How sustainable is your consultancy’s performance as you prepare for sale?

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By David Jorgenson, CEO at Equiteq.

Selling your business is a long and demanding process that can last anywhere from 4 to 9 months. During this entire time the business needs to continue to show the same growth trajectory as in the years leading up to the sale – all the while dealing with the added demands of compiling the information required by those investigating whether they’d like to make an offer.

Potential investors continually monitor the company’s financial forecast throughout the process as this is an excellent lead indicator as to whether the business is being well managed. If the forecast is inaccurate by a large amount (either low, or high), this will set off alarm bells with buyers, so it needs to be reliable. If what you forecast differs dramatically from what actually eventuates, this needs to be addressed as a priority before thinking about selling.

This links to how much visibility of booked work versus the budget the company has as it enters the process. A firm with significant work booked 12 months ahead is more appealing than one with work booked only 3 months in advance. However the work also needs to be happening when it’s scheduled to happen, as unlike product sales – in consultancy there’s no way of making up lost time; once a day has passed with someone sitting on the bench due to a start date being pushed back then that day – and fee – is gone.

Continuing the theme of forward visibility, buyers will also be scrutinizing how the company is doing against its current year plan. If it’s behind, then they will want to know why. But even if it’s ahead, this is not necessarily a good thing as it shows inaccuracy in the planning.

People are of course the resource that drives the most value in a consultancy-style business, so if there is high staff turnover – especially key staff such as senior salespeople – then this will worry buyers. Are your key strategic people happy and well looked after to ensure that they don’t seek out other employment opportunities? If they’re walking out the door they’re likely taking with them some of the value you want to sell in the business.

The sales process itself impacts on employees in a number of different ways. If staff are excited about the potential buyer and new work opportunities it may bring, or even increased remuneration, then this can increase motivation. However, if the buyer is not seen as stimulating then the opposite can be true. Staff may have to help compile information for the sale which can add to their workload and decrease their motivation; you don’t want their performance dipping as you’re trying to maintain profit growth.

The buyer could also impact on the clients the company is able to sell to once the deal goes through. For example, if a management consultancy is sold to one of the Big 4 who audits an important client of the consultancy, then this will mean that they can no longer sell in consultancy services, impacting upon revenue.

There are a lot of balls to juggle during the sale process and to ensure you achieve the best possible price, they all need to be kept in the air. Dropping one could see a potential buyer dropping out.

If you are preparing to sell your consulting firm and would like to discuss your exit plans, please get in touch.

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Equiteq advises Livingbridge on its investment in clinical consulting business, Four Eyes Insight.

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Equiteq, the consulting sector M&A specialist, is pleased to announce its client Livingbridge, an independent private equity investor, has invested in the clinical consulting business, Four Eyes Insight.  Equiteq provided commercial advice and detailed operational development guidance to help validate the investment case and provide a roadmap for rapid scaling and equity growth.

Four Eyes Insight was founded in 2013 by Dr Henry Carleton and Brian Wells. Leveraging the founders’ clinical experience, the business helps acute NHS trusts across the country identify and implement efficiency and performance improvements projects.  Four Eyes Insight have been able to demonstrate lasting productivity improvements which are highly valued by trust management and the regulator, NHSI.   Pete Clarke, partner at Livingbridge’s commented on Equiteq.

“Equiteq were invaluable in providing the roadmap for scaling which enabled us to invest with a clear view on the necessary infrastructure investment and its sequencing.  Their work provided us with the confidence to invest and commit to a transformational business plan which will double the number of employees in the medium term”

Dr Henry Carleton, co-founder and CEO at Four Eyes Insight commented: “We have worked hard to establish ourselves as a key partner for the Trusts we work with, turning medical productivity plans into an operational reality and helping them to achieve significant efficiency gains and savings.  Equiteq’s support and Livingbridge’s investment unleashes a new phase of growth and we are actively recruiting across all areas of the firm to scale rapidly and build on the strong momentum we have generated to date.”

David Cheesman, Group Director, based in Equiteq’s London office, commented, “We were delighted to support Livingbridge and Four Eyes develop an operational plan for robust scaling and equity growth. There is enormous potential in secondary care for Four Eye’s to improve the patient experience and increase value for money with is market leading offerings and Livingbridge’s investment will allow Four Eyes to pursue a significant market opportunity. Equiteq’s expertise in operations and business scaling alongside its investment banking services is a powerful combination that is well aligned to ambitious management team plans and private equity investments”.

