Focus on Private Equity Buyers

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In this blog we will spend some time examining Private Equity (PE) buyers – a group of buyers that acquire consulting firms primarily for investment reasons. We will explore some of the benefits that a deal with this buying group offers, as well as the considerations you need to think about as a consulting firm owner.

In our latest Global Consulting M&A Report, we divide the buyers of consulting firms into two groups. Roughly 90% of buyers are categorized as ‘trade’ or ‘strategic’, where the buyer seeks some form of synergistic benefit from the acquisition, such as reaching a new market place or geographic area, and just under 10% are ‘financial’, such as PE, buying for a straight return on investment.

PE buyers tend to become more interested as firms increase in size – the percentage of financial buyers rises to 18.9% if we eliminate deals under $20m. However, if your firm is small but in a hot sector with a certain set of attributes attractive to PE buyers, they could be interested in investing. And if rapid growth is your goal, then a financial buyer could be a good match.

Why would a Private Equity investor want to buy a consulting firm?

Unlike strategic buyers, PE buyers exist to sell profitable companies at a value higher than they purchased them. This is their business model. Service businesses like consulting firms, if well run, have a reputation for delivering high margins and good cash flow. This presents an opportunity for PE buyers to put capital to work building high growth, high margin businesses.

The consulting sector is an industry with high-growth opportunities, especially in the right sector and with the right service offering. The oil and gas industry is one such area of interest, for example, and you can read more about our intelligence on this here.

What would make a consulting firm attractive to a PE buyer?

There are certain characteristics that would attract PE buyers. We’ve mentioned size being one such factor. But others include: a concentrated ownership consisting of just one or two partners, a focused service offering with healthy profit margins, as well as concentration within one or two key sectors.

Why would a PE buyer be attractive to a consulting firm owner?

A PE buyer can make a very useful and strategic partner in the right situation. The following are some of the key benefits that the right PE partner can deliver:

  • At the right time, investments from a financial buyer can provide the impetus to accelerate a firm’s value
  • A PE deal can allow an owner to ‘de-risk’ by diversify ownership but still keeping a stake in the business
  • PE firms with experience in the sector can provide crucial guidance through difficult growth phases, and potentially make helpful introductions to partners or clients

Why wouldn’t a PE buyer be attractive to a consulting firm owner?

There are a number of factors to be wary of if you plan to sell to a PE buyer. Firstly, you will have to be prepared to have a partner and give up some control of your business. Because of this, the best deal for your firm might not be the highest price. You will need to look very carefully at the buyer, are they a good partner for your firm? Do they have the expertise and track record to help you? There is a balance to strike between trading the current value of your firm with the long-term benefits the deal will bring.

In the right circumstances PE buyers have much to offer consulting firm owners, especially those owners focused on growing their firm.  You can read more about the two main buyer groups – financial and strategic – and their motivations for buying in our blog: Merger and Acquisition deal drivers in the consulting firm sector.

Consulting Sector M&A Deals for week beginning 17th November

businessman doing handstand on the beachDermody, Burke & Brown, CPAs, LLC (USA) to merge with Kane, Bowles & Moore, PC (USA)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
Effective January 1, 2015, Kane, Bowles & Moore, P.C., a Liverpool-based accounting and consulting firm, will merge with Dermody, Burke & Brown, CPAs, LLC, one of the largest locally owned and independent CPA firms in Central New York, and will operate under the Dermody, Burke & Brown name. The combination of these two high caliber firms will enhance client service capabilities by providing additional resources and expanded services. Dermody, Burke & Brown and Kane, Bowles & Moore share a similar foundation and commitment to the clients and community they serve. “We are proud of our Upstate New York roots and this merger positions us to be part of the economic growth taking place in our community,” says Madelyn Hornstein, CPA, CEO of Dermody, Burke & Brown. “This is a way for us to support our clients, their growth and the development of this region – now and in the future.” Dermody, Burke & Brown, CPAs, LLC (DB&B) is a certified public accounting firm.

McGladrey LLP (USA) to acquire substantially all of the assets of Cole & Reed, P.C. (USA)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
McGladrey LLP, the nation’s leading provider of assurance, tax and consulting services focused on the middle market, announced the signing of a definitive agreement to acquire substantially all the assets of Cole + Reed, P.C., an Oklahoma City-based firm and member of the McGladrey Alliance, subject to the terms and conditions of the transaction. The transaction provides McGladrey with a presence in Oklahoma City, making the firm the leading provider of assurance, tax and consulting services focused on the middle market in Oklahoma. “By joining forces with Cole + Reed, McGladrey has the opportunity to more broadly serve middle market businesses in Oklahoma,” said Joe Adams, managing partner and CEO of McGladrey. “The depth and breadth of our Oklahoma practice will be a major force in the market, creating opportunities for our clients and our people. We look forward to welcoming Cole + Reed team members, who have an excellent reputation for understanding their clients’ needs and providing quality, responsive service.” Serving Oklahoma businesses for more than 60 years, Cole + Reed P.C. is one of the largest full-service public accounting firms in Oklahoma and the surrounding region, providing audit and assurance, tax planning and compliance, consulting and accounting services. McGladrey LLP is the leading U.S. provider of assurance, tax and consulting services focused on the middle market, with more than 7,000 professionals and associates in more than 75 cities nationwide.

