Equiteq’s Buyers Research: Your questions answered


We launched our first Buyers Research Report in October and in that time we have presented our findings to consulting firm owners both in the US and UK. Here, we share some of the questions we’ve been asked during this process and our answers.

If you’d like to ask a question, yourself or hear more about our findings, you can join our free UK webinar, ‘Thinking of selling your consulting firm? 5 things you need to know’ , from 12.30pm to 1.30pm GMT 11 Dec 2014.

If my firm falls outside the size range that buyers indicated was most attractive to them ($15m-$40m) does it follow that it will be harder for me to sell?

No, not necessarily but what it does mean is that you’re likely to have a slightly smaller pool of potential buyers. $40 million is a very large size for an independent consulting firm. Firms larger than this, that are focused in a particular niche or have a highly valuable service offering, are extremely sought-after.

What are your thoughts on the minimum size of firm that a buyer will be interested in?

In terms of the market, firms of all sizes sell. In fact if you consider firms smaller than $5m to be ‘very small’, about 40% of the market volume is in this size category. However, size is important to buyers because firms that are too small are generally high risk (financially unstable). But there are exceptions. Small firms that are rich in tangible intellectual property that the buyer can leverage rapidly through its organization are seen as worthy acquisition opportunities. You can read more about this in our article, Does size matter?

Are there any nuances in your research regarding specialist firms, for example, industry sector specific firms?

What buyers have been very clear with us about is that they like specialists. They like a consulting firm to have focus in both what it offers and in what markets. For strategic buyers this makes it easier for them to identify what a target firm does and how it fits into their organization. Industry specialization is a positive or, more accurately, the flipside is that diversification in service offerings and industries serves as a negative.

How long must an upswing in revenue and profit be maintained for a company to be attractive to buyers?

The key is explaining why it happened. You can demonstrate an upswing for as little as three months and get significant credit for that if the reasons are good. What did you do to achieve the upturn and how you will ensure it continues?

How do buyers view the business development function of small firms if they have only one or two rainmakers – is this a deal breaker?

No, typically they look at what the leadership team is bringing in compared to the rest of the firm and if this proves higher or lower than they norm then expect them to ask why. Also, it depends on the scale of the business, so if you are a $30m firm and 90% of the business is brought in by two people then they will want to know why this is.

How are buyers thinking about value, how are they determining value for the firms they buy?

Buyers will typically take a view of delivered profitability over some period of years. Equiteq’s valuation model takes a six-year view of financial performance both backwards and forwards. This is very similar to what buyers do. In our model we will discount by a proprietary and custom measure of risk that we institute with all of our clients. Buyers are typically doing the same; they discount the future based on their perception of risk in the future.

Consulting firm hot sectors


The consulting firm M&A market has been heating up considerably in 2014, and we’ve seen some particularly ‘in demand’ specialisms emerging.

Serial buyers of consultancies have highlighted to us three key areas of interest:

1. Cyber security / cloud configuration / data analytical capabilities

Seismic advances in technology and the pivotal role this plays in business means IT presents more challenges and opportunities for commerce:

  • Cyber: While IT security has been around a long time, online channels of business have increased the levels of threat and heightened the demand for IT and cyber/online security services;
  • Cloud: Cloud-based delivery of software has been present in consumer markets for many years (Gmail), and it is increasingly common place for businesses as well, with the popularity of firms like Salesforce.com (CRM) and Workday (HR).
  • Analytics: Data has amassed exponentially with an increased business reliance on IT, and this presents fertile ground in which new insights can be obtained. However, the right strategy, skills and tools are required to mine and make use of the data.

Consultancies therefore need to keep pace with these technology changes and be able to advise their clients on making use or reacting to these changes, in order to remain relevant through this transition and in a competitive technology consulting market. Ultimately, buyers of IT consultancies are looking to gain expertise and insights into these areas through acquisition, and having profitable, scalable, ‘leveragable’ and secure technology-based intellectual property associated with the above areas will be an important aspect of what buyers are looking for beyond the buzz words.

2. Operational excellence

Managing businesses so that they are running at peak efficiency, minimum costs, maximum capabilities, and making the best use of technology are business priorities that increase in demand in tough economic climates, but which are also highly relevant in economic up cycles to maximize profits. Consultancies that have a track record in helping organizations achieve this are of particular interest to buyers. However, it is not enough to simply have capabilities in operational excellence. Buyers are looking for firms that leverage technologies to help deliver these capabilities.

3. Customer channel management

Servicing customer needs and delivering products and services through the multiple customer channels currently available, including web, social media, mobile and e-commerce platforms remains a critical and evolving business priority. Traditionally, media and marketing consultancies have been the home for advice on customer needs. However, with the ongoing reliance on technology for customer channels, the need for both media and technology skills in this space have become commonplace for customer journey mapping and content marketing.

Hot or not, fundamentals are the same.

How does this translate into M&A activity?

It is important to recognize that regardless whether you are in a hot area, the fundamentals of what buyers look for remains the same.

Firstly, it’s not enough to give lip service to the areas above on your consultancy’s website or in marketing materials. Buyers are looking for more than just expertise. Demonstrable capabilities, unique market presence and profitable propositions are key to buyer attractiveness. Without these, a buyer could see your firm as a collection of skilled individuals that could otherwise be hired in.

For a consultancy to be attractive to buyers, it is important to have both a market focus and a set of unique capabilities that can be leveraged across the buyer’s network – regardless of whether you’re in a ‘hot’ sector or not.

Intellectual property (IP) built into your firm, a strong Unique Value Proposition (UVP), growing sales…these are all key parts of building a successful and investable firm and are explained in our 8 Levers of Equity Value. The 8 levers contain 80 of the most important measures that a sophisticated buyer would look at to evaluate the risk in your business.

For more insights from buyers, read the 2014 Equiteq Buyers Research Report here.