Consulting Sector M&A Deals for week beginning 20th April

businessman doing handstand on the beachUtilitywise Plc (UK) acquired t-mac Technologies Limited (UK)
Deal Size: $33m Industry: Business Consulting Date: April 2015
Utilitywise (AIM:UTW), an independent utility cost management consultancy, has announced the acquisition of the entire issued share capital of t-mac Technologies. T-mac Technologies develops energy management solutions in the UK. The acquisition is in line with Utilitywise’s strategy of broadening its service offering and, in particular, expanding into energy management systems. t-mac’s modern, cloud-based technology provides Utilitywise with the assets and skills to offer new value-added subscription services to its customers covering procurement, management, monitoring, and reduction of electricity, gas and water.

K3 Business Technology Group plc (UK) acquired Willow Starcom Ltd (UK)
Deal Size: $2.6m Industry: IT Consulting Date: April 2015
K3 Business Technology Group PLC has acquired Willow Starcom Ltd from Access Intelligence PLC for $2.6 million in cash. Willow was established in 1990 and is based in Greater Manchester, in North West England. It is an IT support services company with cloud computing capabilities. “Willow is highly complementary to K3’s existing hosting and managed services activities and the business can be very readily integrated. The addition of Willow Starcom will broaden our existing offering within hosting and managed services and brings additional expertise and skills to our team. We believe that there is significant potential to expand our hosting and managed services activities and this acquisition is part of our strategy to realise that growth opportunity”, K3 Chief Executive David Bolton said in a statement. K3 Technology Group supplies computer software and consultancy services in the UK.

Mazars Group (France) merged with Roever Broenner Susat (Germany)
Deal Size: $2.6m Industry: Financial Advisory Date: April 2015
Accountancy firm Mazars has merged with German rival Roever Broenner Susat to create a business with more than 1000 staff, 68 partners and a turnover of €110 million. The merger means Mazars will rise several places amongst the largest German firms, moving from 15th to 8th position. “This is great news for Mazars in the UK, as Germany is the UK’s second largest export market globally after the US. We already work with a significant number of German-based clients, as well as UK clients doing business in Germany. The merger gives us further opportunities to strengthen our Anglo-German business. To support growth we have established a new German desk, drawing on the skills of staff from across six UK offices”, International Board member and Mazars UK senior partner Phil Verity said. Roever Broenner Susat is one of Germany’s leading independent medium-sized audit and tax consulting firms with 54 partners and 750 employees across 10 offices. Continue reading

Consulting firm M&A market intelligence on digital marketing

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The media industry has experienced significant change in recent years. Despite the ongoing presence of the printed medium, online content continues to gain prevalence and has now become the medium of choice. In line with this, digital media and marketing companies are becoming more attractive than ever as acquisition targets.

But what is digital marketing and why is it generating so much M&A interest? Analytics and intelligence software provider SAS describes digital marketing as ‘The promotion of products or brands via one or more forms of electronic media.’ SAS concludes that what sets digital apart from traditional marketing is data. Digital marketing uses channels and methods which allows a firm to analyze marketing campaigns and understand what is working and what isn’t in real time.

Digital marketing is comprised of three main categories: earned media, paid media and owned media, according to Titan SEO. However, each category does not stand alone, and using all three techniques in unison can be the most effective marketing method. The venn diagram below, from Titan SEO, outlines how each media segment exists in the digital marketing ecosystem.

digital marketing

Since 2010 digital marketing deals have doubled, outstripping the growth in overall media deals. This means deals in digital marketing are outpacing the market.

Digital marketing vol

The heat in this market is coming from the fact that this is a fast moving industry seeing huge amounts of change. Acquisition interest is thus driven by the need to quickly obtain these skills, rather than growing them in-house, which tends to require more time. The shift to digital means media and IT firms need to quickly acquire new media skills, technology and intellectual property (IP). There is also the opportunity for new customer channels to be acquired through various methods including mobile and social. Digital marketing is playing a pivotal role in this.

Nicola Kemp, Head of Features at Marketing magazine, agrees that the digital marketing ecosystem is in the midst of fundamental change and the industry’s true growth potential is only just beginning to be realized.

