Having a goal to work towards helps to focus activity. So if you’re a consultancy owner who has been growing a business with a view to one day selling it, regardless of the industry you operate in, knowing the signs that mean you’re ready to sell will help you achieve this aim more efficiently.
There are six areas that you need to pay attention to:
1. Buyer confidence: Buyers do not like risk and so are looking to purchase consultancies that will not only bring their organization value, but will do so with the lowest possible risk of anything going wrong. Factors that buyers will assess in this area include financial performance, for example high gross margins, the amount of fragmentation in the proposition or services and the mix between employees and associate staff
2. Strategic attractiveness: Buyers want to see value as a result of purchasing a consultancy and therefore examine the underlying drivers of value and potential for synergy. This covers areas such as whether the target is operating in a sector which has clear drivers for the future growth of demand for consulting, whether the company’s client base is attractive and if the company is scarce or a ‘must have’
3. Shareholder alignment: Different businesses have different ownership structures. The breadth and depth of shareholder support, as well as the extent to which the ownership structure supports a transaction, all impact on when a firm is ready for a sale. For example, if there are 10 shareholders with 10% each, this is a very different proposition compared to one shareholder who holds 100% of the company
4. Sustainability of performance: Preparing for and going through a sales process is a lot of work and can have an unwelcome impact on a firm’s profitability if it is not managed well. This process cannot be allowed to affect the business-as-usual operations, as a firm needs to continue to grow. Areas under consideration will include how stable the employee base is, how much forward visibility versus budget the company has entering the sale process and what the likely impact of the process on business development will be
5. Deal support: This is the capability of the business to support the deal process. There are only so many hours in the day and if the managing director is also the financial director and the sales director, then chances are that they are not going to have the time to be able to deliver what is required by the due diligence process within the required timeframes. Buyers also look at other factors, such as the ability of the target to quickly and efficiently update its view of operational performance as well as future performance
6. Transaction preparedness: How ready is the company to enter the deal process? Buyers will want to kick the tires and probe all aspects of the business. If they pop open the hood on the financial department and find it’s a disorganized mess, then they are likely just to walk away. All aspects of the business must be tidied up so that not only are there no nasty surprises, but there is a clear case of the benefits to the buyer of acquiring your business.
We will be looking at each of these areas in turn and providing more detail in future blogs. So if you’re interested in gauging if your consultancy is ready to sell, please check back with Equiteq Edge regularly.
If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.
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