Monthly Update – M&A Dealflow and Share Prices Increasing Despite Uncertainties

Last week, a well-known UK retailer tweeted, “A customer has just bought a 2021 calendar. Sir, we admire your optimism.”  

A neat encapsulation of how uncertainty across health, economic and political landscapes continues to shape 2020. And yet: stock markets continue to climb the wall of worry, driven by technology and – increasingly – knowledge economy stocks, while commentators continue to walk back from their worst-case forecasts for both the pandemic and its financial impacts.

As early as the start of May, our team started to observe positive signs in knowledge economy M&A markets. Already, after a short hiatus, existing deals were continuing, buyers and investors were already back in the market, and owners of resilient business were still pro-actively considering their exit options.

This momentum has translated into deal completions over the summer, with four Equiteq deals closed since the end of June, including:

  • Advising 4C, a leading Salesforce multi-cloud partner in Europe and the Middle East with over 350 employees, on its acquisition by Wipro – continuing the trend of consolidation in the Salesforce ecosystem, and illustrating Equiteq’s leading position advising on transactions in the digital transformation space
  • Providing advice to SIA Partners on their acquisition of Pathfinder, a leading change and transformation consultancy, as SIA continues their journey to strengthen their presence in UK and Ireland, and build a leading Tier-1 independent consulting firm
  • Advising Water Street Partners, a leading joint venture and alliance advisory firm, on their sale to Ankura, continuing Ankura’s push to establish itself as one of the leading global consulting firms. Our client’s comment neatly sums up the last few months: “It is hard to imagine the Equiteq team delivering a deal under more difficult circumstances. The COVID pandemic was breaking out as we signed the LOI … the team steered us through tremendous uncertainty with dogged persistence, extraordinary effort, real creativity, and integrity.”
  • Advising on a cross-border deal in S.E. Asia – details embargoed until September: more to come

It continues to be our view that the large pool of investors/buyers in market is not seeing adequate deal flow of high-quality acquisition targets like these. Owners of firms that are positioned to be among the early waves of new deals to come to market will meet this pent-up demand and may command a market premium.

Despite this, our community of owners continues to have reservations. In late July, we surveyed owners on their attitudes to M&A. You can download the report at the bottom of this post (or here). Key observations include:

  • By far the biggest concern owners had about M&A post-Covid is the prospect of achieving a valuation that reflects the true value of their business
  • Most owners are pessimistic about the strength of the economic recovery, and / or have seen detrimental impacts on their trading (although relatively few reported a strong negative impact)
  • Most of you don’t believe the worst of the health emergency is over

It’s probably worth re-stating that in current deals, to date, we have seen minimal impact on headline valuations – negotiations have centred primarily on deal structure (e.g. earn-outs not starting until six months after signing)

You might draw a tentative conclusion from the above that owners would delay their M&A process – but over half of those we polled are not delaying their plans. Perhaps one reason for this is – as a small but increasing numbers of owners told us – that the uncertainty and risks of delaying a deal outweigh the perceived benefits. Moreover, from conversations with the buyer community, we hear that, while the quantity, or even the overall quality, of bids and interest may have suffered in some processes, the knock-out offer is still there, at the same high value that might have been anticipated pre-pandemic.

Do get in contact with us if you’d like to talk through any of our recent deals and our latest thoughts on market trends – in particular, on valuations and deal structures.

In the meantime, an update on the Knowledge Economy Share Price Index. We’ve seen our index continue its recovery from March lows, easily outperforming the S&P 500, reflecting the importance of our sector to economic growth, and the increasing application of technology within sector firms.

The only sub-sector still down on a 12-month basis is “Human Resources”, which directly mirrors what we saw in our survey. A ray of hope there though – we’re seeing some training, leadership development and recruitment businesses with positive momentum (especially ones with some tech-enablement behind them). It could be a sector that benefits very strongly from a rebound as end clients scale up their investment in people and workforce transformation post-pandemic.