Keyser (USA) to merge with Chermack Consulting Group, LLC (USA)
Deal Size: Unspecified Industry: Engineering consulting Date: November 2014
Chermack Consulting Group, a Scottsdale-based, full-service project management firm representing global clients throughout the Southwest, announced its agreement to merge with Keyser to lead Keyser’s rapidly growing project management division. Founder Jonathan Keyser tells GlobeSt.com, “Our company continues to grow rapidly and the demand for our services increases. Tom Chermack and I have been in talks for about six months; we need leaders to help build our team. Tom’s firm and his team have a proven track record. We needed the resources of the team, but also the leadership.” Chermack, founder of CCG, will head up the project management division. “We will provide full service support working with transaction brokers, advancing the process for a seamless transaction. Our approach has always been to focus as much on the people we serve as the ‘sticks and bricks.’ The parallel that exists between CCG’s and Keyser’s core principles creates the perfect platform for establishing a dominant project management team that will continue to provide unmatched client representation across the globe.” Chermack Consulting Group, LLC provides owner representation services on various commercial developments throughout the Southwest. Keyser Co., a commercial real estate advisory company, provides real estate services to tenants and buyers of office, retail, medical, educational, and industrial space.

O’Connor Davies, LLP (USA) acquired Grubman Anand, P.C. (USA)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
O’Connor Davies, LLP, one of the nation’s fastest growing accounting and consulting firms, announced its expansion into the Washington D.C. metro area with the acquisition of Grubman Anand, P.C., auditing and tax specialists of affordable housing properties. Consistently ranked among Accounting Today’s “Top 100 Firms,” O’Connor Davies is in the midst of an unprecedented growth period, having expanded from 399 professionals to more than 550 in the past 24 months. This is the latest in a series of strategic acquisitions as the firm expands its geographic reach to meet the growing demand for specialised accounting expertise backed by the resources of a national firm. “O’Connor Davies is growing quickly through strategic partnerships with highly specialised firms that bring the deep expertise our clients demand while aligning with the values and culture that have helped set us apart for years,” said O’Connor Davies Managing Partner Kevin J. Keane. “We recognise that in today’s dynamic market, you can’t sacrifice depth for breadth and provide the value clients expect or meet the high standard we’ve set for ourselves. Our ability to identify top performers and provide them with support and proven processes has been the key to our ability to scale quickly and stay ahead of the needs of U.S. and global clients.” O’Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of serving clients both domestically and internationally and providing specialised professional services of the highest quality.

BDO Seidman, LLP (USA) entered into an agreement to acquire UHY Advisors, Inc. (USA)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
BDO USA LLP has entered into an agreement to acquire Top 100 Firm UHY Advisor’s Texas practice. The UHY Texas practice provides a range of financial and consulting services to a diversified client base in the energy, manufacturing, distribution, professional services, health care and real estate sectors. The new addition will bolster BDO’s presence in Houston and Dallas. “We are now adding a very prominent energy sector group, with a specialty in upstream and oil field services,” BDO CEO Wayne Berson said in an interview with Accounting Today. “One of the focus areas for us worldwide is in the natural resources practice. We always look at what the futurists are saying and what the GDP is in each of the major areas to see what are the other areas we really want to invest in. One of the hottest markets in the country today is certainly Houston. That’s why we worked so hard to get a deal done in Houston. Upon completion of this transaction, we will be the dominant alternative to the Big Four in both the Texas and the national energy markets,” BDO has been on an acquisition spree for the last two years. In May 2014, it tapped into Texas when it added the Fort Worth, Texas-based regional accounting firm Hartman Leito & Bolt. In June 2014, BDO picked up several more firms located in Alaska, Minnesota and the Northeast. About a week prior to its UHY Texas deal BDO added Ohio-based Top 100 Firm SS&G Inc. UHY Advisors, Inc. offers financial accounting and business advisory services to middle-sized and large companies. BDO Seidman, LLP provides accounting and financial advisory services.

Maner Costerisan CPA (USA) to merge with McCartney & Company, P.C (USA)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
The accounting firms of McCartney & Company, P.C. and Maner Costerisan recently announced a merger. Maner Costerisan is a mid-market accounting and consulting firm located in Lansing, Michigan. As an Independent Member of BDO Alliance USA, Maner Costerisan has full access to the national and worldwide resources of one of the largest accounting and consulting firms in the world. “We view this merger as a significant benefit for clients of both firms, as well as for our employees,” said Jeffrey Stevens, CPA, CITP, and President of Maner Costerisan. “Combining our resources and knowledge base is a tremendous win for our clients.” Jeffery Irwin, CPA, President of McCartney & Company, P.C. echoed the sentiment by saying, “Our first priority has always been to provide the best service possible to our clients. We feel confident that this merger enhances our ability to fulfill this objective, as well as giving us the opportunity to more effectively serve as a trusted advisor to our clients.” McCartney & Company, P.C. provides auditing, accounting, tax and consulting services.

