What do you do when a buyer approaches you unsolicitedly?

Buyers new cropped

It is not uncommon for thriving consultancies to be approached by a potential acquirer. However, many business owners fail to prepare for such an eventuality. This often leads to one of three outcomes, a bad deal for you, a mediocre deal, or a lengthy distraction over many months leading to nothing. These outcomes occur when savvy buyer meets first time seller, and only one buyer provides no leverage to the owner in carving out the best terms.

A company sale process is always time-consuming, stressful and emotional. There is a wide array of skills required that go way beyond your undoubted ability to sell high value, complex services to C level in top Fortune or FTSE companies. There are deal process skills that accelerate stages and conclusions while gaining maximum leverage, financial and synergy modelling skills that multiply value, and cool head skills that defend value and save a deal from collapse. Attempting to navigate this without expert support and while running your own business at the same time is usually false economy with high stakes.

Here are reasons why you should define your exit goals well ahead of a transaction.

How to approach your initial meeting

Prior to sitting down to discuss a possible deal with any buyer, there are a number of things and risks to consider before you start sharing information.

  • Who are you dealing with?:

It is vital to know the company you may be selling your business to. Immediately, find out if they have previous experience acquiring consultancies; how deep their pockets are likely to be; whether there is a possibility of cash up front in a deal. These are just some of the things that’ll help you know where you stand in a negotiation.

  • Seriousness of intent:

To avoid wasting your time, establish whether or not you are dealing with the decision-makers. So ascertain early on what their mandate and decision process is. You don’t want a situation where you have spent 6 or 8 months negotiating only to find that the CEO, whom you’ve never met, doesn’t like the asking price.

  • Competitive consequences:

If a deal falls through, consider what happens to all of the client details, strategy and financial information you’ve shared with the potential buyer. Think about how they may use this information if they go on to acquire a similar business. No matter the relationship you may have with an unsolicited buyer, get a non-disclosure agreement signed and DO NOT release any substantive information at the first meeting.


What you need to find out at the first serious exploratory meeting

Following your research, if there are any gaps in your knowledge of the above, they should be discussed in your first meeting with them, which should also cover the areas below.

  • What is their strategy and how do you fit in?

From the onset, request clarification on the strength of the company and the broad growth strategy of the firm you are about to join. It is important to determine where acquisitions fit in their strategy and the synergy value of your organization to the buyer.

  • Establish your criteria for a deal

Here, you’d want to know what type of deal the buyer is prepared to offer you for your business and where that fits with your financial and non-financial objectives. For instance, there is no point in continuing discussions if the buyer is unable to offer you a deal superior financially than the alternative of continuing to grow the business and equity value.

Also, many business owners have other non-financial objectives, such as how you and your staff will be integrated into the new entity. There have been instances where owners, used to entrepreneurial control,  have failed to integrate, preferring to walk away and relinquishing part or all of their earn out.

Unsolicited approaches are usually an exciting time for a business, but it is important to remember that there is also a lot at stake if you get it wrong. Don’t take the risk. Speak to an expert at Equiteq.

Click here for more tips on how to defend value in an unsolicited acquisition

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.

Equiteq sells Brazilian business process management consultancy

Habber Tec Tombstone
We are pleased to announce the sale of W.G Systems LTDA t/a Habber Tec Brazil to GFT Group.

Founded in 2000, Habber Tec Brazil is part of Habber Tec International Group and Brazil’s largest IBM partner for business process management (BPM). The company focuses on the implementation and on-going support of BPM, big data, analytics and mobile solutions with a substantial footprint in the financial services industry.

The GFT Group is a german based strategic technology partner that helps companies optimise their business processes by providing intelligent IT solutions and highly skilled specialists. GFT develops, implements and maintains customized IT solutions and enables financial institutes to quickly and securely utilise modern technologies.

“Habber Tec Brazil adds further expertise in BPM integration and mobile solutions, especially in the fields of credit and digital banking applications. With this acquisition, the GFT Group will strengthen its Brazilian client base by adding renowned banks and further insurance companies” says Ulrich Dietz, CEO of GFT Group.

