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.