What are the exit options for Professional Services firm owners?

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Many of our clients spend years building a consulting firm and dedicate the majority of their careers to the task. It is very common at some point in the life of a firm for the owner, or owners, to suddenly come to the realization that they have built something of significant value. However, the equity value in a privately held consulting firm is not a liquid security (like gold, or shares in IBM), so how does an owner turn their equity value into liquid cash? In this series of blogs we will cover not only the different options available for realizing equity value, but also the key stakeholders that a firm owner will likely want to protect in the context of a transaction.

Exit options

Fundamentally, the exercise of extracting value from a consulting firm requires placing it (or part of it) in the hands of a new owner. That might seem self evident, but in the professional services industry it is never enough to simply find someone willing to extract the financial benefits from a going concern (as you might for a traditional manufacturing business). In a people business, we are always looking for the right partner. That is why making deals in this space is difficult and requires special expertise and experience. It is also why many transactions start with industry relationships between the buyer and seller, whether that is a competitive relationship or a partnership.

The importance of relationships is also what drives the next important category of considerations: stakeholders. The overall ecosystem of people and partners that is important to your business now becomes even more important in the context of a sale of your business. If you have an important client, that client will be important to the buyer as well. And that is true for employees, providers, contractors and so on. It isn’t enough for you to want to treat your stakeholders well; a buyer will want to know what the stakeholders are going to think about the deal.

As you can see, there are many things to think about as you prepare to realize the value of your firm. There are also several avenues to consider when planning an exit – so what’s the most important single thing to remember? There is no substitute for proactive planning, so develop a relationship early with a professional advisor who can guide you through the preparatory steps to what is likely to be the single largest financial transaction of your life.

We will be exploring the different exit options in more detail in future blogs.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access. 

Consulting Sector M&A Deals for week beginning 14th September

businessman doing handstand on the beachFutureye (Australia) acquires KPPR (Australia)
Deal Size: Undisclosed Industry: Media Consulting Date: September 2015
“Acquiring KPPR broadens and strengthens our experience in telecommunications, energy and fast moving consumer goods. It also enhances our portfolio of risk communication advisory services including product recalls, crisis management and privatisations,” Katherine Teh-White, Managing Director of Futureye, said. “Combining the risk, crisis communications and product recall capabilities of KPPR and Futureye will put Futureye in a world’s best practice position in this area and well positioned for growth in Australia and internationally”, Kelly Parkinson, founder of KPPR said. KPPR will be fully integrated into Futureye’s organisational structure in close collaboration with managing director Katherine Teh-White. Parkinson will be a director of Futureye and will be responsible for the communication, crisis and business resilience services. Futureye provides specialist strategy, communications & engagement services to organisations facing public concerns about their operations. (http://www.bandt.com)

Llorente & Cuenca (Spain) acquired majority stake in Cink (Spain)
Deal Size: Undisclosed Industry: Management Consulting Date: September 2015
Llorente & Cuenca, the corporate and financial communications firm with offices in Spain, Portugal and Latin America, has acquired 60 percent of Cink, a digital innovation consultancy. Cink, based in Spain, provides services covering technology, communication, and consultancy within the digital universe. Its works encompasses the design of digital transformation plans through to the development of prototypes that solve complex innovation challenges. It has a staff of 20 professionals and is headquartered in Barcelona. Says José Antonio Llorente, founding partner and CEO of Llorente & Cuenca, “The acquisition of Cink—a completely pioneering and cutting-edge company in its sector—will allow us to increase our expertise in innovation consultancy and be able to offer our clients solutions and services for the development of their digital communication strategies that are nowadays essential for any organisation.” Sergio Cortés, founder and CEO of Cink, joins the shareholders’ AGM of Llorente & Cuenca, and says the acquisition “represents an unrivalled opportunity to boost our international growth, making use of the group’s extensive territorial presence.” L&C has its own offices in Argentina, Brazil, Colombia, Chile, Ecuador, Spain, United States (Miami), Mexico, Panama, Peru, Portugal and the Dominican Republic. (http://www.holmesreport.com) Continue reading

What to expect from consulting firm buyers

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Different buyers look for different things when acquiring consultancies. Broadly, there are three different kinds of buyers: consulting buyers, corporate buyers and investment buyers. Each will see different aspects of your business as valuable and understanding their motivations is important. This week, we’re taking an in depth look at consulting buyers and will examine corporate and investment buyers in future pieces.

