The Knowledge Economy Global Buyers Report 2018/19

Strong demand for M&A in 2019 is driven by industry convergence with a desire among buyers to deepen industry and digital expertise

By Ramone Param, Director, Equiteq

  • Buyers expect to complete 5 acquisitions over the next 2 to 3 years
  • Private equity expect to acquire 75% more businesses than strategic buyers
  • The optimum turnover size for an acquisition rose 18% since 2016
  • Strong demand for artificial intelligence, data analytics and Internet of Things capabilities

The Knowledge Economy Global Buyers Report analyzes the findings of our fifth comprehensive independent survey of global strategic buyers and private equity investors acquiring businesses across the knowledge economy. The report provides exclusive insights into current M&A trends among buyers that acquire knowledge-intensive services businesses across five segments: management consulting, IT services, media agencies, engineering consulting and human resources.

The following summarizes the main trends discussed in more detail in our recently published Knowledge Economy Global Buyers Report.

Buyers of businesses operating within the knowledge economy that we surveyed in 2018 expected to complete a median of 5 acquisitions over the next 2 to 3 years. Buyer demand is being underpinned by a robust industry and global economic outlook, as well as talent shortages in hot spaces of the market. These factors are combined with continuing demand for growth and substantial capital available for deals across buyers. The last two years have seen a rise of 18% in the optimum turnover size of a target business for the median strategic buyer surveyed in the respective year. Cash-rich acquirers are seeking deal opportunities that significantly move the needle for their organization.

Private equity buyers expect to make 75% more acquisitions over the next 2 to 3 years than strategic acquirers surveyed. This strong acquisition propensity from private equity is driven by attractive industry dynamics within the disruption zone of the knowledge economy, which present opportunities for acquiring high-growth investments. It is also helped by record levels of private equity fundraising and capital available for acquisitions.

The survey asked buyers for their perspectives on the demand for digital technologies within their organizations now and in the future. Unsurprisingly, capabilities involving artificial intelligence, data analytics, as well as the Internet of Things were noted to be of major strategic importance currently. Buyers envisaged capabilities at the intersection of artificial intelligence and data analytics to be of even higher strategic importance in the future.

Digital capabilities in demand among strategic buyers

Note: Each buyer was asked to note the digital capabilities of interest within their organization both currently and with respect to those that will emerge in demand in the future. Scores are aggregated to give a weighting out of 100, see page 38 for further detail.

The survey indicated a steady flow of acquisition opportunities coming to market as sellers take advantage of the favorable market conditions. Additionally, while deal flow is currently strong, buyers are monitoring the risks of an economic or industry slowdown and the impact of interest rate rises on leveraged acquisitions. Nevertheless, such constraints do not appear to be having an immediate impact on buyer appetite and M&A forecasts.

The report also provides exclusive details on buyer’s approach to evaluating, valuing & structuring deals. This includes what attributes buyers care about within a knowledge-intensive services business and insights on average KPIs that buyers expect target businesses to be achieving. The review also looks at average deal structures and discusses the following average adjusted EBITDA valuation metrics that buyers are targeting on acquisitions at different ranges of EBITDA growth.

Mean current year adjusted EBITDA valuation multiples

Note: Each buyer was asked what adjusted current year EBITDA valuation multiple they would expect to pay for an illustrative acquisition opportunity that has a consistent 20% EBITDA margin, with no growth and at three EBITDA growth rates.

Access the full Knowledge Economy Global Buyers Report.

For more information sign up to Equiteq Edge, our content platform to help owners of knowledge-intensive services firms prepare for sale and sell their business. Register here to gain full access.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.