Case study: Charting future development for NMG Consulting

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Background

NMG Group is an international consultancy and advisory organization focusing on the financial sector. Originally formed in Singapore in 1992, the company now operates in other parts of Asia, Australia, Europe, Africa and North America. NMG Consulting, a part of the NMG Group, hired Equiteq for support in its strategic review and acquisition strategy.

Through the Equity Growth Accelerator (EGA) methodology, NMG developed an objective assessment of its strengths and weaknesses both at group and divisional level, identifying key areas for improvement and potential synergies, leading to a full-scale action plan. The plan included a focused external growth strategy.

Strengthened by this exercise, the company aimed to double in size within the following three years.

The client’s situation

NMG Consulting was looking to boost its equity value to improve its short-term performance, finance its external growth strategy (partly through share considerations) and help direct managerial attention toward long-term synergistic group building.

Our approach

Equiteq ran an initial EGA workshop with the NMG Group Executive Director and the CEO of NMG Consulting to benchmark the business against the wider industry and map where it wanted to be within three years.

We then introduced four lighter less rigorous workshops with the leadership teams of four divisions (Strategy, Actuarial, Insights & Analytics).

The results of the workshops were consolidated into an Outcomes Report, which focused primarily on issues that were common amongst the divisions, or that related to Group synergies.

We presented and discussed the report with the Group CEO and the Consulting Group CEO before the annual global management meeting of NMG Consulting. Consequently, we then ran a two-day session – including group work – with three teams elaborating and presenting suggestions on 10 strategic issues identified as critical during the discussion.

In the final step, the participants voted on the priority levels to be given to each issue, and suggested actions to be taken.

How did this deliver value to the client?

Equiteq’s EGA methodology helped NMG Consulting identify and approach its top priority areas:

  • Developing relevant IP within each entity of NMG Consulting
  • Defining an effective external growth strategy (target selection, market positioning, geographies, size, integration, etc.)
  • Becoming an employer of choice – improving recruitment and career management

Based on the outcome of the workshops, the company designed and embarked on the implementation of an action plan that both enhances the performance of the business and streamlines the path towards selected acquisitions. This joint exercise conducted over three months paved the way to the achievement of NMG’s three-year objectives by creating a clear roadmap, identifying and prioritizing the key actions to be taken, and mobilizing the whole management team.

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Demand for acquisitions in the consulting sector? What buyers say.

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We’re pleased to bring you the results of our second annual Buyers Research. We commissioned an independent researcher to speak to over 100 consulting firm buyers across North America and Europe. The results provide valuable intelligence for both consulting firm owners with an eye on selling their firms at some point in the future, and consulting firm acquirers wishing to understand buying trends in the current market.

The research found that buyers’ acquisition expectations have more than doubled in the past year and there are huge amounts of capital set aside to enable these acquisitions. Within those spoken to for the research, there are over $7.7bn of funds available for the acquisition of over 400 firms in the next two to three years. This is an 11% increase from last year’s budgets and is encouraging given the continuing economic uncertainty we have seen over the past year.

When it comes to the size of consultancies most in demand, buyers are looking for larger firms than they were last year. On average the target acquisition size for the next two to three years ranges between $18m and $45m in revenues, with an optimum size of $31m. This reflects a 20% increase in size preference at the lower end and a 15% increase at the upper end. However, if you’re looking to sell your firm, it is important to recognize that the vast majority of consulting sector deals are consistently done at the smaller end of the market. Because of this, knowing the right buyers to approach can make the difference between success and failure when selling your firm.

Buyers are polarized in their use of qualitative and quantitative measures when evaluating acquisition opportunities in consulting. Quantitatively, buyers prioritize margins and growth above all other metrics. Qualitatively, buyers focus in on your client base and quality of your intellectual property (IP). A deep understanding of what buyers are looking for will allow you to tailor your approach accordingly.

