Consulting Sector M&A Deals for week beginning 23rd March

businessman doing handstand on the beachWilson Human Capital Group Inc. (USA) acquired Sumner Grace (USA)
Deal Size: Unspecified Industry: HR consulting Date: March 2015
WilsonHCG, a global leader in recruitment process outsourcing (RPO) and human capital consulting, today announced that it has acquired Sumner Grace, a U.S.-based global talent acquisition, talent management and workforce planning consulting firm. “WilsonHCG is driving innovation within the human capital market, by redefining RPO and being a true strategic business partner. The addition of Sumner Grace to the existing WilsonHCG suite of human capital consulting services continues to add to the progressive solutions we offer,” said John Wilson, Founder and CEO of WilsonHCG and CEO of the combined organisation. “The acquisition further solidifies WilsonHCG’s strong market positioning, and together we will offer best-in-class solutions for our clients.” The acquisition of Sumner Grace, a complementary organisation in both service offerings and culture, further strengthens and optimises WilsonHCG’s existing human capital management consulting services by providing additional scalability and enhanced consulting offerings, meeting the demands of the market. Areas of particular focus include talent strategy and design, technology assessment and vendor implementation and HR transformation. WilsonHCG is a top global recruitment process outsourcing (RPO) and human capital consulting provider that operates on the principle of providing true partnership to its clients. Sumner Grace & Associates LLC provides talent acquisition, talent management, and workforce planning consulting services.

GETECH Group Plc (UK) to acquire ERCL Limited (UK)
Deal Size: $6.4m Industry: Energy consulting Date: March 2015
Getech, the geoscience business specialising in the provision of data, studies and services to the oil, gas and mining exploration sectors, is pleased to announce the execution of an agreement to acquire the entire issued share capital of ERCL Limited, an upstream oil and gas consultancy. Getech has previously stated a strategic aim of acquiring companies with clear commercial fit and synergies, in parallel with the strategic aim of organic growth. The directors believe the new combined Group will be able to offer a significantly more comprehensive range of services and products, addressing exploration and development issues across a broader spectrum of client workflows. In particular ERCL brings to the Group a proven track record of working with Governments and National Oil Companies. Raymond Wolfson, Chief Executive of Getech Group plc, said: “We are delighted that agreement has been reached with ERCL. We see a very strong strategic fit between Getech and ERCL, and believe that this will open up an extended range of opportunities for the enlarged group to work with oil and gas exploration companies and national oil companies. The combined group will have a strong asset base, a broader range of skills and products, and the ability to address exploration issues across the full spectrum of clients from the smallest companies to the super-majors and NOCs.”

NCC Group plc. (UK) entered into an agreement to acquire Accumuli plc (UK)
Deal Size: $77.3 million Industry: IT consulting Date: March 2015
Manchester-headquartered IT services provider NCC Group has struck a deal to buy Accumuli in a deal which values the IT security business at £55m. Rob Cotton, chief executive officer of NCC Group, said: “The addition of Accumuli will enable us to provide a wider and more comprehensive range of security solutions and services. In this dynamic and rapidly growing international market, customers are now looking for the type of 24/7 operational security support and incident management offered by Accumuli in addition to our consulting capabilities.” NCC Group plc provides information assurance solutions to organisations worldwide. Accumuli plc, through its subsidiaries, provides IT infrastructure solutions and services in the United Kingdom and internationally. Continue reading

Margin presentation is crucial to maximize equity realization

Margin presentation - money buckets cropped

Having previously given a general overview of consultancy financials and then having a closer look at revenue, our series now brings us to margins, which can make a big difference in how appealing your business is to a potential buyer.

There are different types of margins, but the two that consulting firm buyers focus most on are the gross margin and the EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) margin. It is very important to note that in the context of a sale process, both of these critical statistics can be “adjusted”, or modified from your normal accounting practice for managing the business, or paying tax. These adjustments are never intended to mislead a buyer, in fact the opposite is true. By moving some expenses to different categories, or eliminating some altogether, a seller is actually showing the buyer a financial statement that more accurately reflects how the buyer would view the financial performance of the business once integrated into their organization. The proper presentation can have a material positive impact upon value realized in a deal.