There are four key areas of consideration for consulting buyers which we will explore in turn.

  1. Build vs buy: Why consulting firms choose to acquire rather than grow a capability.

Growth is always on the agenda for most large and mid-market consulting firms. It typically comes down to balancing organic and acquisitive growth. Organic growth takes time and the careful management of demand and supply in the new area. There is the potential risk that the payoff takes longer than expected or does not happen at all. The upside is that the firm is in control of its own growth and the pace is incremental. Acquisitive growth, if successful, is immediately additive. However there are well known statistics on the failures of M&As which are often the result of poor post-merger integration.

In practice, consulting buyers use a combination of organic and acquisitive growth. Sellers of consulting firms need to understand that buyers will always consider whether your business could be built internally for less money than it would cost to acquire your firm. It is worth asking yourself, “What am I actually selling?” as the buyer will be asking “What am I buying?” Therefore, you need to demonstrate that what you have is additive to them, rare in the market with valuable intellectual property (IP).

  1. Acquiring capabilities: What is the landscape of capabilities, services and expertise that consulting buyers typically consider?

Large, multi-disciplinary consultancies that are likely to acquire other firms tend to be organized by both capability and industry. The reality is that strategy firms have historically organized themselves by industry expertise and most others have done so by functional or disciplinary capabilities. The reason for this is that in order to provide sound strategic advice, strategy consultancies look holistically at business issues across functional disciplines and consider market dynamics within an industry.

The trick is to understand which consulting buyers will be more attracted by your focus areas (capability or industry) and less deterred by areas where you may be more generic. Ultimately, buyers are looking to pay fair market value for your firm, but gain above average returns from their investment. The way to do this is by making acquisitions that have a high degree of synergy potential with the existing business.

  1. Intellectual property: What is it and what value does it represent?

IP has always been a key consideration for consulting buyers, but is becoming increasingly important as the landscape changes. IP is difficult to define and even more difficult to value. So sellers often want to understand how to define IP, whether what they have developed as IP is valuable to buyers, and if so, what is it worth?

IP comes in many different forms. The most understood forms of IP are software or IT products/solutions that are directly revenue generating as a standalone asset. The most abstract forms tend to be methodologies or best practices that do not generate revenue, but better enable a consulting firm to sell their expertise in a repeatable and consistent fashion.

Ultimately, consulting buyers are looking to acquire IP that allows them to sell more, or higher value, consulting work.

  1. Post merger: What to expect from consulting buyers following an acquisition

It is well known that the main reason for most M&A failures is poor integration, including pre deal integration planning and post deal integration execution. The situation where a consulting firm is acquired by a buyer is even more sensitive to integration failure, as integrating people is both the most difficult aspect and also the key to its success.

Time and time again, the critical factor of integration has proven to be the alignment of leadership objectives and defining successful integration as accurately as possible. However, as the acquisition of consulting firms by buyers involves people based risks, such as attrition, most buyers mitigate this through a deferred payment or earn out in the deal structure, with upfront payment typically in the form of cash and shares (partnership with some consulting firms). However, there is an ongoing dilemma for most buyers – how to measure the performance of an earn-out to ensure the acquired firm continues to grow, while trying to take advantage of the synergies between the two firms that often make standalone earn-out metrics difficult to measure. Some firms get around this by using top line earn-out metrics such as revenue or gross profit, while others stick to earn-out metrics for an initial period until the growth and integration is proven, then work collectively with the target to adjust objectives and take advantage of the synergy opportunities.

Ultimately, the integration of consulting offerings and cross selling opportunities with clients commands most of the air time in integration discussions, as this is where the money is made and where the opportunity lies. However, consulting buyers more than others understand that a better than average alignment of people is required to make this happen.

Understanding the motivations of consulting buyers can help you position your business in a more attractive way. If you’d like to read more about what consultancy buyers look for please read the full article here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access.

Case study: Strengthening and leading Blue Sky to a premium sale



Blue Sky Performance Improvement, a boutique performance improvement consultancy, create a different approach to training and developing people to improve business results. Blue Sky leadership engaged with Equiteq to help build value over several years with the aim of finding and securing a deal with an acquirer who would buy at a premium price.

We worked closely with Blue Sky to grow their equity value, improving and strengthening key areas of the business such as market propositions and intellectual property that proved vital in demonstrating their synergy to the eventual buyer. At the end of a three-year process, Capita approached Blue Sky. Equiteq led the sale of the firm to Capita, who offered £12m, equivalent to a revenue multiple of 1.7.