MNP LLP (Canada) agreed to acquire Reimer & Co. (Canada)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
Reimer & Co. Chartered Accountants, a Swan River-based accounting firm, will merge with MNP LLP, one of Canada’s largest national accounting and business consulting firms, effective January 1, 2015. Reimer & Co. was looking for an opportunity to offer more specialty services to its clients, while MNP was looking to expand in the Manitoba region. Operating for the past 15 years, Reimer & Co. provides services including accounting, audit, tax and business advisory to business owners and organisations in a wide variety of sectors including Agriculture, Logging, Retail, Manufacturing, First Nations, Not-for-Profit and Government. With our newly expanded presence in Ottawa, MNP now has over 80 offices and a team of more than 3,000 from Montreal to Victoria. MNP is one of the largest national accounting and consulting firms in Canada, providing client-focused accounting, taxation and consulting advice.

Nelson (USA) acquired EHS Design (USA)
Deal Size: Unspecified Industry: Engineering consulting Date: November 2014
In a move that marks 2014 as a record-setting year, global Design, Architecture, Engineering and Consulting Services firm NELSON has acquired EHS Design. This is the fifth merger for NELSON in 2014 and marks a year-end revenue growth of 60% for the firm – ranking them at the very top of the industry’s high growth firms. This move significantly expands NELSON’s reach into the western United States, anchored by a new hub office in Seattle, Washington. Founded by Jack Emick and Mindy Howard in 1977, EHS Design developed an impressive client list and reputation through dedication to their clients and a unique and empowering culture. Rapid success ensued, and with the firm merging with Paul Seibert & Associates in 1992, continued its evolution into a full-service design firm with emphasis on corporate interiors and architecture for retail, financial, civic, government and multi-family residential clients. “Our vision for NELSON has led to just under 30 mergers throughout the past 14 years,” said John “Ozzie” Nelson Jr., Chairman and CEO of NELSON. “This progression achieves one of NELSON’s goals to continue to expand our services to new strategic geographies. EHS’s ability to quickly move into action and respond to clients’ needs with our network of nearly 500 Teammates will bring significant opportunities on a national scale. There is a natural synergy with NELSON’s established services and practice areas, including financial, retail and corporate. EHS contributes significant multi-family residential and healthcare experience, substantially advancing our efforts in what are growing specialty areas for NELSON.” EHS Design provides interior design, architecture, branding, engineering, strategies and workplace services.

Accruent, LLC (USA) acquired VFA, Inc. (USA)
Deal Size: Unspecified Industry: IT consulting Date: November 2014
Accruent reported that it has acquired Boston-based VFA, a provider of solutions for facilities capital planning and asset management. According to a release from the company, VFA’s cloud software solutions and consulting services enable customers to assess their real estate portfolios, allocate capital, and make better decisions to support their organisations’ mission and strategy. “We believe this combination is of strategic significance to our customers and the broader facilities market,” said Accruent chief executive officer Mark Friedman. “For several years, Accruent has pursued an acquisition strategy designed to address the fragmentation of real estate and facilities software solutions. By combining the management of the facilities operating and capital budgets, the two primary needs of all facilities executives, we now provide a unified enterprise solution combining world-class cloud software and consulting services for facilities strategy, planning, management, and operations.” VFA, Inc. provides strategic facilities capital planning solutions, Web-based software products, and business consulting services. Accruent, LLC provides real estate and facilities management software solutions to retailers, Fortune 500 organisations, service providers, universities, and wireless carriers in the United States and internationally.

Cognizant Technology Solutions Corp. (USA) completed the acquisition of TriZetto Corporation (USA)
Deal Size: Unspecified Industry: Healthcare IT consulting Date: November 2014
Cognizant, a global leader in information technology, consulting and business process services, announced it has completed the acquisition of TriZetto Corporation. “The combination of TriZetto’s market-leading platforms with Cognizant’s strengths in consulting, IT and business process services will put us at the forefront of creating new models for the healthcare needs of tomorrow,” said Francisco D’Souza, CEO of Cognizant. “Together, we are uniquely positioned to deliver end-to-end solutions that allow healthcare organisations to improve operational efficiency, drive innovation and embrace next generation delivery models made possible by digital technologies. As a fully integrated healthcare technology and operations provider, we look forward to enabling our clients to deliver improved quality of care and superior health outcomes.” TriZetto software manages the health benefits of close to half the insured population of the U.S. and supports about a quarter of all U.S. care providers. The company is now a part of Cognizant’s healthcare practice whose clients include 16 of the top 20 U.S. health plans, and four of the top five pharmacy benefit management companies. The combination of the Cognizant and TriZetto platform and capabilities will enable healthcare organisations to focus on making their operations as efficient as possible, while at the same time investing to drive future growth in an increasingly competitive environment. TriZetto Corporation provides information technology and service solutions for health plans, benefits administrators, care providers/physicians, payer clients, hospitals, and healthcare systems. Cognizant Technology Solutions Corporation provides information technology (IT), consulting, and business process services worldwide.