Gross margin is simply gross revenue minus the direct costs required to deliver services or engagements that generated the revenue. Direct costs always include the salaries and benefits of the consultants and independent contractors that delivered the work to the client; think of them as a fully loaded staff cost.

Direct costs should also include the time spent by partners in delivering client work, but not the time spent selling, developing intellectual property (IP), administering the business or writing blogs or other marketing activity. When we are preparing a client for sale, we will often analyze and adjust the direct costs for these items to ensure that the gross margin statistic accurately reflects the cost of delivering the company’s services, rather than also including the costs of running or growing the business.

This is important to a sale process because a buyer might make a judgement about a selling firm based on the gross margin percentage – if it is low they might think “perhaps there is a utilization issue!” However, if in reality there is significant partner compensation in direct expenses that should be in selling expenses, then the buyer is coming to a wrong conclusion based upon incorrect information. By way of example, let’s say a shareholder/partner makes $500,000 salary, and this normally appears in direct costs (thus reducing gross margin by $500,000). If, in fact, this partner only spends 40% of their time on client engagements, then 60% of their salary ($300,000) should be moved to the admin bucket (more on admin shortly). Therefore, gross margin is $300,000 higher.

EBITDA margin refers to the profit generated by the business after subtracting administrative expenses from the gross margin. Some administrative expenses are obvious, such as rent, the salary of administrative professionals and IT expenses.

A critical adjustment when calculating the real EBITDA statistic is related to allocating the shareholder bonus properly between compensation related to running the business and profit sharing (which would not be included in administrative expenses required to run the business). This can have a significant impact on a sale transaction: A seller might want to reduce his or her implied salary in order to present a higher EBITDA statistic to a potential buyer. However, in reality what they are saying in this case is that they are willing to work for that reduced salary after the transaction.

The final piece of the puzzle when calculating the correct EBITDA statistic in the context of a sale process is to remove any non-recurring charges that a buyer wouldn’t expect to incur under their ownership. For example, if you spent $25,000 last year on legal fees related to installing a share bonus plan for junior partners we would expect to remove that expense from the administrative bucket when showing a buyer what our “true” EBITDA is. As opposed to the adjustments discussed above, this actually increases margin by removing an expense from the income statement. A buyer will agree with the approach, however, as long as they would not have the same expense under their ownership.

Given the complexities of the various margin statistics, and the importance of getting it right first time when speaking to a buyer, it is critical that care and expert advice is taken to ensure the financials are correct.

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Consulting Sector M&A Deals for week beginning 16th March

businessman doing handstand on the beachSt Ives plc (UK) acquired Solstice Consulting LLC (USA)
Deal Size: $73.6m Industry: Marketing consulting Date: March 2015
Marketing services company St Ives PLC said it has struck a deal to buy Solstice Consulting LLC for an initial GBP24.7 million in cash and shares. St Ives will pay a total of GBP24.7 million for the Chicago-based digital consultancy, comprising GBP20 million in cash and approximately 2.6 million shares in St Ives for the remaining GBP4.7 million. That would value those shares at 180.76 pence per share, slightly above St Ives’ closing price on Monday of 179.5 pence. A further GBP25.3 million may be payable, split between 80% in cash and 20% in St Ives shares, dependent on the profit performance of Solstice in 2015, 2016 and 2017. Solstice is a digital consultancy specialising in mobile-first digital product design and engineering services, St Ives said. It was established in 2001 and trades under the name Solstice Mobile. The business employs approximately 200 staff across three offices in Chicago, New York and Buenos Aires. “This acquisition further strengthens St Ives’ reputation and capabilities in digital, and significantly extends these into mobile. Strategically, the deal supports the growth of the Group’s marketing services division, while expanding our presence and capabilities in the Americas,” said St Ives Chief Executive Matt Armitage. Solstice Consulting LLC, doing business as Solstice Mobile, provides mobile-first digital product design and engineering services. It delivers engaging strategies and technologies to transform and accelerate businesses.