The client’s situation

Because Blue Sky had sound business propositions and a steady client base in the performance improvement area of consultancy, the ambitious management team wanted to sell to de-risk the value they had built and sell whilst the business was performing well. To begin with, we conducted an Equity Growth Accelerator, and a quarterly review of progress continued over 36 months.

Although Blue Sky later decided to switch to another advisor to try and clinch a sale deal, it fell through, and they found themselves back at square one. Once we were re-engaged, we set about building growth and securing a buyer prepared to pay a premium price for its assets in 2014.

Our approach

Over three years Blue Sky used Equiteq’s 8 lever ‘Equity Growth Wheel’ with on-going consulting support to set up a best practice operating model and grow revenue, profits, and equity value.

Selling a ‘people’ business, where your strongest assets and intellectual property could walk out of the door, requires a unique approach to sale.  We helped Blue Sky build stronger market propositions, put rigour and process around capturing their intellectual property and strengthen the management structure.

Three years into the process and with profits growing healthily, Capita approached Blue Sky. Capita had recently won a large government contract and Blue Sky were seen as a key part of the delivery solution. We managed the sale process throughout, and negotiated a premium price.

How did this deliver value to the client?

  • Using our Equity Growth Wheel, Blue Sky made fast progress over four years towards best practice in key areas
  • Equiteq helped grow Blue Sky’s sales from £4.2m to £7m
  • Blue Sky were offered £12m, negotiated up by Equiteq from an initial offer of £10m, with 60% payable cash up front
  • Earn out period was reduced from 33 to 27 months
  • Equity value increased from 5 x profit to multiple of 7.6 x profit
  • The revenue multiple increased to 1.7

Equiteq took Blue Sky from being an attractive sounding business and transformed them into a robust business asset that sold at a premium.

To read some of our other case studies, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access. 

Consulting Sector M&A Deals for week beginning 7th September

businessman doing handstand on the beachDeloitte (USA) acquires Indicia Talent & Performance (Netherlands)
Deal Size: Undisclosed Industry: HR Consulting Date: September 2015
Deloitte, through the full acquisition of the office and activities of Indicia Talent & Performance, expanded its footprint within the HR domain – specifically, in the area of HR Cloud services. This deal also sees the employees, relationships and current assignments integrated within Deloitte. Frans Dagelet, the former Managing Director of Indicia Talent & Performance, will, following the completed transaction, take a role of Director at Deloitte Consulting. Van Vliet comments: “With the acquisition of the activities of Indicia Talent & Performance, Deloitte’s leading market position in the field of HR Cloud Services and SAP/SuccessFactors is further strengthened.” Carlo Korssen, CEO of Indicia, ads: “Indicia Talent & Performance has built itself a formidable market position and has taken home several awards. We are proud of the fact that Deloitte would like to acquire this business off us and develop it further.” (http://www.consultancy.uk)

Netsmart Technologies Inc (USA) acquires Trend Consulting Services Inc (USA)
Deal Size: Undisclosed Industry: IT Consulting Date: September 2015
Netsmart Technologies Inc. has acquired an Ohio-based IT company for an undisclosed amount. Trend Consulting Services, which provides comprehensive IT outsourcing and infrastructure support services, adds expertise and resources to Overland Park-based Netsmart, according to a release. Trend’s capabilities also complement Netsmart’s managed-services strategy and its new Solutions Management Services business unit. “The addition of Trend’s outsourcing services and expertise enables us to provide our markets even more cost-effective and efficient services across the entire IT life cycle, whether or not they use a Netsmart CareRecord (EHR),” Netsmart CEOMike Valentine said in a release. Netsmart Technologies develops and delivers behavioural health information technology solutions. (http://www.bizjournals.com)  Continue reading

How to build intellectual property to drive more profits and equity value in your consulting firm


Quality intellectual property (IP) enables any consultant in your company to deliver superior results to clients, compared to what they could deliver by working for a competitor. So the question to ask yourself is this:

How much more valuable to a client is one of my expensive consultants, compared to an independent contractor who has no overheads to worry about?

My consultant – independent consultant = ∆ added client value

What’s the delta difference in your firm? If it’s zero you are selling bodies with no IP added value and no differentiation. And this is a dangerous position for a company to be in, especially one that is interested in driving more profits and equity value.