Gabriela Silvestris, Director in Equiteq’s London office, commented, “It has been an absolute pleasure working with the shareholders of Habber Tec Brazil. Their strong market position is underpinned by their key competencies in BPM, analytics and mobile solutions which address some of the major challenges banks are facing in the context of digital transformation”.

Fernando Arencibia Darias, shareholder of Habber Tec Brazil and Habber Tec International Group said “This movement is very important for the Group’s strategy in order to focus on our operations in Europe. We are very pleased with the outcome of the transaction and Equiteq’s support throughout. Gabriela’s professionalism and expertise was instrumental in structuring, negotiating and completing the deal”.

This sale highlights the current optimism in the consulting M&A market, as our Global Consulting M&A Report 2016 suggests.

Registering free for Equiteq Edge will allow you to access content and insight to help you prepare your business for sale or sell your business. 

Nurturing client relationships to support equity value growth

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. 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 what you need to know to nurture your clients in order to grow mutually beneficial long-term relationships.

  1. How do you build long-lasting client relationships with a small team?

Every company starts with a small team. Which is why, as a business owner, it is very important that you remain disciplined about where you invest your time. Business owners cannot afford to spend all their time delivering services, but should focus some of their efforts on managing client relationships. Otherwise, the organization will never grow.

A good tip is to book time in your diary to speak with your client sponsor and other important stakeholders once a week. To make these meetings worthwhile, update them on project progress and give them insight into some of the wider hot topics impacting their sector. You could also invite the important stakeholders to your project review meetings once a month so that they can see first-hand the benefit you are delivering. At this point, do not hesitate to ask your clients for referrals.

Click here to find out if your client relationships are building or stunting your firm’s growth.

  1. When should we invest in a customer relationship management (CRM) system?

Because a CRM system is an automation tool, it is important that the underlying process of data capture is sufficient to keep the CRM data up-to-date and relevant. Similarly, if the CRM system offers more functionality than you need, the whole application can become too cumbersome to manage.

For smaller consultancies, it is perfectly acceptable to manage your client data on spreadsheets. But as the organization grows, a simple spreadsheet will no longer be able to cope with the growing number of clients, client relationships, business offerings and activities.

It would be unusual for a business with yearly revenue of more than $3 million to manage without a CRM system. Given that the service and software is available by seat, it can be very affordable.

  1. How do you manage relationships with your clients that only need your services every three years or so?

It is common for a consultancy, such a strategy house, to work with a client intensively for a number of months and then move on. However, three years is a long time not to keep in touch with a client or sponsor. Things in organizations can change very quickly, and it is important that you find a way to keep going back, so they keep your organization front of mind.

At the simplest level, you should schedule a time to speak with your sponsor every few months or so; again, go back and share your thoughts on hot topics in the market.

You might want to consider setting up a networking organization or community of clients. This will give you a reason to keep in touch with them and other important stakeholders in the sector you operate in.

  1. Would you ever really decide to walk away from a client?

It can be painful walking away from a client. However, if a client is too expensive to service, because of geographic barriers for instance, it may well improve your consultancy’s profits by choosing to no longer work with them.  Another reason for exiting an opportunity is if a client’s sector is not core to your business offering or if there isn’t any real potential for business growth.

The best way to run a consultancy is where demand for your services is slightly higher than your actual capacity. If you are in that situation, it is easier to walk away from clients that are not beneficial in the long run.

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 client relationships:

Start:           Classify your accounts and appoint managers for the key ones

Stop:            Stop spending all your time in the key accounts on delivery only: make time for account management. Stop spending any senior management time on the exit accounts

Continue:     Updating your sales pipeline with forecasts from your client accounts

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.

