Does your leadership team work ‘on’ or ‘in’ the business?

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Management quality can be a big problem for consulting firms. However as one of our 8 levers of growth, it is worth exploring why it’s so important to a firm’s equity growth.

Financial investors say they invest in management teams first, firms second. An investor wants to see a balanced, experienced leadership team with a track record of delivering results; working in an environment where they spend more time working ‘on’ the business rather than in it. If this is happening then the firm is likely to be innovative, focused, and tightly managed with good KPI measurement and financial control.

Why is management quality so difficult for consulting firms to get right?

Very often consulting firms are founded by people that have great technical expertise but rarely the experience of having built and grown a company before. Running a consulting firm requires different skills to delivering consultancy. Business management consulting firms can be the exception to this general rule, but it is often the reason why management is a big challenge for firms.

When you are a small firm you can get away with a lack of business management experience in the team but as you grow and approach your first glass ceiling – around the $2.5m mark – having the right skillsets in place is essential if you want to build a business with real equity value.

What management skillsets does a consulting firm need?

Assessing what skillsets you have on your management team is a good place to start answering this question. Although it’s not just a case of what your management team can do but what they should be doing to optimally run and grow your firm.

For example, an experienced finance director would be the first valuable addition to a consulting firm’s management team. It would free up a managing director from overseeing the financials of the business to focus on building revenue. Finance expertise is particularly important for a firm if it is approaching a sale process.

There comes a time – before entering the sales process – that having a chief operating officer becomes critical. Typically overseeing the firm’s infrastructure and providing metrics to drive the business forward, an operations director or COO can be invaluable in helping a firm anticipate issues and drive efficiency.
Finally, consulting firms can benefit from having non-executive directors on their board to act as advisors. We’ve covered what sort of advisors can be helpful to firms in Who should you trust?

Do you have a unified board with a clear vision and strategy?

No consultancy should get to a reasonable size and not have a board unified in the vision for the firm and what the exit strategy looks like. That’s not to say the same exit strategy will apply to each founder or partner. Founders can often have different motivations for setting up and running their own business, so being clear on who will want what and when, is important.

It is also down to the management team to define and nurture the culture of the business. Again, this becomes more important once the company starts to scale and employs more than 15-20 people. Strong leadership is key to attracting, retaining and motivating talent.

In conclusion, assess the skills you have at the top of the business and invest in good finance and operations management. Be crystal clear on your vision and strategy for your firm and ensure you’re all unified behind this as a team. Communicate results and empower all to improve the performance of the business. Finally, as a founder or senior team member think about how you balance working ‘on’ and ‘in’ the business.

Consulting Sector M&A Deals for week beginning 8th December

businessman doing handstand on the beachDriver Group, PLC (UK) acquired initiate Consulting Limited (UK)
Deal Size: $8.3 million Industry: Engineering consulting Date: December 2014
Driver Group plc announced the acquisition of initiate Consulting Limited. The total consideration for the acquisition is 5.3 million pounds, and is being satisfied by way of an initial cash payment of 1.5 million pounds, satisfied out of the company’s existing financial resources, and by the issue of 1,594,274 new ordinary shares in Driver Group. The remaining 2.185 million pounds is comprised of an additional cash element, which is deferred over a 2 year period. Initiate are capital investment consultants providing development, project and construction management services to the infrastructure market in the UK. Driver Group said the acquisition enables it to immediately provide development and project management services on significant aviation, highway and rail projects across the UK. Initiate Consulting Ltd. offers infrastructure development, project, and construction management services. Driver Group plc, through its subsidiaries, provides consultancy services to the engineering and construction industries.