She says: “From the rise of the smartphone to the social media revolution, businesses are being challenged to meaningfully collect and analyze an ever-increasing pool of data. The importance of acquiring and embedding new skill sets into existing business models in order to better meet this demand cannot be over-estimated.”

Media and advertising companies are overwhelmingly the most prolific buyers in this area, having been responsible for 106 acquisitions since 2012, with the likes of WPP and Publicis Groupe involved. The next biggest acquirers are technology/IT services firms, such as IBM and Google, with 44 acquisitions. In a hot, fast moving sector, private equity firms will always be represented and firms such as The Carlyle Group and Berkshire Partners have made 23 acquisitions in this space since 2012. Finally, management consultancies such as Deloitte and McKinsey have also invested in this space, albeit in lower numbers, with 10 acquisitions made during the same period.

The areas within digital marketing that gain the most attention include customer analytics, mobile marketing and social media marketing, along with digital agencies and CRM/database marketing.

It goes without saying that digital technology organisations have had a dramatic impact on M&A in the world of marketing. Activity in this area is likely to continue apace in the coming years. As increasingly more services are digitized, it is only natural that digital marketing will grow alongside them.

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Positioning financial metrics in a sale process

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There is no one way to prepare accounts, which means that it’s unlikely you’d want to put forward your standard internal financial reports to a potential buyer. Our fourth and final blog on consultancy financials will look at how to present your accounts when involved in a sale process.

While there are many ways to prepare accounting statements incorrectly, you might be surprised to learn that there are also many ways in which they can be prepared and still be accurate. Given the choices that have to be made when calculating financial results, it’s important to think carefully about how to present these to a potential buyer. It’s important to note, this is not a question of right versus wrong, or accurate versus inaccurate. What we are talking about in this blog is making sure that your financial statements accurately reflect your business performance in the eyes of the buyer. Furthermore, the accounting methods and policies you use to manage your business might be very different from the methods a buyer would use if running your business as a part of their company. The result is that a buyer might look at your internal accounts through the lens of their accounting policies and fundamentally misunderstand your business.

The lesson for the business owner is to always take a fresh look at the accounts and make adjustments for items that could cause a buyer to misunderstand the business. These items could be adjustments to gross margin as discussed in a previous blog, or removal of “owner expenses” that wouldn’t be incurred by the business after a sale to a new owner

One critical category of expenses that might need to be positioned in a sale context refers to growth investments. Put simply, these are expenses that you incur as the owner of a business (and that reduce profitability), but that benefit the buyer because they result in improved performance after the sale. For example, let’s say you hire a new revenue producer in March, and sell the business in December. Since it takes a new producer six months to build a pipeline of client engagements, she hasn’t delivered significant revenue by the time the transaction closes in December. However, her entire monthly draw, which might even be above normal as a transition salary, reduces EBITDA in the period right up to the sale. In our engagements, we would make sure the financial data clearly articulated her draw as a growth investment, and calculated both the real profitability as well as what the profitability would have been had she not been hired.

Another key strategy when positioning financial results to a potential buyer – or buyers – can be called “proving a trend”. This relates to a situation where the financial story of a firm has changed recently and there is significant, justified confidence that it will persist into the future. For example, a business that generated $10m of revenue in the last calendar year, and hired several new producers in that year which reduced profitability, is on track through March of the current year to generate $15m in revenue. Typically, a buyer will view the most recent full year as the scale of the business ($10m) and base a valuation on that number. However, in this situation, we want a buyer to use $15m as the base scale of the business, and to do that we need to prove that the uptrend is real and sustainable through:

  • Detailed pipeline analytics
  • Demonstration of booked engagements supporting the $15m number
  • Monthly or weekly run rate and capacity analysis to prove we are not being unduly optimistic

Financial information is of course hugely important when talking to a potential buyer. Presenting them with your standard internal accounts makes it likely that they will not gain the correct understanding of the business. This could result in you missing out on maximizing your sale price, or missing out on a sale all together. Because of this, external advice should always be sought on how best to present your financials so that the buyer can see what benefits they would obtain through purchasing your business.