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The power of momentum – Ensuring the summer break does not leave a big dip in your BD activities

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This week we have a guest blog from Lars Tewes, Managing Director, SBR Consulting. As a sales performance consultancy, SBR Consulting work closely with Partners and Directors to “liberate the sales potential” within their practices. Contact Lars with your sales challenges and questions at ltewes@sbrconsulting.com.

For many, the summer is a wonderful time to enjoy a much needed annual break, however it can have one potentially adverse knock-on effect which, if you are not careful, can put you back a quarter – loss of business development (BD) momentum.

In your sales journey with each prospect it may have felt that at least one person you’ve been looking to sell to has been away for the past couple of months and so, frustratingly, closing business has taken longer. Also, we know that the longer decisions take to be made, the greater the chance that, for whatever reason, they never happen. Therefore, September is a crucial month to regain the momentum around activity and accountability. If this is not addressed, 10-30% of your firm’s revenue may not happen in 2016, if at all – a huge dent in the bottom line.

Bigger consultancies are just as at risk of this as smaller ones. Sector BD leads having been on vacation can make a big impact on the new business coming through if they don’t make BD a priority upon their return. And while large consultancies have more people working on BD, they also have correspondingly larger targets to hit. So it’s important for the firm’s BD leads to hit the ground running on return from leave.

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How a sale impacts your stakeholders

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If you’re thinking of selling your consultancy, there are many stakeholders to consider before embarking on the most important financial decision you’ll probably ever make.

1. Founder shareholders

We’ve had business owners wrongly assume that selling a business is like selling a home. If a sale falls through, your home remains largely unaffected and its value intact. However, that is not the case with a business – you only need to consider the time and effort spent on setting up a deal, along with vital competitive information you might have shared in the process. And, if you’ve never done this before, you lack the experience and knowledge to negotiate the best possible deal for you and your business (especially when earn outs are involved).

When engaging in a sale process, consultancy owners become distracted from the day-to-day job of bringing in new business and growing the firm, which can have a detrimental effect on equity value – another reason to bring in expert support.

Tip: Buyers are not interested in a business whose growth has either flat-lined or is in decline. 

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Why equity incentivizing your senior team can improve equity value

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By Alex White, Managing Director, Head of M&A and Strategic Advisory, Europe, Equiteq.

Last week we looked at how it’s important to ensure that shareholders in the business are aligned before preparing for sale. This week we’re exploring why equity incentivizing your senior team can improve the equity value of the business.

The gold standard to successfully grow and realize maximum value in people dependent businesses requires a high degree of shareholder and management team alignment, as well as strong financial performance.

Awarding shares (or options) to the right people in the right proportions is one of the most powerful tools at the founding shareholders’ disposal. It’s not the only tool, but it is the most potent, which also makes it risky if applied badly.

There are 7 key areas to consider.

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August 2016: Consulting Market Update

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Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

In August, we saw some notable deal activity from regular buyers of consulting businesses and mixed performance from listed players contained within the Equiteq Consulting Share Price Index.

The share prices of consultants focused on cyclical industries, particularly the energy sector, were impacted by volatile oil prices and the release of favorable U.S. and European economic data in the month. We also saw some earnings announcements from listed professional services businesses, most notably from prolific consulting buyer WPP, whose earnings for the first half of the year highlighted that the advertising giant had benefited from the U.K.’s vote to leave the European Union as a favorable currency translation more than offset any negative effect of Brexit on the British economy. WPP’s shares rose following this earnings announcement by as much as 5.7%, its biggest intraday gain in almost 3 years.

There was continued notable activity in the month from professional services buyers, building on their growing Channel 2 (non-Assurance) offerings. The most notable professional services deal in August was EY’s acquisition of Society Consulting, a 150-person Seattle-based specialized analytics consulting firm. Growth in the consulting businesses of large accounting players has countered falling profitability from some of these firm’s assurance businesses, which are feeling the impact of increasing competition and the technological automation of elements of the statutory audit. In line with this trend, PwC UK announced at the end of the month that it will be recruiting over 1,000 new specialists by 2020 to meet increasing client demands for cyber security and privacy, data management and predictive analytics, as well as business systems and technology risk and controls. This week, Deloitte UK also announced its fastest revenue growth in 10 years, noting a strong year for its already well established advisory business, highlighting high levels of demand for M&A, risk management & regulatory, as well as business transformation capabilities using technologies such as digital, cloud and analytics.

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