Arthur J Gallagher & Co. (USA) acquired The Titan Group LLC (USA)
Deal Size: Unspecified Industry: HR consulting Date: November 2014
Arthur J. Gallagher & Co. announced the acquisition of The Titan Group, LLC (Titan) located in Richmond, Virginia. Founded in 2001, Titan provides human resource consulting services for private, public, nonprofit, education and state government clients throughout the Eastern United States. They specialise in compensation consulting, leadership development, organisational development and human resource advisory products and services. Genevieve Roberts, Lee Weisiger and their associates will continue to operate from their current location under the direction of William Ziebell, head of Gallagher’s North Central region employee benefits consulting and brokerage operations. “Titan is well-known and well-respected in the industry for its human resource expertise. Over the years, they have focused on creating specialty HR products and services for their middle-market clients, which will fit well within our national practice group,” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “Their East Coast presence and specialisation will be a wonderful addition to our human resource consulting operations. We are extremely pleased to welcome Genevieve, Lee and their colleagues to our growing Gallagher family of professionals.” Arthur J. Gallagher & Co., together with its subsidiaries, provides insurance brokerage and risk management services in the United States and internationally. The Titan Group LLC provides human resources (HR) consulting services in the United States.

Page (USA) acquired BMS Design Group (USA)
Deal Size: Unspecified Industry: Engineering consulting Date: December 2014
Page, a multidisciplinary architecture and engineering firm, announces that it has expanded its urban design and urban/campus planning capabilities through the acquisition of BMS Design Group, a consulting firm in San Francisco. Their areas of expertise include urban planning, urban design and landscape architecture. Additionally, Dan Kenney, an award-winning architect and master campus/site planner with four decades of experience, will join Page in the new office. This will also advance Page’s planning service capabilities in transit-related projects, waterfronts and streetscapes across all its offices. In turn, Page will offer architectural, engineering, interior design and strategic consulting to West Coast clients. This also means Page now has offices in every time zone across the continental United States. Continue reading

Equiteq’s Buyers Research: Your questions answered

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We launched our first Buyers Research Report in October and in that time we have presented our findings to consulting firm owners both in the US and UK. Here, we share some of the questions we’ve been asked during this process and our answers.

If you’d like to ask a question, yourself or hear more about our findings, you can join our free UK webinar, ‘Thinking of selling your consulting firm? 5 things you need to know’ , from 12.30pm to 1.30pm GMT 11 Dec 2014.

If my firm falls outside the size range that buyers indicated was most attractive to them ($15m-$40m) does it follow that it will be harder for me to sell?

No, not necessarily but what it does mean is that you’re likely to have a slightly smaller pool of potential buyers. $40 million is a very large size for an independent consulting firm. Firms larger than this, that are focused in a particular niche or have a highly valuable service offering, are extremely sought-after.

What are your thoughts on the minimum size of firm that a buyer will be interested in?

In terms of the market, firms of all sizes sell. In fact if you consider firms smaller than $5m to be ‘very small’, about 40% of the market volume is in this size category. However, size is important to buyers because firms that are too small are generally high risk (financially unstable). But there are exceptions. Small firms that are rich in tangible intellectual property that the buyer can leverage rapidly through its organization are seen as worthy acquisition opportunities. You can read more about this in our article, Does size matter?

Are there any nuances in your research regarding specialist firms, for example, industry sector specific firms?

What buyers have been very clear with us about is that they like specialists. They like a consulting firm to have focus in both what it offers and in what markets. For strategic buyers this makes it easier for them to identify what a target firm does and how it fits into their organization. Industry specialization is a positive or, more accurately, the flipside is that diversification in service offerings and industries serves as a negative.

How long must an upswing in revenue and profit be maintained for a company to be attractive to buyers?

The key is explaining why it happened. You can demonstrate an upswing for as little as three months and get significant credit for that if the reasons are good. What did you do to achieve the upturn and how you will ensure it continues?

How do buyers view the business development function of small firms if they have only one or two rainmakers – is this a deal breaker?

No, typically they look at what the leadership team is bringing in compared to the rest of the firm and if this proves higher or lower than they norm then expect them to ask why. Also, it depends on the scale of the business, so if you are a $30m firm and 90% of the business is brought in by two people then they will want to know why this is.

How are buyers thinking about value, how are they determining value for the firms they buy?

Buyers will typically take a view of delivered profitability over some period of years. Equiteq’s valuation model takes a six-year view of financial performance both backwards and forwards. This is very similar to what buyers do. In our model we will discount by a proprietary and custom measure of risk that we institute with all of our clients. Buyers are typically doing the same; they discount the future based on their perception of risk in the future.