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Consulting Sector M&A Deals for week beginning 6th April

businessman doing handstand on the beachNFP Corp. (USA) acquired Trinity Consulting (USA)
Deal Size: Unspecified Industry: HR consulting Date: April 2015
NFP, a leading insurance broker and consultant that provides employee benefits, property & casualty (P&C), retirement, and individual insurance and wealth management solutions, has expanded its P&C capabilities and added significant scale to its employee benefits operation by acquiring Trinity Consulting. A large risk management and regional employee benefits firm based in Charlotte, NC, Trinity has provided consulting and brokerage services to corporate clients since 2001. In addition to its P&C offerings, the firm boasts a full suite of employee benefits solutions. “We’re excited to bring Trinity into the growing NFP family,” said Christi Byron, from NFP. “The firm’s expansive P&C and employee benefits resources give us a unique opportunity to enhance multiple service offerings at one time. The addition of Trinity’s commercial P&C expertise brings a significant new solution to our team.” Trinity Consulting, Inc. provides brokerage, communication, and consulting services in the areas of employee benefits, property and casualty, and 401(k) and retirement planning to corporate clients. NFP Corp. operates as an insurance broker, consultant, and wealth management company.

Emtec Inc. (USA) acquired Lucidity Consulting Group LP (USA)
Deal Size: Unspecified Industry: IT Consulting Date: April 2015
Emtec, Inc., a leading consulting firm providing industry specific transformative digital solutions, announces the acquisition of Lucidity Consulting Group (Lucidity), effective April 2, 2015. Lucidity (, based in Irving, Texas, is an information technology consulting firm that provides advisory, integration, and managed services across the Utilities, Manufacturing and Distribution sectors. The acquisition significantly complements and expands Emtec’s consulting services including additional expertise in the Utilities and Manufacturing industries.

Accenture plc (Ireland) acquired Axia Limited (USA)
Deal Size: Unspecified Industry: Management Consulting Date: April 2015
Axia, headquartered in Boston, provides growth, go-to-market, operational, performance management and M&A consulting services. The company’s clients are mainly in the life sciences, health care and consumer goods sectors. The Dublin, Ireland-based buyer is a management consulting, technology services and outsourcing company. Accenture plans to add Axia to its Accenture Strategy unit. The acquisition bolsters the capabilities of Accenture Strategy to help clients improve their competitiveness by delivering growth through strategic cost management and organizational agility. Continue reading

Consulting Sector M&A Deals for week beginning 13th April

businessman doing handstand on the beachKPMG LLP (USA) acquired Beacon Partners Inc. (USA)
Deal Size: Unspecified Industry: Healthcare Consulting Date: April 2015
KPMG LLP has agreed to acquire the assets of health-care consulting firm Beacon Partners Inc., as the Big Four accounting and professional-services giant continues beefing up its services to clients in the health-care industry. Beacon Partners, based in Weymouth, Mass., provides management consulting services to hospitals, physician groups and other health-care providers. KPMG’s agreement to buy Beacon is the latest step in the bigger firm’s attempt to strengthen its position in the health-care industry, especially in terms of information technology.

International Business Machines Corporation (USA) acquired Phytel Inc (USA)
Deal Size: Unspecified Industry: Healthcare IT Consulting Date: April 2015
International Business Machines Corporation (IBM), an information technology (IT) company that provides business, technology and consulting services, acquired Phytel, Inc., a provider of integrated population health management software. According to IBM, “The acquisition will bolster the company’s efforts to apply advanced analytics and cognitive computing to help primary care providers, large hospital systems and physician networks improve healthcare quality and effect healthier patient outcomes.”