Consulting Sector M&A Deals (April 4th – April 20th)

businessman doing handstand on the beachStantec to Acquire MWH, a Global Professional Services Firm with Leading Expertise in Water Resources Infrastructure
Deal Size: $793m Industry: Professional Services Date: April 04, 2016
Stantec Inc. (“Stantec” or the “Company”) is pleased to announce that it has entered into a definitive merger agreement pursuant to which it will acquire MWH Global, Inc. (“MWH”), a Broomfield, Colorado-based global engineering, consulting and construction management firm focused on water and natural resources for built infrastructure and the environment (the “Acquisition”). With the acquisition of MWH and its 6,800 worldwide employees, Stantec will gain a position as a global leader in water resources infrastructure while earning greater presence in key targeted geographies, including the United Kingdom, Australia, New Zealand, South and Central America, Europe and the Middle East.
Under the terms of the all-cash deal, unanimously approved by the boards of directors of both companies, Stantec will acquire all of the issued and outstanding capital stock of MWH for a purchase price of approximately US$793 million (the “Purchase Price”). The transaction is valued at approximately US$795 million after taking into account the estimated assumed net indebtedness of MWH, representing approximately 9.5 x 2015 Adjusted EBITDA. After giving full effect to Stantec’s expected run-rate annual synergies of $33 million (approximately US$25 million), the transaction is valued at approximately 7.3 x 2015 Adjusted EBITDA. These synergies are expected to be fully realized in 2017.
“MWH brings a global presence and reputation in water infrastructure that will advance Stantec’s position as a top-tier design firm within the highly attractive global water market,” says Bob Gomes, Stantec president and chief executive officer (CEO). “Together, we share a commitment to our communities and have the combined talent to support the most technically advanced clients and projects locally and around the world.”

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Equiteq’s annual Global Consulting M&A report out now

We’re pleased to announce that our Global Consulting M&A report 2016 is now available. This is the 9th consecutive year we’ve produced this report and it remains the only publicly available information on the global consulting M&A market. It covers consultancies in all sectors, including IT, media, engineering, HR and management consulting.

In our latest report, it is clear that 2015 was a fantastic year for consulting sector M&A deals! Although conditions were generally positive across the broader market environment, the significant upward trend of consulting deal volumes, values and a number of high profile deals all indicate a return to near-peak conditions for consulting M&A, with deal volumes increasing by an additional 9.4% above 2014 across the globe.

Figure 2

When it comes to the deal value range, while headlines will always favour the large-value deals, in the consulting sector we consistently see a large volume of small-value deals. In 2015, this was evidenced by the fact that 35% of reported acquisition values were under US$5m and 70% were under $40m. This reflects a consulting industry that is dominated by small firms, with relatively few firms above $100m in revenue. Transactions under $5m do not often include large buyers and these deals are typically more of a merger than an acquisition, with little cash involved.

Figure 4

Reflecting the overall activity in the market, buyer demand remained strong in 2015, with active buyers across all sub-sectors. Accenture was the top buyer, acquiring 18 consulting firms. And we continued to see significant consulting acquisition activity with global media firms (WPP, Publicis and Dentsu) and large professional services firms (Deloitte, EY and KPMG), who were again among the most prolific buyers.

‘Trade’ or ‘strategic’ buyers account for around 94% of all consulting firm buyers and are seeking some form of synergistic benefit from the acquisition. The remaining 6% of buyers are ‘financial’ or ‘investment’ focused and looking to make a return on their capital. The ratio of these Private Equity (PE) buyers increases to an average of 13% when looking at larger deals (>$20m in value). PE firms have consistently been attracted to consulting sector deals as when they are run properly, there are key financial advantages of the consulting business model over many others, including: high margins, low working capital and quick profit to cash conversion. Looking at the long term view of all global acquisitions in consulting across all deal sizes, we see a relatively steady, year-on-year proportion of buyers coming from the PE community that has continued in 2015.

The outlook for 2016 remains positive, with a cautionary note. We expect continued optimism in the market, at a slightly lower growth rate than we’ve seen in the past couple of years. While market conditions are different now than the last peak in 2007, and there remains some cautious optimism among buyers about near term deal activity, these positive conditions are unlikely to continue for long at current near-peak levels. Sellers should take advantage of the positive deal momentum currently in place.

In future blogs we shall be taking a closer look at the report findings by sector (IT, management consulting, media, engineering, and HR) as well as by geography. If you’re a member of Equiteq Edge, you can download the full report here. If you’re not a member you can sign up to Equiteq Edge now, it takes only moment.

Hot demand for big data and analytics consultancies

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Businesses are continuing to capture and interpret customer data, and as data analysis translates into increased profits, the acquisition demand for consultancies in big data and analytics is driven higher. Consider, as an illustration of this trend, the 165% increase in big data services’ global revenue between 2012 and 2014.

