Consulting firm M&A activity in the USA has reached its highest level since 2006. Deal volumes in North America – USA accounts for 92% of this, Canada 8% – are up 11% according to our Global Consulting Mergers & Acquisitions Market Report 2014, the only publicly available information on the global consulting M&A market.
Last year we forecast a gentle upturn, and there is no doubt that this has come to fruition. Our prediction now is that 2014 will see significant growth in volumes and prices in the US market. This is in line with the improving macro-economic climate and the general M&A market.
Price rises are another sign of confidence returning. North America saw the greatest increase in multiples used to value companies. Revenue multiples were up 40% in 2013 compared to 2012. EBIDTA multiples have dropped 7.2% but this reflects how firms are becoming more profitable rather than less valuable. Going forward, analysis of the first quarter in 2014 shows prices are stabilizing around 1.2 as a revenue multiple and 6 to 7 as an EBIDTA multiple.
From our own experience, we are seeing a significant rise in the volume of enquiries to the business from North America. These are coming from small and medium-size consulting businesses looking to exit through to larger consulting practices looking for help to find and acquire targets.
However, unlike the previous boom from 2005 to 2007, we do not see a dash for just any sort of consulting capacity. Certainly there will continue to be some large ‘acquisitions of scale’ but rather buyers are looking to acquire capability that they can scale from.
Below we have outlined a number of trends we are seeing in the consulting firm market that is fueling M&A activity:
- More clients have an international footprint and firms recognize the benefit of having a presence in multiple territories in order to serve clients on a global scale
- Consulting firms want to broaden the value chain of services offered to clients to claim more of the ‘relationship’ and create a barrier to competition
- Hot sectors seeing growth are in high demand and include, healthcare, energy, big data and business analytics
- Independent strategy consulting firms are being acquired as boutique ‘incubators’; they are being kept separate to develop new capabilities
In conclusion, 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.
We have extensive resources that provide information as to what firms can do to make themselves attractive to buyers in the Growing equity value in your business section within our online resource, Equity Edge.
A copy of Equiteq’s Global Consulting Mergers and Acquisitions Market Report 2014 can be downloaded here.