In our M&A work with buyers of consulting firms, we see some clear differences in behaviours and capabilities between serial buyers and those who acquire less frequently. Our recent Buyers Research Report revealed that serial or prolific buyers, as we call them in the report, are each looking to acquire an average of 4.4 consulting firms over the next two years. Not only do they buy more, they have more money to spend. The average budget for all buyers next year is $65m but for serial buyers it is $90m. So, if you are looking to sell your consulting firm now or in the next few years, it is worth having an understanding of how serial buyers think, what they are looking for and what this might mean for your firm.
Prolific consulting firm buyers typically have their own internal M&A capabilities that focus on finding and integrating new acquisition targets. These targets are largely found through two routes:
- A targeted search by the internal M&A team; or
- Opportunities sent by intermediaries.
When a buyer’s internal M&A team conduct a targeted search, which they may also outsource to intermediaries, they usually have a mandate to find targets with a specific capability, sector alignment or geographic focus. Outside of a specific mandate, broad acquisition criteria aligned with the firm’s growth objectives exists. Buyers are constantly assessing acquisition opportunity profiles from intermediaries against their broad acquisition criteria, as an initial filter. These opportunity profiles are called ‘Teasers’ or ‘Blind Profiles’, as they provide key financial and qualitative information about the company, while maintaining confidentiality by excluding the name and any sensitive information about the target.
So buyers initially see you through the lens of a blind profile, much like how an employer would view a CV. How do you stand out? The following are some typical questions buyers will ask when looking at you as a ‘blind’ acquisition opportunity.
1. Are the financials sound?
Buyers often ‘calibrate’ their view by assessing whether your revenue is growing and if a good percentage of this is profit. This reflects the success of the firm in the market and how well it is managed. Serial buyers may also look at key metrics from your blind profile, such as revenue per partner or per consultant, as an indication of value. Strategic advisory typically commands higher fees than implementation services, but the number of partners or consultants will impact this metric. Whether this ratio is high or low, buyers will have a view on why that is
2. Do you have deep domain expertise?
This is difficult to fully assess from the blind profile, but typically buyers will want to know how deep your expertise runs. If you are too generic in your services and struggle to show a competitive advantage, this can turn buyers off as they will need to understand the depth or breadth you add to their existing services. By highlighting the depth of your expertise, the question changes from ‘is this useful?’ to ‘how can we use them?’.
3. Do you have unique and leveragable Intellectual Property (IP)?
Buyers will ask, “Should we spend money on acquiring this company or hire the expertise and build skills internally?”. Buyers are looking for tools and practices that help make money beyond what’s in an individual consultant’s head. So you need to be able to show what assets you have beyond your skilled people. This comes down to how you embed your IP into the fabric of your firm. Any IP you have would be highlighted on your blind profile, citing how you use this and its relative rarity (e.g. benchmarking data and capabilities, etc.). This is viewed favourably by buyers and helps to differentiate your firm as having value beyond the people in the firm.
Think about how you would look on a blind profile, highlighting only your: Key Financials (Revenue and EBITDA), Services, Top Clients, and Staff numbers.
Ultimately serial buyers will be looking at how they can acquire the highest value. Each buyer will measure value differently but they will all want to see growth, expertise and value beyond the people. As a business, you have to prove that you are worth acquiring through these very limited key facts.