When we talk about IP we are not talking about patents, copyrights, or trademarks, although they may feature. In a consulting firm, value is created by reducing risk, increasing differentiation and showing sustainable growth performance. IP is about having a professional process for codifying, organizing, storing, securing and centrally leveraging the assets that enable your company to perform well and make it stand out in the crowd, independently of any individual in your firm.

There are three main areas of IP:


These are assets that enable you to sell more at lower cost and shorter sales cycle times; material such as marketing campaign models, case studies, thought leadership content, sales and marketing collateral, pitches and proposal templates.


This IP area is fundamental to scalability and value. It’s where profitability hits the road through leverage, because we can sell services at premium fees using less expensive resources. Here we have our training systems and content, client facing tools and templates, assessment models, benchmarks, datasets, technology enablement of delivery and more.


These are the tools that keep the boat going in the right direction with continuously improving performance. It includes your CRM system, KPI tracking system, resource planning, pipeline management, finances, client contracts and pricing models, human capital training and management etc.

There is a symbiotic relationship between all three areas and a well-run IP building program yields faster and better results as it progresses.

A firm will have these assets across the board but how much is at risk and not being centrally leveraged as it’s in consultant’s head and on their laptops? Without an IP building program all of your assets are portable, you are unlikely to grow and your firm will not be an attractive proposition in the consulting M&A market.

When in serious discussions to acquire a firm, buyers of consultancies are principally concerned with three things, all of which are improved with a strong IP program:

  • Is this business financially stable?: A track record of growth will mean a higher value for your company as the buyer will see little risk in your continued growth. The track record of growth to date will speak for itself and belief in the future will come out of the performance systems IP you’ve built for the running of your business. It will provide demonstrable evidence to support your continued growth story.
  • Is there fast leverage in the synergy factors?: Your potential acquirer may see compelling synergies, but can they be monetized, how hard will it be to integrate them and how long will it take before benefit realization begins? If you’ve built great service delivery IP that has de-risked your business and provided you with leverage, then it should be transferable to your buyer. What you are doing with 50 consultants in 20 clients, they can do in six months by porting that IP over the ether to their 500 consultants in 200 clients.
  • What’s left if the owners leave the day after the transaction has closed?: Your eventual buyer will be paranoid about this last point! They know that the moment their millions are in your pockets, no matter what the earn-out terms (assuming you get money up front in the transaction), your motivation and drive may change, or you may just decide to leave. From their point of view, everyone in your firm is vulnerable. However the more solid your IP, the better you will be de-risking the deal for your buyer.

IP is an essential tool in growing the value of a consulting firm. By having a strong IP program in place and working together, value and equity will grow more quickly. If you’d like to read more about building IP, please read the full article here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access.

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

businessman doing handstand on the beach

Inovalon Holdings Inc (USA) to acquire Avalere Health LLC (USA)
Deal Size: $140 million Industry: Healthcare Consulting Date: August 2015
Inovalon, a leading technology company providing advanced, cloud-based data analytics and data-driven intervention platforms to the healthcare industry, has entered into a definitive agreement to acquire Avalere Health, Inc., a leading provider of data-driven advisory services and business intelligence solutions to the pharmaceutical and life sciences industry. The addition of Avalere, with its more than 200 pharma/life sciences clients, is expected to significantly expand Inovalon’s leadership in the broader healthcare marketplace and enables the company to expand its industry leading capabilities into an expansive adjacent market. Avalere, a growing provider of data-driven advisory services that already serves 13 of the top 15 pharma companies, will operate as a subsidiary of Inovalon, enabling Inovalon the ability to offer a powerful combination of business intelligence, cloud-based analytics, and data-driven insights to the pharma/life sciences industry. Avalere’s CEO, Dan Mendelson, will join the executive leadership team of Inovalon where he will continue to lead the day-to-day operations of the core business of Avalere. (http://www.prnewswire.com/news-releases/inovalon-to-acquire-avalere-to-drive-strategic-expansion-into-pharmalife-sciences-300132444.html)