Cotecna S.A. (Switzerland) acquired CoalLab Pty Ltd. (South Africa)
Deal Size: Unspecified Industry: Engineering Consulting Date: April 2015
Cotecna SA, a provider of a range of testing, inspection and certification (TIC) services, has acquired CoalLab Pty., Ltd., a South Africa-based provider of testing, sampling systems design and management, and consulting services for coal and other sectors. With the integration of CoalLab, Cotecna enhances their capabilities to service customers in the coal and minerals industry globally. It strengthens their presence in South Africa in particular and on the African continent where they see significant growth potential. Continue reading

What to focus on when expanding into Asia Pacific

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Last week, Equiteq’s Asia Pacific (APAC) team gave their three top tips when considering expanding a consultancy practice into Asia Pacific. This week they’re taking a look at which areas need particular focus, with reference to Equiteq’s Growth Wheel. There are eight levers of equity value, they will be taking a look at the five key areas that they recommend focusing on first in an expansion into APAC.

1. Market proposition

It is unwise to think that just because you’ve had success with a service offering in one part of the world, that you can simply transplant it to APAC and enjoy the same kind of result. Service offerings should be very targeted and adapted to the local business landscape, even to different countries in the area. Firms that have been the most successful concentrate on a niche market and on specific regions; for example the Leighton Group, an engineering consulting firm, has established its presence as the world’s largest mining services provider and derives a significant part of its revenues from APAC.

2. Intellectual property

The key advice here is to invest in creating intellectual property (IP). The more packaged the offer can be, with as much know-how as possible, the more local businesses will value it. Ideally you’d reach a point where the service is so well developed that it’s almost like a tangible product. Failing to develop IP can lead to service becoming commoditized and you will quickly end up in a race to the bottom based simply on price and not value.

3. Consultant loyalty

 As mentioned in the previous APAC post, competition for consultant talent in this area is fierce. We recommend moving away from the locally predominant payroll management system towards a comprehensive human capital development program to encourage consultants to stay. Due to competition for talent, consultants will have to be well remunerated, but it’s also important to keep them engaged with the company through ongoing training, development and recognition.

While we believe the market proposition, intellectual property and consultant loyalty are the most important levers to focus on when expanding into APAC, the following areas are also due careful consideration when setting up in the region.

4. Sales & marketing / Client relationships

Trust is fundamental in Asia, it is often more important than actual capabilities. Because of this sales & marketing and client relationships, two different levers on the Equiteq Growth Wheel, go hand in hand in APAC.  Focus on creating long-term relationships and developing existing accounts. It would be a shame to miss out on contracts for lack of follow-up once you have already done three quarters of the work by establishing trust.

 5. Quality of fee income

The wide variability of political regimes in the region means you should take care not to put all your eggs in one basket when working in APAC. While there are limited ways of predicting black swan events such as Thailand’s coup or Japan’s tsunami, there are ample opportunities to preempt them through diversification.

Bearing in mind the points above while staying open to the revolving regional landscape will help you harness the huge potential of the Asian century. Furthermore, it will increase the value of your business from an investor perspective by demonstrating your local knowledge and adaptability skills.

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Three top tips when considering expanding your consultancy practice into Asia Pacific

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While Asia has long been a key area for consultancies to expand into from other parts of the world, it doesn’t mean that this diverse region is not still full of surprises. For example, McKinsey research stated that by 2025 more than half of the world’s consuming class, i.e. those with an income of more than $10 a day, will live within a five-hour flight of Myanmar. Considering the region’s resilient growth and the industry pressure to globalize, many ambitious consultancy owners or founders will have considered expanding into the region.

For those who are moving beyond just thinking about such a move, here are three tips from Equiteq’s Asia Pacific team on doing business in the region:

1. First of all, there is no such thing as Asia Pacific (APAC). Broadly speaking, we can identify five sub-regions: South-Asia, South East Asia, North-Asia, Australasia and Greater China. Even inside these sub regions there are strong historical, economic, political, linguistic or religious differences which mean that you can’t simply take the same approach to business in one region as you would in another. To take one example, Singapore’s GDP per capita is more than 50 times that of Cambodia or Myanmar, although they are both part of the Association of South East Asian Nations (ASEAN). Applying a one size fits all strategy would mean grossly neglecting the lesson of KFC’s success in Greater China, i.e. the importance of adapting the formula to the local landscape.

2. While no single business culture exists, there are sometimes common challenges in the region around charging for services and solutions, as opposed to charging for a product. The price often matters more than the service and sometimes potential clients want to discuss prices before even going into what services are really being sold. Clients are frequently very interested in lots of discussion without necessarily committing to a contract, so it’s important not to fall into the trap of consulting for free.

