Case study: Charting future development for NMG Consulting

nmg consulting cropped

Background

NMG Group is an international consultancy and advisory organization focusing on the financial sector. Originally formed in Singapore in 1992, the company now operates in other parts of Asia, Australia, Europe, Africa and North America. NMG Consulting, a part of the NMG Group, hired Equiteq for support in its strategic review and acquisition strategy.

Through the Equity Growth Accelerator (EGA) methodology, NMG developed an objective assessment of its strengths and weaknesses both at group and divisional level, identifying key areas for improvement and potential synergies, leading to a full-scale action plan. The plan included a focused external growth strategy.

Strengthened by this exercise, the company aimed to double in size within the following three years.

The client’s situation

NMG Consulting was looking to boost its equity value to improve its short-term performance, finance its external growth strategy (partly through share considerations) and help direct managerial attention toward long-term synergistic group building.

Our approach

Equiteq ran an initial EGA workshop with the NMG Group Executive Director and the CEO of NMG Consulting to benchmark the business against the wider industry and map where it wanted to be within three years.

We then introduced four lighter less rigorous workshops with the leadership teams of four divisions (Strategy, Actuarial, Insights & Analytics).

The results of the workshops were consolidated into an Outcomes Report, which focused primarily on issues that were common amongst the divisions, or that related to Group synergies.

We presented and discussed the report with the Group CEO and the Consulting Group CEO before the annual global management meeting of NMG Consulting. Consequently, we then ran a two-day session – including group work – with three teams elaborating and presenting suggestions on 10 strategic issues identified as critical during the discussion.

In the final step, the participants voted on the priority levels to be given to each issue, and suggested actions to be taken.

How did this deliver value to the client?

Equiteq’s EGA methodology helped NMG Consulting identify and approach its top priority areas:

  • Developing relevant IP within each entity of NMG Consulting
  • Defining an effective external growth strategy (target selection, market positioning, geographies, size, integration, etc.)
  • Becoming an employer of choice – improving recruitment and career management

Based on the outcome of the workshops, the company designed and embarked on the implementation of an action plan that both enhances the performance of the business and streamlines the path towards selected acquisitions. This joint exercise conducted over three months paved the way to the achievement of NMG’s three-year objectives by creating a clear roadmap, identifying and prioritizing the key actions to be taken, and mobilizing the whole management team.

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

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Sale to a trade buyer

Trade buyers (also known as strategic buyers) are companies that buy other operating companies as part of their growth program and to fulfil other corporate objectives. As the most active category of buyers in the market, it is critical to understand how trade buyers think and behave as you build your business for eventual sale.

The primary driver for them is the overwhelming need for growth. All professional services firms require growth, and stated another way, protection against shrinkage and loss of relevance. This is true not only for large publicly traded firms that have to explain their financial results every quarter to investors, but also for smaller firms that compete with them for specific business. If you are building your own firm, you know how difficult it is to grow through hiring, service line expansion and finding new clients (organic growth). As firms become larger, the need to supplement organic growth by acquiring revenue becomes more and more acute.

There are two primary reasons why trade buyers make acquisitions:

  1. To build scale in the current business footprint (service line, geography) through the acquisition of similar firms which are rapidly integrated
  2. To expand the current model by acquiring adjacent firms, new service lines or new geographic coverage

Sale to trade buyer table

The most active trade buyers are the household names that you might expect. However, do not make the mistake of casting the net too narrowly when thinking about who might be a buyer of your business. As the business world seeks solutions and bundled services from their suppliers, we are seeing more and more companies who do not traditionally offer consulting services look to acquire businesses that can help them provide more of a solution-based offering to their clients.

Take the example of a multi-national equipment manufacturer client of ours. They are looking to buy consulting businesses in several of their product lines, such as in workplace safety consulting, so they can bundle that service as part of a broader solution to larger clients.

As you consider your options for selling your firm, it is critical to understand your position relative to larger competitors in your space and adjacent firms that might see your services and clients as additive to their current offerings. Even if a potential sale is years away, it is never too early to understand who might be interested in your firm and what you might do – and not do – to use that knowledge to your advantage.

NB: The term ‘trade buyer’ refers to those who acquire for strategic purposes and includes in it our definition of consulting and corporate buyers.

