Management is headquartered in Canberra and has offices in seven other Australian cities. The company, which employs approximately 130 permanent staff, provides services to the defence, transport, residential, retail, health and commercial property development industries. “Point has an excellent reputation and track record, particularly in the Australian defence sector. Its skills will complement the services RPS currently provides in Australia and enable us further to rebalance our business towards the non-resources parts of the economy,” said RPS chief executive Alan Hearne. Point Project Management Pty Ltd offers project management consultancy services. RPS Group PLC provides advice for the exploration and production of oil and gas and other natural resources; and development and management of the built and natural environment.

Arthur J Gallagher & Co. (USA) acquired The Benfield Group LLC (USA)
Deal Size: Unspecified Industry: Healthcare consulting Date: September 2014
Arthur J. Gallagher & Co. has declared the acquisition of The Benfield Group. The move marks an effort by the company to ramp up its employee benefit business. St. Louis-based Benfield Group is a healthcare market research, strategy and communications firm offering services in the U.S. It specialises in helping healthcare companies and enabling them to develop and implement effective employer strategies. It also conducts research on consumers, patients and physicians, thereby providing employers with strategic communications support. Hence, with this acquisition, Arthur J. Gallagher has added another feather to its cap. Arthur J. Gallagher has been focused on its employee benefit business and has been consistently strengthening the same. Its year-to-date acquisition tally touches 28, out of which 10 acquisitions, including the latest one, are in the employee benefit business. Arthur J. Gallagher & Co., together with its subsidiaries, provides insurance brokerage and risk management services in the United States and internationally. The Benfield Group LLC provides health care market research, strategy, and communications services in the United States.

The Aldridge Company, Inc. (USA) acquired Tydan IT (USA)
Deal Size: Unspecified Industry: IT consulting Date: September 2014
Two major Texas MSPs have combined forces to provide first-response support and better serve small and medium-sized enterprises (SMEs). Technology management and consulting company Aldridge has acquired Tydan IT, a provider of managed IT services concentrated in the Austin area. Aldridge, a leading provider of information technology (IT) outsourcing with elite first-response support, announced the completion of its acquisition of Tydan IT, a managed IT services specialist for small and medium-sized enterprises (SMEs) in the Austin, Texas area. Terms of the agreement were not disclosed. Clients of Tydan IT will benefit from accessing Aldridge’s mature and growing managed services practice. By providing senior knowledge on a daily and ongoing basis, Aldridge simplifies IT operations and provides faster resolution of IT issues. Tydan IT’s personnel will be retained and integrated into Aldridge’s operations. Aldridge has appointed Tydan IT Founder and CEO, Mark Glowacz, as Vice President, and he will lead Aldridge’s growing Austin office. Glowacz will report to Aldridge President and COO Patrick Wiley. “Austin is booming with a lot of startups as well as established and growing companies that are open to business best practices and can now benefit from outsourcing their IT management to Aldridge,” said Glowacz. With the Tydan IT acquisition, Aldridge enables business executives in the Austin area to save time, energy and money through a broad range of outsourced custom IT services, such as: Managed services, Professional services, Could services. The Aldridge Company, Inc. operates as a technology management, consulting, and outsourcing company in the United States. Continue reading

The Myth of the ‘Hungry Buyer’

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The myth of the ‘hungry buyer’ is one of the most prevalent and dangerous traps that you can fall into as an inexperienced seller. There is a common belief that the success or failure of a deal rests on how much a buyer wants to acquire your company, as opposed to a forensic analysis of how it will generate future profit streams. This is not always the case and this belief can harm your prospects on making the deal happen.

If sellers focus on the ‘hungry buyer’ myth, they are likely to concentrate too much on getting emotional buy-in. While there is a need to build up momentum and entice the buyer throughout the process, it is more important to develop a clear buyer proposition, based on real evidence, as to why your business is of value to them.

What should the buyer proposition be based on? One of the key elements is that it needs to be tailored to the potential buyers and their needs, at all stages in the process, not just during negotiations. For example, when approaching a pool of say 100 potential buyers with the initial blind profile, or teaser, you can’t expect to generate positive responses across the board if these documents are not tailored to the typical needs of each category of buyers in the pool. You need to understand what their needs are and why they would be interested in a company like yours. This is one of the key roles of an intermediary such as us.

By starting with buyer categories and drilling into specific buyers as the sale process progresses you can develop the ‘story’ of the business in a way which relates to what the buyer wants. You can highlight your strengths and strategy in a way which is most relevant to what the buyer wants and also address any concerns they may have at an early stage. This will help increase the chances of hooking their interest, both emotionally and logically based on a future profit business case, and help them be prepared to pay a premium price when the case is signed off at board level.

The second purpose of a buyer proposition is to build trust and confidence in what you are selling. It is very easy to present an overly rosy picture of how your business is going to perform in the future. However over optimistic forecasting is often revealed at the due diligence stage and can potentially lead to a breakdown in negotiations, or at least a reduction in the equity value.

What’s important in the proposition is to demonstrate hard evidence for the reasons you’ve achieved your historical performance levels. You also need to show that the same methodology has been applied to calibrating the forecasts included in your proposition. In this way, the potential buyer is more likely to believe and accept the forecasts you have produced. You can find out more about how to value your consulting business at Equity Edge, our free online resource tool.

While it’s important to put together a compelling package, backing this up with the facts and evidence is key. If you can put this into practice, you will give a potential buyer all the right reasons to invest in your company, which will increase your chances of both doing a deal and achieving the value you believe your business is worth.