Xerox Corporation (USA) to acquire Intrepid Learning Solutions, Inc. (USA)
Deal Size: Unspecified Industry: Management / Strategy consulting Date: November 2014
Xerox announced an agreement that expands its learning portfolio with the acquisition of Intrepid Learning Solutions ‘ learning services to ensure companies’ employees are equipped with the latest skills and knowledge to improve their business performance. “The speed of change in today’s business world means that in order to stay relevant, companies and their employees must be at the top of their game,” said Mark Hill, group executive of Xerox human resource services. “The addition of Intrepid’s expertise to our learning organisation significantly expands our ability to deliver impactful, engaging and comprehensive learning solutions accessible to our customers at the point and time of greatest need.” Xerox is a global business services, technology and document management company helping organisations transform the way they manage their business processes and information. Intrepid Learning Solutions, Inc. offers corporate learning and learning consulting services for businesses worldwide.

Jones Lang LaSalle Incorporated (USA) acquired Coverpoint Foodservice Consultants (UK)
Deal Size: Unspecified Industry: Business consulting Date: November 2014
JLL is expanding its European retail and leisure consulting team with the acquisition of Coverpoint Foodservice Consultants, a Reading-based specialist food and drink industry adviser. Coverpoint was founded in 1993 by managing director Jonathan Doughty. Services offered include commercial and operational performance analysis, benchmarking, standards monitoring and due diligence. “Food and beverage is an offer that is more resilient to the impact of e-commerce and retail polarisation and it adds significant value to user experience in the physical environment,” said James Brown, head of JLL’s European retail and leisure research and consulting team. “Coverpoint has an impressive and unparalleled track-record across the global foodservice industry, from retail real estate investors, to restaurateurs and corporate occupiers, and bringing Coverpoint into JLL will help us meet the growing client demand for this type of consulting service.” Coverpoint Foodservice Consultants Ltd. advises and consults on food and beverage services. Jones Lang LaSalle Incorporated, a financial and professional services company, provides commercial real estate and investment management services worldwide.

BDO Canada LLP (Canada) acquired Cunningham LLP (Canada)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
BDO Canada LLP is pleased to announce the expansion of its professional practice in Markham, Ontario. Effective January 1, 2015, Cunningham LLP will operate under the BDO name to bring an expanded range of services to the Greater Toronto Area (GTA). With locations in Burlington, Markham, Mississauga, and Toronto, this merger will expand BDO’s presence in the GTA to almost 70 partners and 500 professionals and staff. Cunningham’s five partners and 25 team members will bring in-depth knowledge and experience working with owner-managers, including industry expertise in retail pharmacies and auto dealerships. Mark Goodfield, Managing Partner, stated: “BDO is a like-minded entrepreneurial firm, and this merger enables us to significantly strengthen our ability to serve our clients by providing a greater depth of expertise and access to enhanced service offerings.” Cunningham was established in 1971 and is a full service, mid-market public accounting firm in North Toronto that provides a wide range of services to privately-held companies. In addition to specialized accounting, tax, and business advisory services, the firm helps entrepreneurs meet their personal financial goals with planning solutions for issues such as family succession and retirement. BDO Dunwoody LLP provides auditing, accounting, tax, financial, and management advisory services.

Stone Point Capital LLC (USA) to acquire Oasis Outsourcing, Inc (USA)
Deal Size: Unspecified Industry: HR consulting Date: November 2014
Oasis Outsourcing (Oasis) announced that it has agreed to be acquired by Stone Point Capital and management. Stone Point is a leading private equity firm focused on investing in the global financial services industry. Oasis, a portfolio company of Nautic Partners and Altaris Capital Partners, is the largest private professional employer organization (PEO) in the United States, and is a leading provider of comprehensive and cost-effective human resources (HR) services to small- and medium-sized businesses (SMBs). The transaction, subject to customary closing conditions, is expected to be completed by the end of 2014. Oasis provides HR services, such as HR administration and development, employee benefit plan management, full-service payroll administration, risk management, and staffing and recruitment to more than 4,700 SMBs and more than 160,000 worksite employees (WSEs) in all 50 states and Puerto Rico. Through its nationwide platform, Oasis provides its solutions to clients across a broad spectrum of industries, including business services, hospitality and retail, manufacturing, technology, and wholesale trade, among others. Chuck Davis, CEO of Stone Point Capital, said; “We are delighted to be partnering with Oasis and its management team. The company’s ability to provide cost-effective outsourced solutions while also providing access to affordable benefit plans is very compelling for small- and medium-sized businesses, especially in light of the increasing complexity and regulations related to HR.”