Consulting Sector M&A Deals for week beginning 1st December

businessman doing handstand on the beachCircleGroup AS (Norway) agreed to acquire Wellpartner As (Norway)
Deal Size: Unspecified Industry: Engineering consulting Date: December 2014
HitecVision has announced that its subsidiary, Circle Group, has acquired WellPartner AS, an equipment and services company servicing the Norwegian subsea, completion and intervention markets. WellPartner was established in Stavanger in June 2008 as a consulting company, and has since then developed into a technology focused subsea well access and intervention specialist. The company consists of three main businesses; WellPartner Products, WellPartner Services and WellPartner Consulting. WellPartner Products has through extensive knowledge of marine riser operations, well access and downhole operations, launched several niche products with growth potential in the market. The product portfolio consists of a mix between commercialised products and products under development. WellPartner AS provides technical expertise, equipment, and services within subsea drilling, completion, and intervention operations for oil companies. HitecVision AS is a private equity and venture capital firm specialising in investments in seed stage, growth capital, replacement capital, mature stage, PIPEs, industry consolidation, buyouts including management buyouts, and public to private transactions in middle market companies.

Deming Malone Livesay & Ostroff (USA) acquired Healthcare Practice Consultants, LLC (USA)
Deal Size: Unspecified Industry: Healthcare consulting Date: December 2014
A Louisville-based CPA firm has acquired a consulting firm that focuses on management of physician and dental practices. DMLO CPAs has acquired Healthcare Practice Consultants LLC, also based in Louisville, for an undisclosed amount. Deming, Malone, Livesay & Ostroff PSC rebranded as DMLO CPAs in September. Healthcare Practice Consultants provides practice management, tax and accounting services to physicians and dentists across Kentucky and Indiana, according to a news release. Charles K. “Chuck” Thieman, founder and president of HPC, and the firm’s five other employees will join DMLO but will continue to operate and be known as Healthcare Practice Consultants. With the acquisition, DMLO will have a total of 91 employees. “Teaming up with DMLO is an ideal move for HPC,” Thieman said in the release. “Together we are better-positioned to meet the challenges of the ever-changing health care environment.” In addition to tax planning, compliance and accounting services, the group will offer oversight in new practice set-up, collections management, personnel training and evaluation, physician compensation arrangements, benchmarking, practice surveys, practice valuation, M&A services and ongoing consultation, according to the release. Healthcare Practice Consultants, LLC provides healthcare consulting services to physicians and dentists.

Porte Brown LLC (USA) acquired Brown Kaplan + Liss LLP (USA)
Deal Size: Unspecified Industry: Financial consulting Date: December 2014
Accounting and consulting firm Porte Brown LLC, of Elk Grove Village, said it will merge with Brown, Kaplan + Liss (BKL), an Evanston-based public accounting firm that is among the largest along the north suburbs. Brown, Kaplan + Liss dates back to 1962 and is known as an industry leading, reputable firm providing accounting, assurance, attest, tax, planning and consulting services for businesses, business owners, trusts, estates and individuals in many fields, each of which has its own unique tax and regulatory circumstances. “We are very excited about the new opportunities to work together with the talented team of Brown, Kaplan + Liss,” said Bruce Jones, managing partner of Porte Brown. “We have known BKL for years and just recently started to discuss a merger. Once we started to share our philosophies of client service, investing in top talent and the importance of supporting local businesses and communities, we knew it was a perfect fit.” Porte Brown LLC is a nationally recognised accounting and consulting firm. Brown Kaplan + Liss LLP is a premier Chicago CPA firm specialising in personal and small business accounting. Continue reading

Survivability of IT consulting firms

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There are huge opportunities for IT consulting firms, which is reflective of the dynamic nature of the IT industry and the current heat in the market. However, the opportunities are not without risks associated with advising in a fast-paced market. Consulting in a hot sector like IT means that competition is stiff and firms need to keep up to date with and adapt to changing technology trends. The rewards are great indeed for those that can navigate their firm to remain successful as the industry changes. How do firms ride the wave to ensure they stay relevant and grow real value? The answer is not the same for all, but an understanding of how these changes impact the ‘saleability’ of a firm is important.