Consultancies advising on big data strategies play an integral role in a corporation’s long-term adoption of specific data and analytics technology providers. Because of this, such hardware and software providers have increased their pursuit of partnerships and collaborations with professional services (PS) firms. The sector wide shortage of PS practitioners who are able to implement, interpret and leverage big data is reflected in their revenue: In 2014, PS companies represented more than 38% of big data’s global revenue – almost US$10.5bn.

There are 4 primary drivers that enable acquirers to monetize the broad market opportunity in big data and analytics:

  1. Leverage existing services: Integration of big data and analytics capabilities into the existing advisory capabilities allows deeper, more robust insights to be drawn out. Integration also lengthens the advisory period by adding a valuable analytics advisory session at the start of a project and the potential for analytics services when nearing the project’s conclusion
  2. Acquire talent: There is a high demand for professionals with the required analytical expertise – and it can be more efficient to acquire this expertise via an M&A strategy, rather than developing the necessary skills in-house
  3. Fuel business development: With additional capabilities, there is the potential to increase client and market share by bringing the newer technologies through along with more traditional service offerings
  4. Gain access to big data and analytics intellectual property (IP): Acquirers are focused on how to remain at the cutting edge of technological innovation, with top consulting firms launching standalone ‘innovation labs’ for big data and analytics. To fuel development of these labs they are adopting an aggressive acquisition strategy

M&A activity in the big data and analytics sector is healthy across the globe, with top buyers being diverse and usually international. In North and South America, Teradata (5 deals) and IBM (3 deals) have been the most active 2010-2016. EMEA has seen SAP make 6 deals and Accenture, 5. In APAC, NTT has been active with 4 deals.

The years 2010-2016 (year to date February 2016) saw a total of 639 transactions in this space with 65% of the acquired firms based in North America. Big data and analytics firms continue to be able to command premium prices; IP and stable revenue growth, coupled with high profit margins and deep sector specialism are reflected in higher multiples for these businesses. These multiples lend themselves to a strong forecast.

With 17 deals in big data and analytics since the beginning of the year already, we believe this presents exciting opportunities for both consultancy owners looking to sell their businesses, and for acquirers determined to remain at the forefront of technological development to increase their market share.

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 21st – April 4th)

businessman doing handstand on the beachWilmington Acquires Life Science, Healthcare Specialist Evantage Consulting
Deal Size: GBP 6m Industry: Healthcare Consulting Date: March 29, 2016
UK-based consulting firm Wilmington plc (LSE: WIL) has acquired UK-based specialist healthcare and pharmaceutical analytics solutions provider Evantage Consulting Ltd, the firm said. Wilmington is paying an initial GBP 1.4m (USD 2m), with a deferred cash consideration of up to GBP 4.6m (USD 6.57m) by 2020 based on stretching profit based targets. The transaction will be financed out of the group’s existing GBP 65.0m multi-currency debt facility.
Evantage will strengthen analytics offerings across Wilmington’s healthcare business. Wilmington, through its healthcare analytics subsidiary NHiS, a provider of business intelligence and data analysis to the pharmaceutical industry, said it has partnered with Evantage for over five years. The acquisition will sit within Wilmington’s Insight division and will enhance its healthcare analytics offer to UK and overseas clients; areas in which Wilmington said it has been seeing strong growth.
Evantage brings specialist knowledge and experience in the analysis of healthcare admissions, pathway and treatment data as well as industry-leading competence in customer engagement and optimisation solutions for the life sciences sector. Wilmington expects the deal to be earnings enhancing in the first full year of ownership. Evantage was established in 2001 by Julian Snape and Chris Wiggins to provide outsourced analytics and resource optimisation solutions for the UK pharmaceutical industry. Currently, it also delivers solutions to international clients in Europe, the Middle East and Asia. Snape and Wiggins will continue in the business post acquisition. In the year to 31 October 2015, Evantage reported revenues of GBP 1.1m and profits before tax of GBP 0.9m. Gross assets were GBP 1.2m. Wilmington provides information, compliance, and education services for professional markets in the United Kingdom and internationally.
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