Survey Sampling International, LLC (USA) to acquire majority assets of MRops, Inc. (USA)
Deal Size: Unspecified Industry: Marketing consulting Date: March 2015
US-based survey research specialist SSI has entered into a definitive agreement to purchase the majority of assets of market research operations services firm MRops. MRops provides services to management consulting firms and market research agencies. With this acquisition, SSI said it strengthens its capabilities in data solutions and technology by significantly expanding its operational and delivery capability, substantially adding to its B2B business and deepening its expertise in management consulting and healthcare. Founded in January 2007, MRops has approximately 200 employees across offices in North America, Asia and Europe. SSI’s acquisition of MRops will also expand SSI’s leadership footprint in the Asia Pacific region with the addition of an operations hub in Hyderabad, India. The majority owner of SSI is HGGC, a middle market private equity firm, who completed their majority investment transaction in December, 2014. SSI staff operates from 30 offices in 21 countries, offering sample, data collection, CATI, questionnaire design consultation, programming and hosting, online custom reporting and data processing. SSI’s 3,600 employees serve more than 2,500 clients worldwide. MRops, Inc. provides market research operations services in the United States and internationally. Survey Sampling International, LLC provides sampling, data collection, and data analytic solutions for consumer and business-to-business survey research.

ByteGrid Holdings LLC (USA) acquired Sidus BioData (USA)
Deal Size: Unspecified Industry: Healthcare IT consulting Date: March 2015
BYTEGRID Holdings LLC, a provider of multi-tenant data centers and IT infrastructure services, announced the acquisition of Sidus BioData (Sidus), the leading provider of compliant hosting solutions and compliance services for FDA and HIPAA-HITECH regulated companies. Headquartered in Annapolis, MD, Sidus’ robust, compliant offerings in Cloud Hosting, Managed Hosting and IT Regulatory Consulting services, provide a comprehensive solution for some of the world’s leading pharmaceutical, biotechnology, medical device and health care companies globally who are required to comply with US, Canadian and European IT GMP regulations and HIPAA HITECH. The Company’s turn-key set of solutions meet privacy laws, security concerns, and audit transparency requirements. In addition, Sidus offers hosting solutions to federal, state and local government agencies. Sidus currently operates out of three locations, including two in Maryland and one in Boston, MA. “The acquisition of Sidus expands BYTEGRID’s capabilities to provide high levels of compliance required for regulated industries — healthcare and Federal Government in particular,” said Rick Kurtzbein, research analyst with the 451 Group. “Sidus adds specialised compliant offerings and expertise, including regulatory consulting services, to BYTEGRID’s cloud and IT infrastructure services. The new compliant cloud and hosting offerings, when added to BYTEGRID’s suite of services, are a significant development for enterprises and Government organisations in Maryland and the DC metro area, with the firm looking to extend the compliance offerings horizontally across its growing national platform.” Sidus BioData provides managed hosting solutions and compliance services for commercial businesses, government agencies, life sciences/medical device, and health IT companies in the United States and internationally. ByteGrid Holdings LLC engages in acquiring, developing, and operating wholesale collocation data centers in the United States. Continue reading

How best to manage utilization in a professional services business

Utilization - clock cropped

Paul Collins, Managing Partner at Equiteq, shares some advice

Utilization within a professional services firm is an important issue to address and measuring it should be a priority for all professional services firms. It may sound trivial but, in our experience, firms that measure utilization regularly end up outperforming those who do not.

If you take any spreadsheet model and observe the impact that a one or two per cent increase in utilization can have, then its importance becomes apparent. Without having high rates of utilization the bottom line profits will typically not be at healthy levels for business growth.

Before founding Equiteq, my previous company had a break even point at around 50 per cent utilization. If this then increased to 65 per cent we would make 20 per cent EBIT. This demonstrates just how sensitive business performance is to utilization.

We gave one director absolute responsibility for managing utilization at the firm. We believed that the key to successful utilization was correctly balancing permanent and contractor staff. As a result we sought to ensure that the bench of permanent consultants were placed on projects before contractor support was hired.