3. Talent scarcity is increasingly being highlighted as the main business concern by regional consultancies. This comes partly from the young history of development but also from a political trend toward lower acceptance of immigration, including white-collar immigration and an increasing tendency for people to job hop. This picture is especially stark in Singapore and China, where new resident-favouring legislation makes it harder to employ foreign staff. This means locals are increasingly sought after and tempted to change jobs regularly for better offers. In an industry where a large part of the value of the firm lies in its people, this constitutes a significant issue.

Being aware of these challenges is one thing, but planning on how to address them during an expansion into APAC is quite another. In our next Asia Pacific blog we will look at five ways to maximize the chances of success in this region.

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Consulting Sector M&A Deals for week beginning 30th March

businessman doing handstand on the beachInfoReady Pty Ltd (Australia) acquired Adaptic Solutions Pty Ltd (Australia)
Deal Size: Unspecified Industry: IT consulting Date: March 2015
Melbourne based information management consultancy InfoReady has announceda takeover of data scientist consultancy Adaptic Solutions. InfoReady specialises in data management, business intelligence and marketing analytics. The takeover will see Adaptic become a new ‘data science and analytics practice’ for InfoReady, specialising in exploratory, predictive and prescriptive analytics. InfoReady managing director, Tristan Sternson, said: “The launch of InfoReady’s Data and Analytics practice will enable us to draw on Adaptic Solution’s deep expertise and data science capabilities in information and business intelligence, and become a genuine competitive force among the mid-market and enterprise. The market’s preference is to work with a single partner-provider that can meet all their data and analytics needs – a one-stop-shop, […] Our business goal is to be the number one Australian consultancy in information management, data, and analytics, and we are reassessing our capabilities and business model in order to give the market what it wants.” Adaptic Solutions Pty Ltd was founded in 2014 and provides data science consultancy services. InfoReady Pty Ltd. provides information management consultancy services in the areas of architecture and end-to-end solution deliveries.

Sapiens International Corporation N.V. (India) to acquire IBEXI Solutions Private Limited (Israel)
Deal Size: Unspecified Industry: IT consulting Date: March 2015
Sapiens International Corporation, a leading global provider of software solutions for the insurance industry, with an emerging focus on the broader financial services sector, announced it has signed a definitive agreement, subject to closing conditions, to acquire IBEXI Solutions Private Limited (IBEXI), an India-based provider of insurance business and technology solutions. IBEXI offers IT business consulting services to insurance companies on both core insurance and supporting systems. In addition to its own insurance products – business intelligence (BI) and insurance portal offerings – IBEXI also provides implementation services for insurance business solutions, including for external products. IBEXI’s insurance products will extend Sapiens’ portfolio of solution offerings, providing Sapiens’ clients with immediate benefits. Following the acquisition, IBEXI will manage the Sapiens Asia Pacific domain, and will establish a solid footprint for Sapiens as a regional center. IBEXI, which has previously managed several successful go-live projects, will enhance the Sapiens team with an expanded and highly experienced delivery team across all Sapiens solutions globally. With a larger and more geographically dispersed professional services team, Sapiens will be well positioned to provide services and support to its global customers with better cost efficiency. IBEXI Solutions Pvt. Ltd. provides business and technology solutions for the insurance industry. Sapiens International Corporation N.V. provides software solutions for the insurance industry in North America, the United Kingdom and rest of Europe, Israel, and the Asia Pacific.