To listen to the recording of our webinar that we hosted on exit options when selling, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

Consulting sector M&A deals (March 8th – March 21st)

businessman doing handstand on the beachAdecco Shrugs Off `Brexit’ Risk to Buy Staffing Company Penna
Deal Size: $149 Million Industry: Human Resources Consulting Date: March 9, 2016
Adecco SA, the world’s largest provider of temporary staff, agreed to buy Penna Consulting Plc for about 105.3 million pounds ($149 million) as it seeks to strengthen its No. 1 position in the U.K. market.
Britain, which on June 23 will vote on whether to stay in the European Union, remains a strategic market for Adecco in spite of the upcoming referendum, Chief Executive Officer Alain Dehaze said, adding that the company is looking for other opportunities there. Adecco agreed to pay 365 pence a share for Penna, 62 percent higher than the average price over the past 12 months. The acquisition comes as European business leaders including Akzo Nobel NV Chief Executive Officer Ton Buechner have said a so-called Brexit will make it more difficult to rotate workers through the U.K. Britain, together with Ireland, is Adecco’s third-largest market and posted a 1 percent increase in fourth-quarter revenue, the company said in an earnings report. “Lack of visibility is never good for economic growth and therefore not good for employment,” Dehaze said in a telephone interview. “I don’t support Brexit. Europe needs the U.K., and the U.K. needs Europe.” The uncertainty leading up to the referendum could be more damaging to the U.K.’s staffing industry than the outcome itself, deterring employers from making investment decisions or employees from moving jobs, Penna CEO Gary Browning said by telephone. “From a staffing perspective, we have always been blessed in the U.K. to have a highly flexible labor market allowing everything from permanent people to temporaries to interims and contractors. We do well when there is lots of mobility in employment markets.”
The Penna deal is expected to close in the second quarter, Glattbrugg, Switzerland-based Adecco said in a statement Wednesday.
(http://www.bloomberg.com)

HCTec buys Colorado-based consultancy
Deal Size: Undisclosed Industry: IT & Management Consulting Date: March 8, 2016
Franklin-based HCTec Partners bought HIMS Consulting Group, out of Colorado, to expand its focus on electronic medical records. Electronic medical records are an expensive and increasingly important investment for hospitals and medical practices. The federal government is rolling out an initiative to better link systems so patient information can travel more freely, improving efficiency and care. HCTec, a health care staffing and consultancy, helps clients with a variety of information technology and management services, including transitioning to and optimizing new systems, coding and auditing and documentation improvement. It had an EMR presence but wanted a deeper reach into the sector, said Jennifer Renshaw, marketing manager. “This is a very exciting opportunity for our company to grow exponentially,” said HCTec CEO William Bartholomew in a statement. “The combination of HIMS and HCTec will allow us to better serve our clients, enhance efficiencies and create innovative solutions.” The acquisition expands the Franklin consultancy’s footprint to the West. It’s now got regional offices in Tampa, Cincinnati and Steamboat Springs, Colo. The purchase increases HCTec’s corporate employees from 113 to 158 and the number of consultants from 694 to 831. HIMS will take on the HCTec name. Erich Strotbeck is general manager of HIMS. HCTec merged with Partner Professional Solutions, based in Cincinnati, in 2013.
(http://www.tennessean.com)

Continue reading

Growing equity value webinar series: Consultant loyalty

Company culture cropped

Lately we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the questions asked during the webinar on how to create the right organizational culture that embeds consultant loyalty and attracts the right buyers.

  1. How would a potential buyer evaluate our culture?

There are a number of ways a firm projects its culture externally. Think about the company’s public face, its mission statement, its website, company values, written content (i.e. blogs, articles, whitepapers), awards the firm and its people have been recognized for. These all provide an external party with a window into the culture of the business.

A really good example of this is how your firm recruits new employees. The manner with which you describe the profile of your ideal candidate, where you recruit and the language used are all indicators of the culture within the organization. These are just some of the things a potential buyer would research before approaching your firm.

Once a potential buyer engages in due diligence there is an even greater focus on culture from this initial ‘outside in’ look, because a buyer is looking for areas of compatibility and areas that will prove challenging to a smooth integration after sale.

You can read more about what deters buyers of consulting firms here.

  1. Would buyers replace your consultants with their own after sale?

Buyers are always keen to protect a company’s assets. Assets are more than just a firm’s intellectual property, but the client relationships, future sales pipeline and staff competence. These are all crucial to a buyer.

Research has shown that less than 50% of mergers realize their intended value and synergy. So there is an acute need, on the buyer side, to make sure the integration between the companies delivers the intended strategic extension to their existing offering. Getting rid of staff will likely hinder this objective.

Click here for more information on what to expect from consulting buyers following an acquisition.