RLJ Equity Partners, LLC, GE Asset Management Incorporated, Madison Capital Funding LLC, RLJ Credit Opportunity Fund and Brookside Mezzanine Partners (all USA) acquired MarketCast, Inc. (USA)
Deal Size: Unspecified Industry: Marketing consulting Date: November 2014
LJ Equity Partners, LLC, an affiliate of The RLJ Companies, announced its acquisition of MarketCast, LLC, a premier provider of strategic insights and analysis to marketers and researchers in the global entertainment industry. RLJ Equity Partners, in alliance with GE Asset Management, acquired MarketCast from Shamrock Capital Advisors, a leading media, communications, and entertainment private equity firm based in Los Angeles. MarketCast works in collaboration with clients across the entertainment spectrum to test and optimize their content, marketing, and distribution strategies. The company maintains long-standing client relationships with all of the major motion picture studios and production companies, as well as a growing number of broadcast, cable, and OTT programmers and networks. Core services, applied worldwide, include testing of marketing materials and messaging as well as strategic research and advisory services related to market positioning, branding, franchise extensions, and sequel development. “MarketCast is globally recognized as a premier entertainment research firm and today’s acquisition by RLJ Equity Partners is an opportunity to invest alongside an experienced team in the growing U.S. entertainment industry,” said Robert L. Johnson, founder of Black Entertainment Television (BET) and Chairman of RLJ Equity Partners. “With its comprehensive audience engagement expertise and full-scale data analytics, MarketCast is uniquely qualified to provide a valuable service to motion picture studios to help grow their audience attendance and enjoyment, both domestic and foreign.”

Altus Group Limited (Canada) agreed to acquire SC&H State & Local Tax, LLC (USA)
Deal Size: Unspecified Industry: Financial advisory Date: November 2014
A Canadian company has reached a deal to acquire Sparks-based SC&H Group Inc.’s state and local tax consulting practice for nearly $40 million. Altus Group Limited’s deal will result in 93 employees changing companies and will give Altus (TSX: AIF) one of the largest property tax advising firms in the country. The cash and equity deal is valued at $38 million. SC&H was not looking for a sale, said CEO Ron Causey. But Altus Group showed persistent interest in the State and Local Tax practice, which helps companies navigate regulations in areas like appraisals, personal property taxes, real property taxes and income taxes. The practice is on pace to produce revenue of $22 million this year. The deal gives SC&H the opportunity to invest financial resources into new services, Causey said. The firm will also be able to expand its efforts in its remaining lines of business: audit and tax advising; consulting; investment banking and advising; and personal financial planning. Altus Group Limited provides commercial real estate consulting and advisory services, and software and data solutions. SC&H State & Local Tax, LLC (SALT) provides tax advisory services.

How important is marketing in generating premium value?

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Jim Horsley, Chief Executive of CHA PR, shares his insight.

If you’re looking for sustained growth and premium value when you sell, how much should you spend on marketing? As importantly, where do you get the best return both in terms of the content you produce and the channels you use to engage with the audiences you want to reach?

The accepted wisdom is that you need a marketing budget of 5% of your total revenue just to maintain your current position. To grow or gain greater market share the rule of thumb is that you need to at least double that investment. Equiteq’s own best practice advice is that 10% of revenue should be spent on generating business through marketing and sales.

We undertook a survey of senior marketeers in management and business consulting firms* in the UK to identify not only what is their level of spend on marketing but what type of spend made the biggest contribution to the business.

Not surprising, perhaps, 70% of respondents spend between 1 to 5%; the consultancy sector has rarely had an ambitious approach to marketing. Another 15% are in the 6 to10% investment category. However, only 2% spend more than 20%. More than a third say that spend will increase over the next 12 months.

So what kind of return do those firms get on their investment? 30% say they get a £10 return for every £1 spent; 14% say the return is £5 for every £1 spent and 17% say the return is £4 for every £1 spent.

Based on those figures, there’s a strong argument that any increase in marketing is likely to pay dividends. Most companies want marketing to generate better quality and more leads and measure its success on the number of leads, the sales revenue generated as well as the quantity of sales. Brand building is not high on their agenda.

It is perhaps this focus on marketing purely as a lead generation tool that makes many firms reluctant to increase their marketing spend. The benefits of building the brand are not as easily measured and often don’t deliver the short term impact that sales leads can create.

However, without a strong brand, companies often find it difficult to sustain growth in revenue and profitability long-term and to generate premium value when the business is sold.

As you might expect, thought leadership and other content production is very or extremely important in our respondent’s marketing activities. It is case studies that generate the highest number of leads as well as the best quality. Blogs and web articles come second in the highest number of leads and third in the best quality. What’s less effective on both counts are videos, survey results, infographics and best practice guides.

