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.

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Case study: Supporting CMF Associates in their search for excellent value and a shared vision

Background

CMF Associates, a provider of transaction and transition-focused financial, operational and human capital solutions, was successfully sold to professional services firm CBIZ, Inc. The US-based firm services private equity firms and their portfolio companies across North America.

Equiteq were initially called upon to determine CMF’s market attractiveness and then hired as the exclusive sell-side advisor for the transaction process.

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8 ways to handle an unsolicited bid for maximum value

In a recent interview with Financier Worldwide, David Jorgenson, chief executive of Equiteq, suggests deal flow in 2018 will be supported by continued low interest rates and large pools of capital available for acquisitions among both strategic buyers and private equity investors.

With the forecast for M&A in 2018 predicted to be as lucrative as 2017, it’s anticipated businesses will continue to see a rise in unsolicited approaches from buyers. In fact, about a third of Equiteq transactions start with a client receiving an approach from a buyer.

However, despite a seller receiving an enquiry, there is no guarantee that a deal will be done. In reality, given the number of companies looked at by Trade and PE investors, the chance of it closing can be relatively low, so taking the right approach from the very beginning is essential in maximizing the opportunity and minimizing the opportunity cost of wasted effort.

In this blog Bruce Ramsay, managing director, business development at Equiteq, shares his thoughts on how best to manage the process from initial approach to a closed deal.

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Insights of the Year – Our Top 10 Blogs of 2017

2017 was a busy year for Equiteq, closing deals and advising consulting firm owners on their growth and exit strategies across Europe, the US, Australia and Asia. Within our market there are unique takeaways and insights for owners to consider when thinking about a sale.

As owners and acquirers set their 2018 priorities, we recap the learnings from Equiteq’s most read blogs of 2017.

  1. Should I sell my consulting firm to an overseas buyer?

Here we discuss the opportunities overseas buyers present, how to attract them and how to deal with the challenges these approaches can bring.

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How to attract the buyer that is right for you

Ramone Param, Associate Director, Equiteq recently led a webinar looking at how to attract the type of buyer that best aligns with a seller’s business strategy and future growth trajectory.

In the consulting sector, the majority of deals are undertaken by strategic buyers. One of the most prolific buyers, Accenture, completed seven deals in Q3 2017 alone. The involvement of private equity firms in the consulting sector has traditionally been cyclical, although recently there are many actively acquiring private equity investors within the sector.

When considering a sale, it is important to understand the differences in the way these two buyer groups approach transactions to ensure you are partnering with a buyer whose business strategy aligns with yours.

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Demand for acquisitions set to grow in 2018

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

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September 2017: Consulting M&A Update

By Ramone Param, Associate Director, Equiteq

Over September, we observed high-profile deals from prolific knowledge-intensive services acquirers across a variety of transforming spaces of the consulting market, including digital transformation, Salesforce consulting, real estate advisory, benefits consulting and traditional business consulting. In the last month, Equiteq advised four of its clients on the sale of their business to the practice of a larger group.

Selected Consulting M&A announced in September:

Note 1: Based on 2016 LFY Revenue

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Making a success of succession

How do you ensure a succession plan works? When should you start considering succession planning? Penny de Valk, Equiteq specialist in leadership development and human capital, addressed these and other front-of-mind questions of business owners in the Q&A of our recent succession webinar.

The main issues raised included:

  • Recruiting new leaders: internal versus external
  • Sharing equity to attract and engage
  • Handling founders’ syndrome and the exit transition

What do you see as the pros and cons of appointing a CEO from within the firm compared with recruiting from outside?

There’s no right or wrong here. With an internal candidate you get someone who is steeped in the values and the market, someone who really understands the organization. That can have huge advantages, but if you are looking for exponential growth, or a shift in thinking, it may be best to recruit externally. It is important to begin with what you need, really spend time on ‘what good looks like’ then assess your existing people against this. You can spot the potential inside and develop it. You find people from within the business who are just as ambitious and are just as visionary about what the organization could be, not just what the organization was.

The rule of thumb would be: for organizations that are not in true start-up mode, but are half way through their maturity, it is probably half and half. The important thing is there is a good mix of capability, experience and potential.

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August 2017: Consulting M&A Update

By Ramone Param, Associate Director, Equiteq

Accenture acquires marketing agency Wire Stone

Accenture acquired creative agency Wire Stone, which provides a range of strategy and marketing campaign services that develop digital consumer experiences. Wire Stone was founded in 2000 in San Francisco and has built a reputation for the use of technology and data to improve marketing campaign return on investment. The business has worked with a number of blue-chip clients including, Microsoft, HP, PayPal and eBay.

As highlighted in our latest quarterly M&A update, Accenture continues to be highly acquisitive and is developing Accenture Interactive’s capabilities and talent across marketing and consulting. According to a recent report by Adweek, Accenture Interactive’s projected 2017 revenue of $6bn places it above Havas Worldwide, although it is not a holding company and therefore does not rank among the “Big Six” of WPP, Omnicom, Publicis, Havas, IPG and Dentsu.

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Key considerations when designing incentive schemes to support exit success

By Penny de Valk, Associate Director, Equiteq.

Knowledge-intensive services firms can achieve faster growth and reduce founder dependency through diversifying management roles, smart succession planning and equity incentive schemes. These steps support higher future exit values, better deal structures and increase the likelihood of achieving earn out targets if key people are retained and share in the earn out.

From the founder’s point of view, introducing equity incentives will probably be one of the largest investments the company makes so it’s really important to get this right.

Too often tax planning takes crowds out the more important process of designing a commercially effective scheme. Tax is important, but an approach that ensures the growth and exit vision is aligned by evaluating how much value to share, with who and over what time period should come first.

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