Knowledge Economy Share Price Index vs. S&P 500:

Knowledge Economy Share Index – Sub-Sectors:

Source: S&P Capital IQ

Note: The Equiteq Knowledge Economy Share Price Index is the average of Equiteq’s six segmental indices and is the only published share price index which tracks the listed companies within the knowledge economy. The index is continually revised to consider new listed companies and to remove businesses that are no longer relevant in each quarter.

 

Equiteq advises Water Street Partners, a leading joint venture and alliance advisory firm, on its sale to Ankura

July 2020

“It is hard to imagine the Equiteq team of Adam Tindall, Dan Kim, Ravi Dosanjh, and Tom Tartaglia delivering a deal under more difficult circumstances. The COVID pandemic was breaking out as we signed the LOI – Adam and the team steered us through tremendous uncertainty with dogged persistence, extraordinary effort, real creativity, and integrity.” – Geoff Walker, Co-Founder Water Street Partners

Water Street Partners, LLC (“Water Street”), a premier joint venture and alliance advisory firm, announced on July 2, 2020 that it has been acquired by Washington, D.C.-based global business and expert advisory firm, Ankura. 

Water Street Partners was founded in 2008 when McKinsey & Co. colleagues James Bamford and David Ernst, along with Corporate Executive Board alum, Geoff Walker, set out to find a better way to do what they love: advise on unique, highly complex joint ventures and alliances. Water Street soon augmented its leadership team with the vital additions of Gerard Baynham and Peter Daniel to grow the enterprise into the world’s premier joint venture and alliance advisory firm. Water Street’s core service offering is centered on transaction, governance, and portfolio advisory services for joint ventures and alliances. In late 2019, Water Street engaged Equiteq’s M&A team to run, manage, and execute a transaction. Water Street is partnering with Ankura to accelerate its growth organically and continue to build on its leading position in the joint venture and alliances market.

“We are excited to join the Ankura team, and we share a commitment to serving clients and a common culture focused on collaboration and respect,” said James Bamford, a Co-Founder and Managing Director of Water Street. David Ernst, also a Co-Founder and Managing Director of Water Street, added, “We look forward to working together with our new colleagues and helping them grow our combined businesses through a continued commitment to exceeding our clients’ expectations.”

Ankura is a business and expert advisory firm based in Washington, D.C. that is widely recognized as the global leader in providing expert advice across a broad array of complex and highly challenging situations.

“We continue to grow our business by attracting top talent in defined and attractive market segments and fostering a collaborative environment that encourages these leaders to leverage one another’s insights and expertise to deliver high-quality, customized solutions to our clients,” said Kevin Lavin, Chief Executive Officer of Ankura. “Water Street is a proven leader in the joint venture and alliance advisory sector. This combination extends our delivery of expert advice to an expanding global client base facing complex and challenging situations.”

Regarding Equiteq’s role in the transaction, Co-Founder and Managing Director Geoff Walker said, “My Co-Founders and I had been consumers of Equiteq’s research for years before embarking on our sale process. It was clear to us that they were deeply experienced in our space and this became even more apparent when we evaluated Equiteq alongside a number of other, highly respected investment banks. Adam and the team did not disappoint. We are thrilled with the value they helped us capture, and more importantly, the home they found us at Ankura to continue to grow our business, serve our clients, and create opportunities for our team.”     

Adam Tindall, Managing Director of Equiteq’s North America practice, commented, “It has been an honor representing the world’s premier joint venture and alliance advisory firm in this transaction. The Water Street team have done a fantastic job at building a highly specialized and successful practice, and Ankura will be a great home to support the company’s growth. We wish the combined team great success.”   

About Equiteq (www.equiteq.com)

Equiteq is the knowledge economy M&A specialist, advising owners of knowledge-intensive businesses around the world from offices in London, Paris, New York, Singapore, and Sydney. Equiteq helps owners best achieve their value and exit objectives through accelerating equity growth and ultimately realizing that value in a trade or private equity sale.