Finally, as with all of our webinars in this series, our key takeout is presented in our Start, Stop and Continue strategies. To immediately improve consultant loyalty in your consultancy:

Start:           Thinking of culture as an intangible asset which should be actively managed

Stop:            The traditional carrot and stick approach to performance management

Continue:     To create a culture which attracts, motivates and develops by offering autonomy, meaning and purpose.

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, 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.

7 drivers to get your firm into the premium value zone

Man hands are operating abacus

To the uninformed it seems implausible that a consulting firm could have hardly any value at all. After all, these are knowledge based ‘people businesses’. How does a buyer place a value on an asset that could evaporate if everyone leaves the day after a deal is signed?

Whatever your business model, whether it’s pure consulting or otherwise, the likelihood is that there is insufficient tangible value to be found in your P&L or balance sheet. It’s the inclusion of the intangible assets that provide this value and they can’t be found in any financial statement.

The only way a buyer is going to pay a premium price for your business, is if these intangibles are converted into confidence and belief that the next 3 years provide almost guaranteed growth.

Firms that inspire this confidence can cite 7 clear drivers of sustainable growth, underpinned with facts and data.


1. We know exactly who our strategic clients are

Do you know the ideal profile of the companies in your target market(s) where you have the greatest right to win against the competition?

If so, your buyer can then get excited about your focus, how he can take you and your IP into his clients that look the same, leverage your capabilities and increase fee income per client.

2. Here’s the rate of penetration to date and space we can fill

Have you built and maintained a database of current and potential strategic clients covering the entire addressable market?

Your knowledge of target market size and current penetration will demonstrate how you’ve scaled so far by design. A buyer can see year by year penetration rates, win rates and how that’s improved. He can also understand the white space left to fill into the future.

3. This is our database of decision makers and relationship growth

Have you researched and populated your database with a dataset of contacts comprising the decision makers and influencers in each target client?

A buyer will be able to take this data and understand how you have sold to and grown accounts. He will see that not only have you acquired great strategic clients, but you have both the data and relationships to continue the momentum.

4. Here’s how our UVP is growing our average engagement size

Are you selling a Unique Value Proposition that appeals to decision makers with big business problems and deep pockets?

If so, your buyer will be able to see how you’ve grown your UVP over time, resulting in very attractive engagement sizes he wants to replicate across the globe.

5. This is our growth and retention rate by strategic client

Are you very sticky to your clients, relationships last a long time and lifetime fee income per client is growing?

In an ideal world it would be a great asset to show 3 year contracted business to buyers, however in the real world the next best thing is to show client sell-on growth and long term retention rates. Buyers of consulting firms treat this as a proxy for contracted business and recurring revenues, suitably discounted, but still a big asset.

6. Look at our historic and future scale plan into adjacent spaces

Have you moved from cell to cell in your service/market matrix, by filling only the adjacent spaces symbiotically from your core?

When the buyer sees this picture, he can see not only the quality of your strategy, but also salivate over the blank canvas of white space to fill, once his brand and coverage is added to your capabilities.

7. Look at our historic forecast accuracy

Has your 12 month revenue forecast been honed over time into a reliable view of reality, with a margin of error to +\- 20%?

When you present your business to a buyer, no matter how well you’ve performed historically, he will treat your forecast with extreme caution. However when you show him the forecast data alongside all the imperatives above, his belief in the future will soar.

Key Takeaway

The only way a buyer will gamble on a high risk firm is if he mitigates his risk by paying a very low price up front and/or an earn-out highly contingent upon future results. However he will pay a premium for a firm that looks like a rock solid financial risk, irrespective of synergy value, which will drive the price up even further, increase the up-front payment and alleviate earn-out terms.

What Next?

These drivers are embedded within the Equity Growth Wheel, the model that enables firms to both evaluate current valuation and growth risk, plus an execution plan for performance improvement to sale readiness and exit. If you’d like to confidentially discuss your particular situation, please let us know and we’d be happy to help.

this blog is the condensed version of an in-depth article on this topic which you can access here. 

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

Consulting sector M&A deals (February 19th – March 8th)

businessman doing handstand on the beachCMTA Consulting Engineers Acquires Arlington-based TMR
Deal Size: Undisclosed Industry: Engineering Date: February 19, 2016
CMTA Consulting Engineers, recognized as a national energy leader in high performance, sustainable design, is pleased to announce the merger of Arlington-based TMR Engineering into its growing northeast operations. This acquisition enables CMTA to continue providing renewable energy design services in the D.C. area through its Net Zero Energy (NZE) expertise.
“CMTA’s practice in the D.C. area has been expanding in the past three years, and we felt that a local presence was necessary to serve our D.C., Virginia and Maryland clients,” commented Kenneth L. Seibert, PE, President of CMTA. “CMTA and TMR share similar cultures and we were impressed with the quality of their engineering staff.  Their Combined Heat and Power (CHP) expertise aligns well with our Net Zero Energy expertise.”
CMTA’s solid portfolio of sustainable design projects includes Arlington County’s Discovery Elementary School, also the first net-zero energy project in the northeast. High performance buildings such as Discovery Elementary School generate energy on-site to meet all of their heating, cooling, and electrical requirements. CMTA is committed to supporting similar collaborative energy efficient projects that represent tangible cost saving benefits while preserving the environment for future generations.
http://dc.citybizlist.com