The rapid changes transforming the sector are giving rise to three particular areas of interest to buyers.

1. Cloud

What’s happening?

Cloud offers a new and attractive delivery model for IT. Companies that adopt cloud-based software or platform delivery minimize the upfront infrastructure and ongoing IT staff costs, and can also improve the scalability issues typically associated with IT. Buying IT as a service can be cost and cash flow efficient, and it offers the flexibility to scale up or down according to requirements.

What does this mean for consulting firms?

Cloud creates a new context for IT delivery, and this brings with it new challenges to common IT issues of integration, data management and scalability. It will be critical for IT consultants to keep updated on new architecture models and best practice changes as technologies mature. As cloud based software, infrastructure and platform vendors take stage in the market, IT consultants will need to either place bets on winning technologies or keep up to date with a wide variety of vendors to be able to advise on the pros and cons of each. Whilst IT has always been a dynamic industry, the industry changing nature of cloud as an IT delivery model requires IT consultants to step up the pace of their research, and to develop or strengthen their strategic partnerships, in order to remain relevant in this space.

2. Cyber security

What’s happening?

IT security has been an issue since the birth of the IT industry. However, the implication of computing, data and channels of business moving online results in new and heightened threats to business operations and data security. Cyber or online security attacks that disrupt operations or result in a loss of data can have huge repercussions on a business, as this can immediately affect a company’s brand and the perception of its customers. As such, cyber security has become a significant issue that all companies now need to manage in line with their online presence.

What does this mean for consulting firms?

Cyber security is a highly specialized topic that requires deep domain knowledge. It’s also fast moving as new threats constantly evolve. Consultants must be confident that they have the skills, knowledge and intelligence to be effective in this challenging environment. In some cases, traditional IT security approaches are still relevant, but new cyber security models will also need to be applied to effectively address the different nature of threats. Keeping updated with new security standards and the latest research will be an important new driver for IT consultancies to remain updated.

3. Data analytics

What’s happening?

As companies become increasingly more dependent on IT, so too does the volumes of data they amass through their use of IT systems. The intuition is that having a lot of data should be useful, however extracting insights from the analysis of this data requires highly specialized expertise. Data is like a new goldmine. Mining it effectively is the new challenge. Consulting firms that can help organizations put the data they have to use are therefore in very high demand.

What does this mean for consulting firms?

Analytics is an area where everyone knows it is useful, but very few know how to do it properly. Consulting firms must be able to find new ways to collect, store, and structure, analyse and report on data stored to get the most out of it. However, not all IT consultancies that have expertise in traditional IT areas of data management and business intelligence are able to address all of the complexity that data analytics typically involves and the predictive insights that can come from it. So IT consultancies need to keep pace, but they must build the skill before they can sell it. Research and thought leadership papers can be a great way to start. Building partnerships with key vendors that specialize in analytics can also be helpful in landing those first few projects.

Even if keeping up with IT industry changes, the fundamentals of selling an IT consulting firm remain unchanged.

As the IT market matures so too does the requirement for consulting firms to have deep domain knowledge and specialized skillsets. Evolving IT areas like those above still require deep expertise in order to stand out from the crowd to be attractive to buyers.

Demonstrating you have securely imbedded your intellectual property (IP) internally, is essential. If your firm’s knowledge, experience, tools and techniques exist solely in the minds of individuals within your firm, those assets may walk out the door!

Finally, consultant loyalty remains key. IT consulting skills change at a rapid pace in line with the industry. If your IT consultant’s skills and knowledge is in demand, so too is your firm’s services, but retaining talent is also a key challenge. Taking measures to ensure you attract, develop and motivate the best quality staff is a necessary investment in time and resource. Consider linking some compensation to profit growth and ensure any knowledge gained through contract professionals is retained with your staff. If you’re entering into an M&A process, we recommend you read our recent blog on effective communication in an M&A deal in order to keep your people onside and engaged.