In terms of marketing channels, the top three generators of the highest number of leads are events, websites and telemarketing. In terms of quality of leads, the winner by quite a distance is events, followed by cold calling and websites. PR, e-newsletters and social media are low scorers on both counts.

From a brand awareness viewpoint, the quality of websites, one-off emails and webcasts and webinars are seen as the biggest contributor to the brand. PR and social media score more highly in this category than in their contribution to lead generation.

It’s not always an easy choice to make to invest more heavily in marketing (as opposed to bringing on board new consultants or more sales resource). However, the survey clearly shows that many business consultancies do get a high return on marketing. Such investment long-term can impact revenue growth and the value of the business and the brand when you come to sell.

*100 structured quantitative telephone interviews were conducted amongst senior marketeers in management and business consultancies in September, 2014. The research was undertaken by Illuma Research.

Consulting Sector M&A Deals for week beginning 10th November

businessman doing handstand on the beachArthur J Gallagher & Co. (USA) acquired SGB-NIA Insurance Brokers (USA)
Deal Size: Unspecified Industry: HR consulting Date: November 2014
Arthur J. Gallagher & Co. announced the acquisition of SGB-NIA Insurance Brokers headquartered in Woodland Hills, California. Established in 1964, SGB-NIA Insurance Brokers (SGB-NIA) provides retail property/casualty, risk management and employee benefits insurance products and consulting services to commercial and individual clients throughout the Western United States. They specialise in insurance coverage for the manufacturing, metal worker, retail hardware and commercial real estate industries. James Scanlon and his colleagues will continue to operate in their Woodland Hills and Camarillo, California locations under the direction of James McFarlane, head of Gallagher’s Western Region retail property/casualty brokerage operations. “SGB-NIA is highly-regarded for its professional standards, solid market relationships and focus on quality customer service and satisfaction,” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “Their niche specialisation, strong western presence and client-based culture will be an excellent addition to our West Coast operations. We look forward to working with Jim and his associates, and we welcome them to our growing Gallagher family of professionals.” SGB-NIA Insurance Brokers Inc. provides property, casualty, risk management, and employee benefits insurance products and consulting services. Arthur J. Gallagher & Co., together with its subsidiaries, provides insurance brokerage and risk management services in the United States and internationally.

CohnReznick LLP (USA) acquired Watkins, Meegan, Drury & Company, LLC (USA)
Deal Size: Unspecified Industry: Business consulting Date: November 2014
CohnReznick LLP, one of the largest accounting, tax, and advisory firms in the U.S., and the Maryland accounting, tax, and consulting firm of Watkins Meegan LLC, have completed the process of merging the firms under the CohnReznick name. This brings added bench strength to both firms, bolsters CohnReznick’s position as a leading firm in the Washington-Metro area, and allows for the geographic expansion of Watkins Meegan’s Government Contractors Practice. With the combination, CohnReznick estimates Firm-wide 2014 revenues of $575 million. Ken Baggett, Co-CEO of CohnReznick stated, “We are continually looking at quality firms whose specialties complement our own. Watkins Meegan is a firm we have known for a number of years and have admired from a distance. We are very pleased about the synergies created by this combination.” CohnReznick LLP provides accounting and consultancy services through its subsidiaries to construction, distribution, entertainment, hospitality, real estate, and manufacturing sectors. Watkins, Meegan, Drury & Company, LLC is an auditor.

ARANZ Geo Limited (New Zealand) acquired QG Pty Ltd. (Australia)
Deal Size: Unspecified Industry: Engineering consulting Date: November 2014
ARANZ Geo Ltd, a leading player in the visualisation and interpretation of geological sciences for the mining, hydrogeology and geothermal industries, has acquired Australian based consultancy QG, a fully integrated geological, geometallurgical and mine planning consultancy. Shaun Maloney, CEO of ARANZ Geo said: “QG builds our knowledge, experience and product offering across the geosciences space and sits alongside our well known Leapfrog 3D geological modelling software. QG will continue in its current form under the company’s new Managing Director Scott Dunham.” QG provides specialist resource evaluation expertise and education for progressive mining companies. The company, with headquarters in Perth and offices in Brisbane and Vancouver, has undertaken projects in dozens of locations around the globe to help clients confidently extract maximum business value from their mine operations. Dunham, who has extensive experience in a range of senior technical management roles within the mining industry, as well as a senior principal QG consultant said: “QG and ARANZ Geo have had a good working relationship for some years now. We look forward to continuing to prosper and grow globally with the support of ARANZ Geo.” RANZ Geo Limited designs and develops 3D geological modeling software solutions for mining, energy, environmental, geothermal, and hydrogeological industries. QG Pty Ltd. offers geology, geostatistics and geometallurgy consultancy services. Continue reading

Effective communication is the difference between making your staff allies or foes in an M&A deal

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Our recent Buyers Research Report revealed some sobering probabilities of success when it comes to securing a buyer for your consulting firm. Buyers said on average that 82% of potential deals do not progress to a signed Non-Disclosure agreement and only 9% of the remainder get as far as Letter of Intent.