IP continues to be of paramount importance for buyers, as 68% of all buyers cited IP as being extremely or very important as a factor when assessing potential acquisition targets. When considering the different types of IP, buyers prefer IP that directly generates revenue, or that supports the delivery or standardization of a target firm’s consulting services. While IP plays a key role in buyers’ consideration of consulting firms, consulting firm owners need to draw a clear line between their IP and the real value it creates for the firm.  Forty-five per cent of all buyers found it difficult to understand how the IP in the target firm contributes to the success of those. If you’d like to learn more about this, please view our webinar on how to build IP which will grab a buyers’ attention here.

Earn-outs continue to be a reality for the majority of consulting sector transactions. The ‘average’ deal will include 45% in up-front cash, with the rest over a period of 2.7 years; 83% of buyers measure earn out performance on gross margin, but measures range from partner retention to net profit performance. There is a wide range of ways that deals can be structured and a lot at stake, so the need for good negotiation skills is critical to get the best deal for you and your business.

Finally, once the champagne cork is popped and the focus turns to integrating an acquired consulting firm, the survey found that buyers tend most often to focus on the integration of people above all else in the first 90 days post deal. This is due to the fact that human capital is the real asset of a consulting firm. As any acquisition is a disruptive time for a seller, buyers are keen to ensure their assets don’t walk out the door during or immediately after an acquisition. Following the integration of people, clients are the next highly prioritized area and the more mechanical integration of technology and systems follows on from these. How long do integrations typically last? On average, as a seller of a consulting firm you can expect to be involved in an integration period for just under two years following an acquisition. Buyers start thinking about how a seller’s services will integrate with their own early on, although it is also critical for sellers to consider how integration into a buyer’s firm will impact the firms culture and its ability to retain the attributes that make it successful.

When selling your firm, knowledge of buyers in the market is critical. The more informed you are about buying behaviour and preferences in the market, the better equipped you will be to navigate through to a successful sale.

To read more detail about the findings from the research you can access the full report here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business.  Register here to gain full access. 

What to expect from consulting firm buyers

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Different buyers look for different things when acquiring consultancies. Broadly, there are three different kinds of buyers: consulting buyers, corporate buyers and investment buyers. Each will see different aspects of your business as valuable and understanding their motivations is important. This week, we’re taking an in depth look at consulting buyers and will examine corporate and investment buyers in future pieces.

There are four key areas of consideration for consulting buyers which we will explore in turn.

  1. Build vs buy: Why consulting firms choose to acquire rather than grow a capability.

Growth is always on the agenda for most large and mid-market consulting firms. It typically comes down to balancing organic and acquisitive growth. Organic growth takes time and the careful management of demand and supply in the new area. There is the potential risk that the payoff takes longer than expected or does not happen at all. The upside is that the firm is in control of its own growth and the pace is incremental. Acquisitive growth, if successful, is immediately additive. However there are well known statistics on the failures of M&As which are often the result of poor post-merger integration.

In practice, consulting buyers use a combination of organic and acquisitive growth. Sellers of consulting firms need to understand that buyers will always consider whether your business could be built internally for less money than it would cost to acquire your firm. It is worth asking yourself, “What am I actually selling?” as the buyer will be asking “What am I buying?” Therefore, you need to demonstrate that what you have is additive to them, rare in the market with valuable intellectual property (IP).

  1. Acquiring capabilities: What is the landscape of capabilities, services and expertise that consulting buyers typically consider?

Large, multi-disciplinary consultancies that are likely to acquire other firms tend to be organized by both capability and industry. The reality is that strategy firms have historically organized themselves by industry expertise and most others have done so by functional or disciplinary capabilities. The reason for this is that in order to provide sound strategic advice, strategy consultancies look holistically at business issues across functional disciplines and consider market dynamics within an industry.

The trick is to understand which consulting buyers will be more attracted by your focus areas (capability or industry) and less deterred by areas where you may be more generic. Ultimately, buyers are looking to pay fair market value for your firm, but gain above average returns from their investment. The way to do this is by making acquisitions that have a high degree of synergy potential with the existing business.