The IT sector is an exciting sector to work in. No doubt the landscape will look very different again in 5 years time, but the principles of building a consulting firm of value are likely to still be true. Read our 8 Levers of Equity Value to find out more.

Consulting Sector M&A Deals for week beginning 24th November

businessman doing handstand on the beachArthur J Gallagher & Co. (USA) acquired Miller-Harrison Insurance Services (USA)
Deal Size: Unspecified Industry: Business consulting Date: November 2014
Arthur J. Gallagher & Co. announced the acquisition of Miller-Harrison Insurance Services in Muscatine, Iowa. Founded in 1919, Miller-Harrison is a retail insurance broker providing commercial property/casualty, risk management consulting and personal lines insurance services to clients throughout the Midwest. Michael Harrison, Jeffrey Miller and their associates will continue to operate in Muscatine under the direction of Michael Pesch, head of Gallagher’s Midwest region retail property/casualty brokerage operations. “The Miller-Harrison team is well-known for their focus on outstanding client relationships and depth of expertise, which will fit well within our culture,” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “Their Iowa presence and strong carrier relationships will be a wonderful complement to our Midwest operations. We are extremely pleased to welcome Mike, Jeff and their team to our growing Gallagher family of professionals.” Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in 30 countries and offers client-service capabilities in more than 140 countries around the world through a network of correspondent brokers and consultants. Miller & Harrison, Inc., doing business as Miller-Harrison Insurance Services, offers commercial property, casualty, risk management consulting, and personal lines insurance services to clients.

EPIC Inc. (USA) acquired Greyling Insurance Brokerage & Risk Consulting, Inc. (USA)
Deal Size: Unspecified Industry: Business consulting Date: November 2014
EPIC Insurance Brokers and Consultants, a retail property & casualty insurance brokerage and employee benefits consultant, announced it has acquired Greyling Insurance Brokerage & Risk Consulting, Inc., a specialty insurance broker and risk management consultant based in Atlanta, Ga., with locations in St. Louis, Mo. and Tampa, Fla. Founded in 2005 by David Collings and Gregg Bundschuh, Greyling is one of the nation’s top specialty insurance brokers serving four interconnected industry sectors across the country: Architects and Engineers; Contractors; Environmental Firms and Law Firms. “The addition of Greyling’s David Collings, Gregg Bundschuh, Bob Staed and their capable team of insurance and risk management specialists is an exciting way to further build EPIC’s commitment to industry specialisation on a national level,” said EPIC co-founder and CEO John Hahn. Greyling Insurance Brokerage and Risk Consulting, Inc. provides specialty insurance brokerage and risk consulting services in the United States. Edgewood Partners Insurance Center, Inc. provides retail property and casualty, and employee benefits insurance brokerage and consulting services in the United States.

MITIE Group PLC (UK) acquired a majority stake in Source8 (UK)
Deal Size: $24.4 million Industry: Business consulting Date: November 2014
Mitie Group plc, the FTSE250 strategic outsourcing company, is pleased to announce that it has acquired a majority stake inSource Eight Limited (“Source8”), the real estate, technology and risk management consultancy. Source8 delivers real estate, technology and risk management consultancy services to leading global corporations, with particular expertise in emerging markets and complex environments. With a high quality management team, Source8 brings a strategic offering with strong growth potential and consulting capabilities both in the UK and overseas. Source8 had turnover of £4.5m in 2013. The initial consideration payable is a maximum of £2.95m, with £2.5m paid in cash on completion, and the remainder payable dependent on performance targets. Further consideration is payable in cash up to a maximum of £12.5m (£15.45m total consideration) depending on financial performance over a five year period. Ruby McGregor-Smith CBE, Chief Executive of Mitie, comments: “We are delighted to have acquired a majority shareholding in Source8. This acquisition will enable us to significantly build upon our consultancy services offering and complement the services we already provide for our clients. Mitie Group plc, through its subsidiaries, provides strategic outsourcing services for public and private sector businesses in the United Kingdom and internationally. Continue reading