This is where the real skill of utilization planning comes into play. It may be the case that an external contractor is a better fit for a job compared to available permanently employed staff. A skilled organiser can keep consultants off the bench while placing the best people on each job.

Without someone driving utilization in the firm, our performance could easily have declined by 15 per cent. Such a drop should be avoided, as it will severely dent profit margins over the subsequent months.

Blend for best practice

For any firm reviewing its utilization, it is important to understand that utilization cannot be the same for all levels of the organisation, which means there is best practice to consider. A good target for most firms would be to aim for a blended rate across all levels of the organisation of around 65-70 per cent. This incorporates every consultant from the directors down to the most junior level.

At the junior level, utilization would be expected to be high at around 80 per cent of maximum availability. Maximum availability is the absolute most number of days that a consultant is available minus their holiday, training and potential sick days.

For project managers utilization will drop slightly, ideally to around 65 per cent as these staff will have further obligations in their project management role that contribute to building the firm. Finally at the client management level this would drop again to about 30 per cent as they would be expected to service clients, handle internal management demands and also drive or contribute to business development.

When it comes to utilization a firm shouldn’t resist opportunities to gain absolute control. Having a senior leader in the business managing this process will keep utilization rates efficient and boost business performance. Get this right and the firm will have a platform for long term success.

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Consulting Sector M&A Deals for week beginning 9th March

businessman doing handstand on the beachHamptons International (USA) acquired ikon Consultancy Limited (UK)
Deal Size: Unspecified Industry: Business consulting Date: March 2015
Countrywide firm Hamptons International has acquired a consultancy that specialises in affordable housing and regeneration. The purchase of ikon, based in London, is for an undisclosed sum. Hamptons said that the acquisition forms part of Hamptons International’s strategic ambition to grow and strengthen its professional services offering, particularly in the public and affordable housing sectors. Ikon’s client list includes housing associations and local councils, and major projects include Greenwich Peninsula and residential development in the Olympic Park. Alyn North, chief finance and operating officer at Hamptons International and Countrywide, said: “We are hugely excited to be making such a key strategic acquisition and particularly one which is so complementary to our current development services offering. “We have been working with the team at ikon for a number of years with blue chip clients across all sectors of the property industry and this is a natural extension of what to date has been a tremendously successful association.” ikon Consultancy Limited provides consultancy services to residential and mixed-use properties for private, public, and housing association clients. The company offers housing and regeneration advice services. It also provides development, finance, and project delivery services.

National Financial Partners Corp. (USA) acquired Mackenzie Taylor Benefits Consultants Ltd (UK)
Deal Size: Unspecified Industry: HR consulting Date: March 2015
NFP, a leading insurance broker and consultant that provides employee benefits, property & casualty, retirement, and individual insurance and wealth management solutions, expanded the global presence of its Insurance Brokerage and Consulting segment with the acquisition of Mackenzie Taylor Benefits Consultants, Ltd. (MTBC). MTBC is a United Kingdom-based international consulting firm that provides global benefits management services to multinational employers and their local and expatriate employees. With a growing reach that extends over 30 countries, MTBC offers expertise in pensions, health care plans, voluntary benefits and risk benefits. The firm was founded in 2008 by Kishan Herriotts and Anna Feeney, both of whom will continue to lead operations from Birmingham, UK. Douglas W. Hammond, Chairman and Chief Executive Officer of NFP, commented, “NFP is committed to providing international consulting services and high-quality products that meet the diverse needs of a rapidly expanding community of global citizens. The addition of MTBC allows us to strengthen the solutions we provide to multinational employers, particularly those that are opening overseas operations or making overseas acquisitions. We’re pleased to welcome them to the family.” Mackenzie Taylor Benefits Consultants Ltd. provides consulting services for employee benefits programs to corporations in the United Kingdom and internationally. National Financial Partners Corp., together with its subsidiaries, provides advisory and brokerage services to corporate and high net worth individual clients in the United States and Canada.

