We are pleased to present the findings of our sixth annual survey of global strategic buyers and private equity investors acquiring businesses across the knowledge economy.
- Strong propensity for larger deals, driven by expectations of robust levels of capital being available for M&A, particularly for private equity investors
- A competitive M&A market is maintaining upward pressure on pricing and deal structures
- A major driver of M&A is digital transformation, while buyers are also monitoring the potential headwinds from economic and political instability
- Pricing and deal structures are dependent upon an assessment of a variety of quantitative and qualitative metrics discussed in the report
Each year we commission a comprehensive independent survey of the knowledge economy to deliver actionable M&A intelligence for business owners. This Knowledge Economy Global Buyers Report analyzes the findings of this survey and provides unique insights into current trends among strategic buyers and private equity investors that acquire knowledge-intensive businesses.
The following summarizes some of the key trends discussed in more detail in The Knowledge Economy Global Buyers Report 2020.
The result of this year’s survey suggests a very strong knowledge economy M&A market. Most buyers are looking to do the same if not more acquisitions over the next few years. For many buyers this demand is occurring against a backdrop of anticipated rises in capital available for deal flow. The median optimum size of acquisition target has risen in line with the trend of rises in average size of completed deals over the last year. Private equity buyers are expected to be highly acquisitive in 2020 with 88% expecting to complete the same amount or more acquisitions over the next 12 months, as compared with only 77% of strategic buyers. This buyer group is also expecting to do larger deals, with capital available for M&A expected to increase for the vast majority of respondents.
Most buyers expect significant increases in digital investment over the next three years. Digital investment is focused on driving revenue and customer experience. Data analytics was ranked by the majority of buyers as crucial for both meeting client objectives and enhancing consulting firms’ operations and services. Artificial intelligence, Internet of Things, cyber security and application modernization followed closely behind for strategic interest among surveyed buyers.
Buyers propensity to invest in digital
The knowledge economy is going through a period of unprecedented disruption. The biggest disruptors to traditional professional services that were highlighted by respondents related to the advancement of new technologies like advanced machine learning, which is presenting opportunities and threats to the industry. Some buyers were concerned by new technologies’ potential to replace many professional services. However, most market participants that we are in dialogue with observe artificial intelligence replacing low-margin consulting work, with replacement of bespoke, innovation-led, knowledge-intensive services lying beyond the near to medium term.
The biggest potential disruptors to the industry
Against a current backdrop of solid buyer demand for acquisitions, we asked buyers what future risks to deal flow they were monitoring. More than ten years after the financial crisis, an economic slowdown is seen as the greatest risk to the current levels of M&A. Political instability was also considered a major potential headwind with the uncertainties during the period of this survey of the U.K. reaching a Brexit deal, the outcome of trade tensions between the U.S. and China, as well as the upcoming U.S. elections.
The biggest potential headwinds that could dampen M&A activity in the next 12 to 18 months
If you would like to discuss the content of The Knowledge Economy Global Buyers Report 2020, or would like to discuss your current strategic objectives as a business owner or acquisition strategy as an acquirer, please get in touch.