Our fourth annual global survey of buyers of consulting businesses delivers current, actionable intelligence in the five segments Equiteq specializes in: Management consulting, IT consulting, Media & Marketing, Engineering consulting and HR consulting. Findings, published today, reveal:
- Buyers expect to initiate 50% more acquisitions year-on-year
- Convergence continues to be a key trend as buyers look to diversify
- 55% of buyers think targets could be better at communicating their market proposition
- 94% of buyers say it is important to retain management teams post-acquisition
- Over 70% of targets do not make their IP apparent to prospective buyers
- Three quarters of buyers expect at least 40% of a target’s clients to be blue chip
- Deal structures are improving for sellers
Buyers’ focus for the coming year
Examined, this year, through the lens of Equiteq’s eight levers of equity value, the data highlights a number of focus points for buyers. Of these, quality of management and a differentiated market proposition emerged as top considerations amongst strategic buyers and private equity alike. Other equity drivers distinctly on buyers’ radars are long-term, high-quality client relationships and the optimal demonstration of intellectual property (IP).
Sellers should look to develop and retain leadership and management skills. While this is particularly important to buyers in North America as compared to Europe, 94% of all respondents say retaining the pre-acquisition management team is important or extremely important.
As vital as it is for owners to refine their market proposition for prospective clients and to differentiate it from that of competitors, it is equally important to communicate it clearly to a potential buyer. Over 50% of buyers say a clear description of the market proposition improves valuation, with a suggested impact of over 20% on value. This proves the worth of refining the proposition before conversations with potential buyers begin.
Another area in which buyers value clear articulation is IP. However, only 30% of prospective sellers of consulting businesses were thought to be optimally demonstrating their use of IP in the marketing or delivery of their services. Within IT services, firms with codified IP and methodologies are the most valuable. 51% of surveyed buyers say there is significant or very significant impact on the purchase price of a target dependent on whether IP or codified methodologies are optimally deployed. Across all consulting sectors, buyers pay a premium for consultancies that offer something they don’t currently have easy access to.
That also applies to high quality clients. Long-term and growing client relationships are seen as best in buyers’ eyes, and there is a high expectation for these to include blue chip companies. When assessing a target’s client base, buyers expect to see blue chip clients comprising 40% of the list, at minimum.
Appetite for acquisition
The market for transactions continues to be strong and comprised of both strategic and private equity buyers. Overall, buyers are estimating an increase of 50% year-on-year in the number of acquisitions they will initiate. Strategic buyers have shown an increased appetite for acquisitions and are prepared to pay higher multiples for the right levels of margin and revenue growth. In fact, more than 50% of strategic acquirers see acquisition as a key growth strategy.
Sector-wise, IT services and management consulting firms expect to be the most prolific acquirers and, notably, HR consulting firms have increased their buying expectations by 50% since last year.
Improving deal structures for sellers
Upfront cash considerations are expected to amount, on average, to 67% of deal value in a shift towards more favorable terms for sellers. This stems in part from buyers’ perception of increasing competition, with 55% seeing the market as more competitive than last year. This has greatly impacted the way in which acquirers are structuring their deals.
For more global perspectives on the M&A market read the full Buyers Research Report.
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