To be one of the 200 consulting firms sold across the globe per month, it is essential to mitigate inherent risks to improve the chances of a sale. Consulting firms are built on the skills and talents of people, therefore, employees wield considerable influence over the value of your firm. A buyer will assess the cultural synergy of a firm through its people. It is important not to underestimate the impact of communicating a merger or acquisition to them, especially as a means of gaining good will and buy-in internally.

During the sales process, the performance of your firm cannot be compromised under the scrutiny of due diligence. If growth is compromised, a buyer could have second thoughts on a deal. This means you will rely on employees to deliver and even, at times, go above and beyond their duties. So how you communicate with them can be the difference between employees becoming valuable allies or costly foes.

No two consulting firms’ circumstances are the same. Assessing what information to provide is a balancing act. Strive to give enough information so people feel in the loop, but not too much that should things change, as often they do in M&A proceedings, you could not be accused of causing unnecessary disruption to your business.

You absolutely want to avoid creating a grapevine effect, where information is passed around informally. These Chinese whispers inevitably lead to the miscommunication of key facts triggering confusion and anxiety. And this can have a knock-on effect with productivity and engagement.

So your judgement is key. Strong leadership, especially in times of change is essential to keeping people onside.

Neil Taylor is managing partner at business language consultancy, The Writer, and author of Brilliant Business Writing. He would say ditch business jargon if you want to win hearts and minds. ‘Write and speak like a normal human being. Being honest and engaging is just as important as being businesslike. Think about your people: what do they care about? If you know they’ll think, ‘what does this change mean for my job?’, come straight out with that. The temptation is to communicate the whole rationale for change, but people are much more likely to take that in if you’ve already acknowledged how they might be feeling.’

Taylor always advises to keep an eye on length of communication, ‘Don’t feel you have to go on and on. It’s much more confident to say what you’ve got to say, and shut up. And think about where they’ll read or hear it. On their mobile? Better make it even shorter, then.’

Some points to consider:

  • Assess they types of people your staff are and put yourself in their shoes. What would a deal mean to them? Try and anticipate how they might react and what questions they may have
  • Think about how to paint the big picture and acknowledge the role they have in it. Don’t assume your vision is obvious, you need to articulate it clearly
  • A regular communication schedule can be helpful, even if it only involves a holding statement. Think about how communications should be delivered; is it best face to face or over email?

In conclusion, keeping your business growing through the M&A process is essential. Deals can take anywhere between four to 18 months. If financial performance suffers during the process, buyers may be deterred from completing a deal. It is therefore imperative that you keep focussed on running and growing the business through the sales process. Achieving this will be down to your consultants and staff, so handle them with care.

Consulting Sector M&A Deals for week beginning 3rd November

businessman doing handstand on the beachPublicis Groupe SA (France) entered into a definitive agreement to acquire Sapient Corp. (USA)
Deal Size: $3.7 billion Industry: Marketing consulting Date: November 2014
Publicis Groupe and Sapient announced that they have entered into a definitive agreement under which Publicis Groupe will acquire Sapient in an all-cash transaction for $25.00 per share. Maurice Lévy, Chairman and CEO of Publicis Groupe, said: “Sapient is a ‘crown jewel,’ a one of a kind company born in the technology space with strengths in marketing, communications, consulting and omni-channel commerce, all of which are equally important to best help clients achieve their digital transformation. It will also give Publicis Groupe access to new markets and creating new revenue streams. This acquisition fulfills many of Publicis Groupe’s objectives: we will enhance our leadership position in digital, achieve our goal of deriving 50% of our revenues from digital and technology three years ahead of our 2018 plan, and leverage technology, consulting capabilities to expand in new verticals, and offering new and exciting opportunities to our talents.” Alan J. Herrick, Sapient President, CEO and Co-Chairman, added: “This transaction provides substantial value to our shareholders, offers an ideal cultural match for our people and provides an opportunity to share a wealth of new capabilities with our clients. The Sapient team has been on a 24-year journey building a company with the objective of creating significant impact for our clients and the industries in which they operate. With Publicis Groupe, we have found a partner that accelerates the level of transformation we can drive into the marketplace.” Publicis Groupe SA provides a range of advertising and communications services worldwide. Sapient Corporation provides strategy, marketing, and technology services that enable clients identify and act upon opportunities to improve their business performance.

EnSafe, Inc. (USA) acquired Envirosense (USA)
Deal Size: Unspecified Industry: Environmental consulting Date: November 2014
EnSafe Inc., a global provider of environmental, engineering, health and safety and technology services announced that it has acquired northeastern based EnviroSense. EnSafe CEO Don Bradford stated: “EnviroSense’s talented team has built a successful presence in New England, rooted in delivering exceptional quality consulting, developing staff expertise, and ensuring the highest level of client satisfaction.” EnviroSense’s President, Russ Lagueux added, “Joining the EnSafe team achieves EnviroSense’s goal of expanding our capabilities to a broader range of private and public-sector clients. Our philosophy toward our clients and employees is very closely aligned with that of EnSafe. The entire EnviroSense staff is excited to unite with EnSafe and look forward to the opportunities provided.” EnSafe, Inc. provides environmental, health and safety, engineering, and technology solutions. EnviroSense, Inc. provides environmental consulting services.

