One thing you need to assure future owners of when preparing for an exit is leadership capability and stability, as well as the continued positive effect of this on profitability and growth. Ownership succession generally involves management succession and because buyers buy people and great leadership, it is natural for them to want to assess the quality of bench strength, as well as the planning that has gone into ensuring the right people are in the right roles. Your management succession plans throughout the company are an aspect of good governance that you can expect to have evaluated in due diligence. And CEO succession in particular will be critical. It is a key responsibility of the Board and is central to good governance.
Why the lack of planning?
So why do so many companies not prepare well on this front? Often succession planning is mistakenly just not seen as a priority against the immediate operational requirements of getting the company to grow and become profitable.
Sometimes this lack of focus relates to the size of the business. Even in some mid-size organizations, without a big HR function, there are few resources to manage succession compared to the formal talent programs enjoyed by larger organizations. Yet being a smaller organization makes it even more important, as not only is the company very exposed to key talent leaving, but those firms can also have a shallow pool of talent to draw from and are unlikely to have the rotational assignment opportunities that allow people to build their skills and experience.
Sometimes firms feel that planning around succession can be distracting for the individuals and the company and create a political tone in senior management that isn’t helpful.
It’s not overly unusual for a knowledge-led services firm in a sector such as consulting, IT services or media, to grow to, say, $3m revenue, driven mostly by the expertise of the founders, without a team of specialist C-suite executives on board.
However, at some stage a founders-only team will put a break on growth. Here are three reasons why founders maintain the status quo and fail to see the damage it may be doing to their business:
Growth creeps up on you so you don’t notice the degree to which the requirements have changed
During the start-up phase your main focus will be delivering on your particular domain expertise, but as time goes by you’ll spend more time on anything from finances to dealing with people issues.
Equiteq is pleased to announce the sale of its long-term client, Aecus Limited, to The Hackett Group Inc. Aecus is an award-winning European consultancy that helps clients optimize business process outsourcing (BPO), IT outsourcing (ITO) and robotic process automation (RPA) through benchmarking and implementation consulting.
Equiteq acted as exclusive financial advisor to Aecus Limited and its shareholders on the sale of the business having previously worked with the company for over 8 years in a strategic advisory capacity. The transaction closed on April 7, 2017.
Discussing the transaction, Aecus Managing Director Rick Simmonds commented, “We are really excited by this – joining The Hackett Group represents a fantastic move forward for Aecus. The strength of The Hackett Group’s brand combined with the breadth of complementary services will enable us to serve our clients even more effectively and will provide our people with greater professional opportunities.”
The most prolific acquirers of knowledge-led businesses are undergoing unprecedented diversification and convergence across adjacent consulting segments and sectors. At the same time, digital transformation is driving hybrid business models with consulting, technology and managed service revenue. This change is fuelling high levels of M&A activity from trade and private equity investors, which we review in our 2017 M&A report. For owners considering selling their business, an appreciation of these trends is critical to uncovering the synergistic buyers that may offer the highest value.
Convergence between consulting offerings
Global consulting clients are increasingly looking to their advisors for best-in-class, end-to-end consulting solutions. These trends are driving established consulting buyers to use M&A to enter new geographies and acquire complementary capabilities.
SNC-Lavalin is acquiring British engineering consultancy Atkins for £2.1bn ($2.6bn). The offer represented a c.35% premium to the undisturbed closing price of Atkins prior to acquisitions talks were announced. As highlighted in our January market update, CH2M had been rumored to be in discussions with Atkins about a possible merger earlier in the year.
The acquisition would boost the Canadian engineering and construction firm’s European revenue as it emerges from a self-imposed freeze on acquisitions in 2015. The deal is expected to expand SNC’s projects outside the energy industry, while oil prices continue to remain significantly below their 2014 levels.
In combination with John Wood Group’s acquisition of Amec for £2.2bn ($2.7bn) last month, the deal represents a consolidation of the UK engineering consulting market, a trend that we anticipated globally in our latest Engineering M&A Report.
Equiteq’s David Jorgenson and Jean-Louis Michelet met at ESSEC Business School in Singapore to discuss the opportunities and challenges impacting M&A activities in the Asia-Pacific region.
In this blog, the final part of their discussion, they both explore the huge opportunities for knowledge-driven services businesses in the Asia-Pacific region.
Simply put, there are massive opportunities in Asia-Pacific for knowledge-driven B2B services companies. While most of the region’s services markets are not as advanced as in more developed economies in Europe and North America, globalization and technological revolution are driving international demand for specialist businesses in Asia-Pacific.
The review covers deal activity and equity market trends across fives consulting segments: Management Consulting, IT Services, Media Agencies, Engineering Services and Human Resources. Equity market trends are analyzed through the Equiteq Consulting Share Price Index, the only published share price index for the industry.
Strong deal activity
In 2016, the number of completed transactions in the consulting sector nudged up to reach a nine-year high. This was in spite of the restraining influences of slowing growth in global GDP, the UK’s vote to Brexit and the US Presidential election, which caused a slowdown in the preceding quarters. Activity from both strategic and financial buyers swiftly bounced back, and the year ended with conviction and momentum that has carried into 2017.
The top consulting segments for deal activity were the rapidly evolving Management Consulting, IT Services and Media Agency segments.