Softtek S.A. (Mexico) acquired Itarvi Consulting (Spain)
Deal Size: Undisclosed Industry: Management Consulting Date: August 2015
Softtek, founder of the nearshore industry and leading global IT services provider dedicated to creating value through technology, today announced the acquisition of Itarvi Consulting S.L., specialist in multichannel banking services in Madrid, Spain. This acquisition will contribute to strengthening Softtek’s operations in Europe, as well as expanding its reach and capabilities to provide digital solutions to companies with operations in Europe and the Americas. Itarvi Consulting, with operations in Madrid, provides digital transformation solutions using agile methodologies for large companies, particularly in the Financial Services sector. This operation complements Softtek’s current presence in Spain from its office in Madrid and global delivery center located in A Coruña. “Our integration into Softtek maximizes the value we provide to both our clients as well as our employees,” said Pedro Perelló, CEO of Itarvi Consulting. “Our experience creating digital solutions for the Financial Services sector, now combined with Softtek’s global capabilities, fosters a very attractive value proposition that will reinforce our positioning and growth in the Spanish market.” Softtek helps organizations prosper in the digital era through a broad portfolio of services and solutions that enable business transformation, improve efficiency and increase IT efficacy. (http://www.softtek.com/newsroom/news-releases/softtek-acquires-itarvi-consulting-specialist-in-multichannel-banking-services) Continue reading

Is it time for you to de-risk and take some ‘chips off the table’?

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Taking chips off the table is a term used for when a business owner sells a proportion of her or his equity as an intermediate step towards a future 100% sale. This enables you to bank some money now, remove pressure to sell the whole company at the first opportunity, but remain with the firm and grow it even bigger, then sell your remaining shares for a more lucrative sum down the line. This article explores why you may want to consider this option, when to time it and how it could be achieved.

What typically drives owners to consider this option?

You’ve worked hard for years to build your consulting firm and seen one or two tough times in your journey so far, driven by the ups and downs of business cycles, or boom and bust economic cycles. You may even have had to put your home on the line and self-funded the business when money in the bank ran out and working capital was required. Now you’ve got the company into a great place and could probably sell it and move on. But you remain highly motivated and want to see it through to the next level, you don’t yet want to exit and retire. But neither do you want to risk another painful cycle and see your equity value fall again. This is when the option of a partial sale of shares may be right for you. You’ve earned the right to have your cake and eat it too!

Is now the right time?

Alongside your personal objectives, motivations and what you want financially, there are two major considerations on timing:

  • Business cycle
  • Market cycle

Business cycle – Where your company is in its lifecycle and maturity is a key driver. The optimum time in the lifecycle is when the business has proven itself by growing over the last 3 years, is at a peak and your pipeline and forecast shows continued growth. Maturity means that the business has achieved robustness, both in scale and financial stability, because small scale firms generally come with much higher risks for investors.

Market cycle – This is about supply and demand. Is it a buyers’ or sellers’ market? If your business cycle coincides with a peak in the market then a premium valuation of your equity is possible. At the time of writing this article in mid-2015, we’re in a sellers’ market where investors have war chests they need to use, but quality consulting firms in the growth niches of consulting are in short supply.  As you can see from the chart below, now is a very good time to sell a consulting firm. In 2014 deal volumes were 32% above the previous low in 2009 and the market rose to only 7% below the market peak in 2007. Valuations are also at a 5 year high.

Global consulting volumes

Options for a partial sale of equity

In the consulting sector, partial trade sales are not common, so for a consulting firm there are three main options:

  • Sell to a large financial investor
  • Sell to a small financial investor
  • Sell to employees

Sell to a large financial investor – Private equity (PE) is the predominant type of investor for consulting firms with scale. In the USA there are over 100 PEs who invest in our sector and about 25 in the UK. They are very flexible and will normally buy between 20% and 75% of your shares and these days will not always require a controlling stake. In addition to part ownership, PEs will also invest growth money in return for equity dilution across all shareholders.

In order to be attractive to PEs your firm would typically need to pass two main hurdles:

  • Some may consider firms with $1m EBITDA, but most need $3m and above
  • A growth plan they believe in, that enables them to triple their investment in 3 to 5 years

Sell to a small financial investor – This is the angel investor community and as a rule of thumb where you would go if your firm is sub $5m in revenue. Angels will typically invest up to around $1m plus or minus, and more often than not will want some involvement in the firm.

Sell to employees – There are numerous schemes and options for you to sell equity inside the firm, but large amounts of cash up front are less likely and in most cases in order to make it work you would need to offer your shares at a discount.


The decision of when and how to take ‘chips off the table’ needs to be made only after careful consideration of all of the options and possible outcomes. The current market is in a good place for sellers right now, so if you are thinking about this subject, then we’d be pleased to help inform your thinking and decisions, so please do let us know if you want an informal chat.