  1. Intellectual property: What is it and what value does it represent?

IP has always been a key consideration for consulting buyers, but is becoming increasingly important as the landscape changes. IP is difficult to define and even more difficult to value. So sellers often want to understand how to define IP, whether what they have developed as IP is valuable to buyers, and if so, what is it worth?

IP comes in many different forms. The most understood forms of IP are software or IT products/solutions that are directly revenue generating as a standalone asset. The most abstract forms tend to be methodologies or best practices that do not generate revenue, but better enable a consulting firm to sell their expertise in a repeatable and consistent fashion.

Ultimately, consulting buyers are looking to acquire IP that allows them to sell more, or higher value, consulting work.

  1. Post merger: What to expect from consulting buyers following an acquisition

It is well known that the main reason for most M&A failures is poor integration, including pre deal integration planning and post deal integration execution. The situation where a consulting firm is acquired by a buyer is even more sensitive to integration failure, as integrating people is both the most difficult aspect and also the key to its success.

Time and time again, the critical factor of integration has proven to be the alignment of leadership objectives and defining successful integration as accurately as possible. However, as the acquisition of consulting firms by buyers involves people based risks, such as attrition, most buyers mitigate this through a deferred payment or earn out in the deal structure, with upfront payment typically in the form of cash and shares (partnership with some consulting firms). However, there is an ongoing dilemma for most buyers – how to measure the performance of an earn-out to ensure the acquired firm continues to grow, while trying to take advantage of the synergies between the two firms that often make standalone earn-out metrics difficult to measure. Some firms get around this by using top line earn-out metrics such as revenue or gross profit, while others stick to earn-out metrics for an initial period until the growth and integration is proven, then work collectively with the target to adjust objectives and take advantage of the synergy opportunities.

Ultimately, the integration of consulting offerings and cross selling opportunities with clients commands most of the air time in integration discussions, as this is where the money is made and where the opportunity lies. However, consulting buyers more than others understand that a better than average alignment of people is required to make this happen.

Understanding the motivations of consulting buyers can help you position your business in a more attractive way. If you’d like to read more about what consultancy buyers look for please read the full article here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners grow and realize equity value in their business. Register here to gain full access.

Equiteq’s Global M&A report 2015 – Who’s buying?

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For those aiming to one day sell their consultancy, who is buying is naturally of great interest. This week we’ll be delving into our Global Consulting M&A Report to see where the buyers are coming from.

In 2014, 2,274 targets were bought by 1,722 different buyers, meaning buyers in 2014 acquired, on average, 1.32 targets each. This is broadly consistent with a similar ratio of 1.29 in 2013, illustrating that the overall market is steady – neither consolidating, nor fragmenting – as the ratio of new buyers and new sellers entering the M&A market has remained consistent.

Looking at the most prolific buyers of consulting firms in 2014, the top of the list was dominated by the communications and marketing agencies. WPP, one of the world’s largest communications services group, acquired 52 companies in 2014, of which 23 were consulting businesses. They were also a leading buyer in 2013 with 22 acquisitions in the consulting sector during that year.

The second most prolific buyer was Publicis Groupe SA, who provides a range of advertising and communications services worldwide and was also the second most prolific buyer in 2013.

In third place, with 14 acquisitions in the consulting sector, is Japanese telecommunications company Nippon Telegraph and Telephone Corporation (NTT Corporation). They are a keen acquirer of IT consulting and services businesses.

The ‘Big 4’ and Grant Thornton are typically the most prolific buyers. Deloitte have had consistently high levels of acquisition activity per year, although KPMG was the most acquisitive in 2014.

Private equity (PE) is increasingly attracted to the consulting sector for investments and 2014 was a record year for PE acquisitions.