BlackBerry acquires cyber security consultancy firm
Deal Size: Undisclosed Industry: IT Consulting Date: February 25, 2016
BlackBerry said it has acquired UK-based cyber security consultancy Encription, moving the company deeper into the services business as it continues to morph into a more software-focused entity amid its ongoing turnaround.
The smartphone industry pioneer, which is pivoting to focus more on security software and services as the popularity of its devices have waned, said it sees massive potential in the area, with cyber security consulting currently worth an estimated $16.5 billion (K50.15 billion) a year globally.
The terms of the Encription deal, which closed Friday, were not disclosed.
The acquisition will bring a team of about 40 cyber security professionals, who have helped test network vulnerabilities for both government agencies and corporate entities, into the BlackBerry fold.
“This is a natural extension of what we do right now,” BlackBerry’s head of corporate development James Mackey said.
“We’re very excited about this new offering and we think it is highly complementary and a nice addition to our security portfolio.
“The acquisition will give BlackBerry the opportunity to cross-sell some of its own security products.”
BlackBerry said the new consulting services and tools, along with its existing security offerings, will help its clients to identify the latest cyber security threats, develop mitigation strategies, and implement the necessary IT security standards to defend against cyber attacks. The acquisition of Encription is the latest in a string of software and services focused acquisitions made by BlackBerry in the last year. In September, the company agreed to acquire rival security software maker Good Technology. – Reuter.
http://www.thenational.com Continue reading

Equiteq’s Big Deal Insight

New M&A trend: Traditional consultancies buying up creative agencies

Latest M&A trend


Creative BorderDeloitte’s recent acquisition of San Francisco based advertising agency Heat, is further evidence of the convergence of two very different business models: creative media and consulting. We’ve been tracking this developing theme for quite some time. Not only is it driving significant transactional activity, but more importantly it indicates a broad and pervasive shift in how business is being done.

It’s another example of traditional consulting and tech firms buying into creative. Deals like this now abound in the current M&A market. BCG bought Brighthouse last year, McKinsey acquired LUNAR Design, IBM has been active, so has Accenture who bought the digital content agency Brightstep in Sweden, and we’re constantly hearing from the large buyers about their desire to acquire in this space.

 

Why would traditional tech and strategy houses make the leap into the creative agency space?


Fundamentally, it’s about growth and protecting relationships. There is always a strategic mandate to capture more client spend, so finding ways to be relevant to another C-level exec, like the CMO, enables the large players to earn more wallet share from their big, multinational clients.

But that isn’t the whole story. There are underlying changes in how business is being done, primarily driven by technology, that are creating huge opportunities and risks for traditional players. The lines between marketing, technology, business operations and analytics are blurring:
Media

  • How consumers interact with companies and brands (code for how they make money!) is becoming more and more about technology. Personalized interactions with technology are defining more and more of the “customer experience”. It’s rapidly evolving, distributed and multi-channel.
  • Social media and mobile continue to tear down old modes of interaction and drive the invention of new modes.
  • Networked devices and applications are increasingly delivered to consumers in new and evolving ways, as they directly interact with companies and brands, in the store, on the street, at the restaurant!

So to protect relationships and capture more share of wallet, the traditional marketing firms who are good at ideas, need to be able to deliver technology solutions, and the traditional consultants who deliver solutions, need to be able to propose the creative solutions.

Couple this with the increasingly specialized skills required to stay current in a rapidly evolving technology environment and you have all the makings of a strong acquisition imperative.

 

Equiteq Edge


Equiteq Edge
Our 2016 Consulting Sector M&A Report launches next month where you can get the insights on deal trends like this so watch this space! The M&A report is just one of the assets freely available to you within our Equiteq Edge insights program, so join 4000 others now and get access to our entire portfolio of content aimed at helping owners achieve their exit objectives.

None of this stands in the way of a confidential call if you just want to get an expert opinion on your situation, so let us know if you’d like that to be arranged.