A range of factors contribute to how strategically attractive a target is to a potential buyer. While different buyers will place different emphasis on these factors, to appeal to the widest number of buyers a consultancy should aim to stand out in as many of these areas as possible.
Sector attractiveness can be judged in two ways. Is the consultancy operating in a sector which is already attractive? Or are there clear drivers of demand in a hot sector? An example of the latter is the current trend for data architecture and management involving the move from hardware to the cloud. With more and more companies changing the way they store their data, consultancies operating in this area are in high, and growing, demand. In the media space, digital marketing consultancies are seeing high demand for their expertise.
Is what your consultancy offers scarce? If it’s the first place to discover a need and offer a new solution to it, then this can position the company as a ‘must have’. On the flip side, if the consultancy is facing stiff competition from many other companies with similar offers, then this will cause the buyer to ask whether there is still enough demand to generate a return on their investment. This also applies to service line attractiveness; if you’re highly specialized with intellectual property (IP) that can make a demonstrable difference to a client’s bottom line, then this is a very attractive proposition.
Geography will affect buyer demand, as there are some areas that see more call for certain services. For example, a consultancy specializing in financial services (FS) located in Boston will likely be less appealing than one located in an FS hub such as New York, London, Hong Kong or Frankfurt. However a biotechnology consultancy would be better located in Boston than New York for these same reasons. All is not lost if you’re in a different region with a highly desirable capability, but it will require a more narrow focus on the types of buyers that may find you attractive. The physical location of a consultancy is also an important consideration, so a regional consultancy may find it harder to find a buyer than one located in a big city, as often the buyer will want all their staff on one site.
Clients are another point of interest. Buyers look closely at your client list; a stable of blue chip names with profitable, long-standing relationships and repeat business is far more attractive than a list of unknown companies, or a history of ‘one and done’ engagements. And seeing as consultancies are only as good as their people, the management team of the target must be considered by the buyer to have enough gravitas to represent the new organization, otherwise it’s unlikely a deal will be done.
When it comes to market access, there are two types of acquisition. If the buyer is looking to enter a new market in a ‘platform’ acquisition, then they’ll be looking for someone with critical mass which would assist them in entering this market. A ‘tuck in’ acquisition on the other hand is when a buyer already has a platform in the market but they are looking for additional capacity to service demand. Buyers will seek a different combination of service, sector, client base and geography depending on what type of acquisition they are looking to make.
Synergy opportunities can be afforded by reducing the costs of delivery through activities such as combining back office functions. On the flip side of the coin, there is the potential for increased revenue and profit growth through a variety of channels, such as entering a new market, selling a new offering or having more resource to sell.
Finally, how easy will it be to grow? A scalable operating model is one that will quickly be able to provide a return on investment. This could be through leverageable knowledge, such as IP, or a sales proposition that is ready to be plugged into the buyer’s distribution network. If a buyer can clearly see how a target will immediately start to deliver increased profits, then that’s an alluring proposal. You can read more about what buyers look for in our Buyers Research.
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