Roughly 85% of buyers are categorized as ‘trade’ or ‘strategic’, where the buyers seeks some form of synergistic benefit from the acquisition. And approximately 15% are ‘financial’ or ‘investment’ focused, buying in the consulting sector for a straight return on their capital. PE groups can be attracted to consulting businesses because they consume very little of the high profits they generate on fixed or working capital. The free cash flow that is generated in many consulting firms can be used to pay back the interest and capital on the loans that are an integral part of PE investments.

If you are selling a firm in Europe, there is a 26% chance that your buyer will be foreign, whereas in the USA it is most likely (88%) that your buyer will be internal. The number of cross-border deals in 2014 is slightly higher than 2013, increasing by 3%. Seventy-five per cent of deals done worldwide were completed by only five countries: USA, UK, Australia, France and Canada.

If you’re interested in a more detailed analysis on any of these areas, more information can be found in our full report. To download a copy you need to be a member of Equiteq Edge – registration takes only moments here.

Equiteq sells Finnish consulting and market intelligence firm

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We are pleased to announce the sale of our client, Global Intelligence Alliance Group (GIA), to M-Brain.

GIA is a strategic market intelligence and advisory group, formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

M-Brain is a European based information services company with offices in seven countries. M-Brain offers media and business intelligence solutions, analytics and consultation services, as well as online intelligence tools and technology to bring insight into its clients’ business environment.

“GIA is an exceptionally well-managed business” said Dan Bowtell, the Equiteq lead advisor to GIA. “Since inception, it has been at the forefront of development in strategic Market Intelligence. GIA’s unique, high quality services generated significant interest in the business, particularly from overseas acquirers. However, M-Brain provided the most compelling deal. The combination of two businesses creates a group with complementary global operations and substantial future growth opportunities.”

Commenting on the growth and sale process for GIA, Markko Vaarnas, CEO and co-founder of GIA said: “This process started a year ago with a consulting project during which Equiteq helped our management team to identify the value growth levers for our business. Looking back, the decisions we made at that time proved to be highly valuable and we were able to boost our profit growth significantly. This had a major impact on the way we presented the company in discussions with prospective acquirers and ensured we achieved a successful outcome for all shareholders.”

Following the sale of Equiteq client ACE International to AECOM, this latest successful sale is further evidence the market is turning a corner and that 2014 is likely to see significant growth in volumes and prices, as our Global Consulting Mergers & Acquisitions Market Report 2014 suggests.

We have extensive resources that provide information as to what firms can do to make themselves attractive to buyers in the Growing equity value in your business section within our online resource, Equiteq Edge.

Sale of international development consultancy to AECOM



roads merging croppedWe are pleased to announce the successful sale of our long-term client, ACE International Consultants (ACE), to AECOM Technology Corporation.

ACE is an international development consulting business headquartered in Spain, providing economic and project management consultancy to a wide range of governments in emerging economies.

AECOM has been ranked as a leading engineering design firm, with over 45,000 employees, including architects, engineers, designers, planners, scientists and management and construction services professionals. Serving clients in more than 150 countries, it provides a blend of global reach, local knowledge, innovation and technical excellence in delivering solutions that create, enhance and sustain the world’s built, natural, and social environments.

Bruce Ramsay of Equiteq was the lead advisor to ACE and commenting on the deal he said:  “Many consultants in this industry focus just on the delivery of a range of projects, and expect to build value just from their revenues.  Antonio Bonet, founder and CEO of ACE and his team invested in their underlying methodologies, building a single system to support the process from initial market news on potential projects, through all aspects of bidding and project management, right through to invoicing. It was this tight measurement and management of the business, combined with the sector focus, that created the revenue growth and an attractive target for potential acquirers.”

Another successful sale is further evidence the market is turning a corner and that 2014 is likely to see significant growth in volumes and prices, as our Global Consulting Mergers & Acquisitions Market Report 2014 suggests.

We have extensive resources that provide information as to what firms can do to make themselves attractive to buyers in the Growing equity value in your business section within our online resource, Equity Edge.