Opportune, LLP (USA) acquired Ralph E. Davis Associates LP (USA)
Deal Size: Unspecified Industry: Energy consulting Date: March 2015
Opportune LLP announced that it has acquired Ralph E. Davis Associates, LP, one of the industry’s more respected independent petroleum engineering firms. Established in 1924, Ralph E. Davis performs petroleum engineering and geological studies (both domestic and international), independently certifies reserve reports, provides acquisition/divestiture support, and prepares technical financial analyses for use in litigation and regulatory hearings. “Ralph E. Davis Associates, LP has stood for excellence in petroleum engineering for over 90 years,” stated David Baggett, Managing Partner of Opportune LLP. Mr. Baggett added, “We are excited to offer this new set of capabilities to our client base. Now Opportune, through Ralph E. Davis, can prepare independent reserve certifications and perform engineering and geological studies for field development, transaction due diligence, valuation or dispute resolution.” Allen Barron, President of Ralph E. Davis Associates, LP, said: “Our client-centric focus meshes well with Opportune, […] Our combination will provide us increased capabilities to assist our collective clients and more opportunities for our employees.” Ralph E. Davis Associates L.P. provides consulting services for the oil and gas industry. Opportune LLP operates as a consultancy that focuses on the energy industry. The company offers services in the areas of corporate finance, complex financial reporting, process and technology, strategy and organisation, dispute resolution, enterprise risk, tax, and outsourcing. Continue reading

Consulting firm M&A intelligence on cloud-based consulting

Cloud intelligence cropped

In the last decade cloud computing has become one of the world’s leading transformational technologies. It’s assisted businesses in reducing the total cost of ownership, easing scalability and boosting profitability, amongst other benefits. And in recent years, it has helped consumer technology boom.

Our research shows that cloud-based consulting deals have increased consistently from 2010, with this trend expected to continue in 2015. Within this activity, the sub-sectors of cloud consulting, including software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS) are expected to show similar M&A growth levels as cloud-based consulting. Furthermore, as ‘cloud’ is effectively a delivery mechanism for technology services, areas such as data analytics and cyber security are increasingly being delivered through cloud technologies.

Since 2010 the UK has seen a 67 per cent increase in year-on-year cloud-based consulting mergers and acquisitions*. The USA and Canada have also seen an increase in cloud-based consulting deals, especially the North American market, as it is larger, more established and tends to be a global leader in technology adoption. The chart below highlights the speed of cloud consulting M&A activity in North America and the UK.

year on year consulting

*Compound percentage increase from FY10 to FY14

A key reason for M&A activity in this space includes larger IT firms needing to keep pace with changes in the IT industry. This involves acquiring new skills around cloud-based services and determining how to make these work with traditional in-house or datacentre based IT systems. Furthermore, the acquisition of intellectual property continues to be a key driver of M&As. Cloud-based technologies that can be licensed to consulting/advisory clients provide easily scalable, ongoing revenues off the back of consulting engagements.

Our market data of M&A activity in this space from 2006 is highly illustrative of how the acquisition of cloud consulting firms is taking place across a wide spectrum of industries. In amongst the traditional acquirers such as technology firms, IT and research consultancies and private equity firms, some purchases have come from healthcare, telecom, publishing and industrial firms.

As the interest in the industry continues to grow, it remains to be seen where the future M&A activity is going to be focused in the cloud computing industry. Currently consultancies offering cloud-based software, cyber security and cloud infrastructure solutions are showing the greatest demand. Certainly SaaS, PaaS and IaaS have garnered a lot of interest in the market.

Cloud has been a major driver of innovation across the industry in recent years and this is expected to continue for some time. Cloud technology has helped drive the success of some of the largest firms on the planet, including Apple and Amazon, so it is very possible that this could create large deals for brilliant cloud businesses.

While still in relative infancy, large global IT consulting and other advisory businesses are starting to seriously focus on cloud. This opens up consolidation opportunities for advisory businesses in this space and we expect to see many more consulting deals involving these technologies as it becomes more mainstream in the IT industry.

If you would like a copy of our cloud-based consulting report please contact us at info@equiteq.com.

