The most prolific acquirers of knowledge-led businesses are undergoing unprecedented diversification and convergence across adjacent consulting segments and sectors. At the same time, digital transformation is driving hybrid business models with consulting, technology and managed service revenue. This change is fuelling high levels of M&A activity from trade and private equity investors, which we review in our 2017 M&A report. For owners considering selling their business, an appreciation of these trends is critical to uncovering the synergistic buyers that may offer the highest value.
Convergence between consulting offerings
Global consulting clients are increasingly looking to their advisors for best-in-class, end-to-end consulting solutions. These trends are driving established consulting buyers to use M&A to enter new geographies and acquire complementary capabilities.
The heat map below shows cross-sector M&A demand and the strong convergence trends between Management Consulting, IT and Media.
As a greater variety of potential suitable buyers across industries become relevant, owners need to think through a range of other issues that can impact a successful sale. These can include:
- Approach to valuation and deal structuring in multiple sectors;
- Synergistic revenue opportunities;
- Ability to explain their unique value proposition to different types of buyer;
- Cultural and integration issues; and
- Regulatory issues related to the buyer’s industry (such as audit restrictions).
Digital transformation, cloud solutions and developments in AI are also leading to hybrid business models that include consulting, software and managed services. When consulting firms productize elements of their service, common challenges arise from both a current and future value realization perspective.
This can include considering:
- How much to invest in the technology development;
- The relative size and growth trajectory of the services and product businesses;
- The degree of revenue and management inter-dependence;
- If and when the services and the product businesses should be separated;
- Capital requirements;
- Who the buyers may be by the time owners expect to exit.
When technology product offerings begin to show promise, the tensions between product investment and profit maximizing and the timing for realizing value and fulfilling potential value come to the fore. As a result it is common for shareholder objectives to diverge. Private equity can sometimes be a useful solution to create alignment by enabling a combination of cash realization to de-risk owners who want an exit and access to growth capital and retains a share of the upside for those who wish to remain invested.
Whether considering an outright sale, the broader buyer universe, grappling with the implications of technology development, or valuation and exit timing, a strategic review will be invaluable in helping firm up critical decisions. We would be delighted to discuss what is involved.
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