Lovell Minnick Partners, LLC (USA) acquired a majority stake in J.S. Held, LLC (USA)
J.S. Held, LLC (USA) acquired Held Enloe & Associates, LLC (USA)
Deal Size: Unspecified Industry: Engineering consulting Date: March 2015
Lovell Minnick Partners LLC is pleased to announce the acquisition of a majority interest in J.S. Held LLC, a specialty advisory firm providing outsourced consulting services to its insurance industry clients. In conjunction with the investment, Held Enloe & Associates, LLC will combine with J.S. Held, further strengthening J.S. Held’s property loss consulting, litigation and dispute resolution services, and construction and development advisory services. J.S. Held and Held Enloe professionals have served as consultants, expert witnesses, and arbitration panelists on many of the largest and most complex property insurance claims, construction projects and disputes. The senior management team of both firms will continue to hold a significant minority interest in the combined company. J.S. Held’s President and Chief Executive Officer Jonathon Held said, “With the Lovell Minnick investment, J.S. Held has a partner who shares our vision for growth. Through its depth of knowledge and focus on financial service firms, Lovell Minnick has an extraordinary track record of investing in growth-oriented companies in our sector.” Held Enloe’s Managing Member Lisa Enloe added, “The combined service offering of J.S. Held and Held Enloe will provide clients with a world-class resource to help navigate through the increasingly complex claims and litigation environment.” J.S. Held, LLC provides consulting, project management, and expert services to the construction industry in the United States. HELD ENLOE & ASSOCIATES, LLC provides construction consulting services. Lovell Minnick Partners is a private equity firm specialising in middle market buyouts, divestitures, growth capital, expansion capital, and minority investments focused on growth-oriented companies in the financial services industry. Continue reading

The right time to sell

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Paul Collins, Chairman of the Board of Directors at Equiteq, shares some advice.

When building my first professional services firm, I was told that unless the firm generated ten times more than its existing revenue (£4-5million), the business would never sell. On the back of that advice we built the firm’s revenues up to £50million. Although the firm sold successfully, with hindsight the advice we received wasn’t very accurate.

In my experience since my first firm, I’ve discovered that the average (median) market price for a professional services firm is around the four to five million pound mark ($8-10m). A firm can realistically sell for that value and in some cases when smaller. Smaller firms that demonstrate something ‘hot’ from a capability or intellectual property point of view can get snapped up early by buyers seeking a competitive advantage.

Generally M&A advisers will identify three things that need to be in place for a firm to sell. Business growth should be at its peak performance, the firm’s market should be strong and the wider economy should be in rude health. The truth is that getting all three of these is a nirvana and only the very lucky will sell when all three factors are in their favour. Following on from the crash of 2008, many of the clients we’ve worked with reduced revenues and profits to suit market conditions. This acted as a reset button for their timelines for selling.

In today’s marketplace, a company should show at least two years of growth. This is lower than ten years ago when showing three or four years of growth was necessary. Yet given the turbulence in the market, buyers are open to shorter periods of proven performance. As a minimum performance for today, a firm should demonstrate at least 15 per cent EBIT, ideally closer to 20 per cent and at least 20 per cent growth per annum over two years.

From a size perspective, if a seller is looking for money up front then the firm should have over the four million pound mark in sales. In a typical deal structure this should see half of the firm value paid upfront. In a deal structured this way, the remaining fifty per cent will be paid over a period of time where the seller is locked into the business to deliver the profit performance. The likelihood that a buyer will put money up front for a smaller deal is low as such deals are viewed as high risk. A buyer needs to keep senior staff interested over the transition period to avoid a decline in business performance.

Where value lies between five and fifty million pounds, interestingly there isn’t much economy of scale where EBIT multiples are concerned. Although there is linear growth in EBIT multiple between zero and five million in sales, at the fifty and over mark it begins to decline due to a diminishing number of qualified prospective buyers.

The range of buyers has certainly shifted in the last ten years as well. In the build up to 2008 the largest buyer in percentage terms, driven by availability of cheap debt, was private equity investors. PE is currently making a resurgence in the market but trade buyers – mostly other professional service firms – are in the majority today.

Many factors affect the attractiveness of a firm to buyers. Absolute size in revenues and a good track record of growth will definitely attract buyer attention, especially if the company is in a service area in demand by clients. Smaller firms – less than $10m in sales – do sell in large numbers. However, the prices and deal structures in these sales are sub-optimal for selling shareholders. Selling your firm can make real financial sense if you put in the groundwork first and make sure you prepare for a sale. Firms should look to achieve greater than $10m in sales with profits of greater than 15% and demonstrable growth. By doing so, they will attract the right kind of buyers and be far more likely to sell successfully.

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