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Consulting Sector M&A Deals for week beginning 2nd March

businessman doing handstand on the beachPennoni Associates Inc. (USA) acquired assets of Jones-Stuckey Ltd., Inc. (USA)
Deal Size: Unspecified Industry: Engineering consulting Date: March 2015
Pennoni, an ENR Top 100 engineering, science, and design consulting firm, is pleased to announce the acquisition of the assets of the 17-person firm Jones-Stuckey Ltd., Inc. headquartered in Columbus with a regional office in Akron. The firm will now do business as Jones-Stuckey, a Division of Pennoni. Founded in 1965, Jones-Stuckey is a civil engineering firm providing transportation, bridge, water/wastewater, water resources, structural and construction engineering inspection services. “We are excited that Jones-Stuckey has joined our firm,” said Pennoni’s Director of Strategic Growth, Joe Viscuso, PE. “Jones-Stuckey’s services match our core services and they bring a wealth of experience in a new geographic region for Pennoni. They have a solid reputation with 50 years of serving the Ohio community and their mission to “be available and accountable to our clients is one of the most valuable assets we can provide” reflects our values as well. Both firms are focused on the needs of our clients by providing creative, value-added solutions.” Jones-Stuckey Ltd., Inc. provides civil engineering and design consulting services. Pennoni Associates Inc. provides engineering and design consulting services to local, state, and federal government clients, as well as private, commercial, industrial, construction, and other professional firms in the United States.

Parsons Corporation (USA) acquired T.J. Cross Engineers, Inc. (USA)
Deal Size: Unspecified Industry: Engineering consulting Date: March 2015
Parsons is pleased to announce that it has acquired T.J. Cross Engineers, Inc., a privately held oil and gas industry professional services firm specialising in engineering, design, and consulting services. The acquisition will expand Parsons’ oil and gas offerings and strengthen the corporation’s energy and chemicals portfolio. Headquartered in Bakersfield, CA, and with nearly 200 staff resources, TJ Cross has extensive upstream oil and gas experience. TJ Cross was founded in 1990 and serves the major oil and gas producers on the West Coast with an emphasis on heavy oil production. “This acquisition augments Parsons’ oil and gas market services. We see strong alignment with our focus on core values and customer service, and we believe that combining Parsons’ engineering, procurement, and construction services platform with TJ Cross’ strong engineering base provides an exciting engine for growth,” said Chuck Harrington, Parsons’ Chairman and CEO. T.J. Cross Engineers, Inc. operates as a mechanical, civil, chemical/process, structural, electrical, and instrumentation/controls consulting engineering firm. Parsons Corporation provides engineering, construction, technical, and management services.

Science Applications International Corporation (USA) to acquire Scitor Corporation (USA)
Deal Size: $790 million Industry: Engineering consulting Date: March 2015
Science Applications International Corp. announced that it has entered into a definitive agreement to acquire intelligence community market leader Scitor Corp. for $790 million in an all cash transaction from private equity firm Leonard Green & Partners. The SAIC Board of Directors has approved the transaction, which is expected to close in May 2015 and is subject to customary closing conditions. “The acquisition of Scitor unites two great companies with premier workforces making a profound difference for customers,” said SAIC CEO Tony Moraco. “Scitor is a recognised market leader with long-standing customer and industry relationships within the intelligence community and is aligned with SAIC’s market expansion strategy. Operating as one company represents an opportunity to create shareholder value by gaining access to new customers and leveraging capabilities from both companies to increase revenues and earnings.” The acquisition is highly complementary and aligns with SAIC’s previously communicated strategy to expand into the intelligence community and Air Force markets. Scitor is a recognised leader within the intelligence community, which is an attractive growth market better accessed by an acquisition. This accelerates SAIC’s entry to the intelligence community by providing access to classified contracts, cleared personnel and a robust security infrastructure. The business models and cultures of the two companies are compatible with similar services portfolios, low capital requirements, and steady cash flows. Scitor Corporation provides systems engineering, management consulting, and information services to customers in the United States. Science Applications International Corporation, a technology integrator, provides full life-cycle services and solutions in technical, engineering, and enterprise information technology (IT) markets in the United States. Continue reading