COWI A/S (Denmark) acquired Donaldson Associates Ltd (UK)
Deal Size: Unspecified Industry: Engineering consulting Date: November 2014
Danish engineering giant Cowi has bought ground engineering and tunnelling specialists Donaldson Associates. Donaldsons is a consulting company renowned for delivering high-end geotechnical design as well as tunnel and underground engineering services. The acquisition strengthens COWI’s underground engineering expertise and widens the skill set to include caverns, hard rock, leading-edge spray concrete lining, and micro tunnelling. Donaldsons currently employs 143 staff throughout five UK offices and one Hong Kong office. Continuing to operate as Donaldsons, the team will work together with COWI tunnel and underground centres in Denmark, Qatar, India and USA as well as developing synergies on the UK market with COWI specialist bridge subsidiary, Flint & Neill. Lars-Peter Søbye, CEO in COWI sees the agreement as a perfect match with numerous opportunities. “The acquisition of Donaldson Associates is a major achievement for COWI and is in line with our growth strategy. We have complementary market coverage, and together we will be one of the world’s largest consultants in tunnel and underground engineering, offering a vast, highly qualified pool of specialists who are able to bring significant strength and expert skills to our customers around the globe. We are happy to welcome Donaldson into COWI,” says Søbye. Donaldson Associates Ltd. provides consultancy services in the areas of civil engineering, structural engineering, geotechnical engineering, engineering geology, project management, and expert services. COWI A/S provides consultancy services within the fields of engineering, environmental science, and economics in Denmark and internationally. Continue reading

Are your client relationships building or stunting your firm’s growth?

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It is likely that if you are a consulting firm with revenue of anything up to $9 million, you have client relationship issues. We’re not talking about the day-to-day quibbles common to the client-consultant dynamic, but strategic relationship challenges that need to be addressed if you are to grow equity value in your firm and/or smash the glass ceiling of $10m (a target that only one in 20 consulting firms achieve).

To help frame your thinking around this issue, we have four questions every firm should ask itself.

What proportion of your client relationships involve work that is aligned with the strategic objectives of your firm?

Many consulting firm client relationships could be described as ‘happenstance’, especially in the early days when a firm is just starting out. Relationships that have occurred rather than planned. These relationships often become an albatross around your firm’s neck. The work you are doing for them isn’t the right sort of work that supports your service market matrix and won’t help you build your firm’s value.

It can be a tough decision but if the work isn’t right, don’t do it.

Many consulting firms are not strategic about the clients they nurture and keep. This leads us to the next question.

Are you focused about the types of client you want to attract?

Working with the right clients doing the right work starts with the ‘attraction’ process. Be strategic with who you pursue. Your sales and marketing work must be aligned with your unique value proposition.

The quality of client relationship management extends from your account planning methods to the way you nurture influencers, decision makers, dormant clients and old contacts. Good firms invest in CRM or a contact management system to assist in relationship development with individual contacts. Quality processes such as these enhance your ability to acquire, retain and build your client base, increase your revenue per client and improve the quality of your fee income.

Are your client relationships company-to-company or reliant on individuals?

Account management systems are essential to building robust client relationships that are company-to-company opposed to being reliant on individual relationships. This works both ways. You don’t want to be vulnerable if a client relationship is held by one person at your firm. You will lose that business if you lose them! Conversely, your firm’s relationship with your client is vulnerable if it is only with one person at the client-end.

An understanding of the make-up of each client relationship at partner-level within your firm is essential to protecting and growing your firm’s revenue and consequently its equity and sales value.

Do any of your clients account for more than 20-25% of your revenue?

Alarm bells should be ringing if one client accounts for more than 25% of your fee income. We have seen the effects of this recently with Microsoft’s contractor crackdown. Lots of consulting firms are now in a precarious position because of this decision – they have too much of their business with one client, Microsoft.

In conclusion

Client relationships are the lifeblood of consulting firms. Yet it is amazing how many companies we work with that do not give these relationships the attention they require. Suffice to say, consulting firms over the $10 million mark do not have these problems and that’s down to the fact they wouldn’t have reached the size they have if they did!

‘Client relationships’ is one of our 8 Levers of Equity Value. We describe our equity growth programme using the metaphor of a wheel: the Equity Growth Wheel. By pulling on our 8 levers you can increase the speed of the wheel and the equity growth of your firm. Used as a benchmark as well as a strategic planning tool, the Equity Growth Wheel can help you ratchet up the value of the firm and your pension fund. You can read our article about the 8 Levers here.