About Water Street Partners (www.waterstreetpartners.net)

Water Street Partners, which will operate under the Ankura brand name, is the world’s leading advisory firm on joint venture transactions and governance.  Water Street’s transaction work specializes in joint ventures and other non-M&A partnerships, both in new deal formation and restructuring. On governance, Water Street advises clients on corporate and joint venture governance, working with boards, management teams, and individual shareholders.

Water Street is built around giving its clients access to the most experienced advisors, the most comprehensive database of practices and benchmarks, the best proprietary tools, and the widest network of practitioners in the world.  Based in Washington, D.C., Water Street’s work spans a wide variety of industries and geographies. Water Street has negotiated, restructured, or advised many of the largest and most complicated partnerships in the world. Since its founding in 2008, Water Street has advised on 250+ JV transactions valued at $750 billion, and supported the shareholders, boards, or management teams in more than 450 existing joint ventures.  Prior to Water Street, its founders were global co-leads of the joint venture and alliance practice of McKinsey & Co.

About Ankura (www.ankura.com)

Ankura is a global business advisory and expert services firm defined by HOW we solve challenges. Whether a client is facing an immediate business challenge, trying to increase the value of their company or protect against future risks, Ankura designs, develops, and executes tailored solutions by assembling the right combination of expertise. We help clients navigate a wide range of corporate performance and risk management challenges, including those pertaining to compliance, investigations, forensics, technology, turnaround and restructuring, and corporate strategy. We build on this experience with every case, client, and situation, collaborating to create innovative, customized solutions, and strategies designed for today’s ever-changing business environment. This gives our clients unparalleled insight and experience across a wide range of economic, governance, and regulatory challenges. At Ankura, we know that collaboration drives results.

Webinar – achieving a scarcity premium in the post-Covid M&A market

Earlier today, our team joined owners of global Knowledge Economy firms to review the state of sector M&A, and explore the possibility of achieving a premium in the market as Covid-19 wanes.

Take-aways below.

Here’s the recording:

Presenters: Head of North American M&A, Jeff Becker, was joined by two of our London-based MDs, Jerome Glynn-Smith and Paul Dondos.

Key take-aways:

  • A few weeks ago, we made the at-the-time contrarian assertion that despite paralysis, volatility, the unfortunate human impact of C-19, and the general unknown, it might be a good time to think about realizing equity value
  • Day by day, that perspective has seemed less outrageous – we see that the immediate health emergency has passed, tailwinds are stronger, deals are progressing, and buyers are strongly engaged with the deals that are emerging

  • The pandemic has accelerated opportunities for firms providing digital transformation, consulting and technology partner services globally – especially for firms exposed to Financial Services, Government, and Healthcare/Pharma sectors
  • Risk averseness of buyers and sellers in March and April 2020 has created a bottleneck in the market that is currently increasingly being relieved. This will create an influx of transaction opportunities and a revival of deal volumes in Q4’2020
  • We are not seeing valuations impacted, as private transactions will follow the recovery of the public markets and in particular high-quality assets will be in strong demand
  • We have seen strong activity at Equiteq across the Covid period with deals closing at the beginning of the crisis. We have close to 20 ongoing projects at different stages from marketing to definitive documentation negotiations – projects are progressing thanks to a combination of asset resilience, acquirer intent, and creative deal-making
  • Our own pipelines for near-term decisions/kick-offs of sellside mandates have more than doubled since mid-May, with PE firms encouraging us to bring our better clients to market ASAP. Meantime, our buyside activity/engagements are at their highest level of all time
  • We are still not far removed from one of the best deal markets in recent memory, with momentum increasing

  • Owners of firms considering entering M&A should assess whether they are well-positioned to execute a successful transaction in the near-to-mid term, to take advantage of the current window and the continued shortfall of high-quality assets (ahead of a potential wave of supply from owners who deferred a decision)

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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