Case study: Improving value and advising on successful sale for GIA

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Background

GIA, a world leader in customized market intelligence, serves companies whose decision-makers need a solid market understanding in order to grow and compete internationally.

With the support of our Equiteq growth programme, they had already increased their equity value by more than 250% in a 12-month period which ultimately culminated in us being appointed as lead M&A advisor on their eventual sale to M-Brain Oy.

The client’s situation

GIA had achieved good revenue growth and geographical expansion across the world; however their profitability history had been erratic, affecting their attractiveness to potential acquirers in the past.

Our approach

Our approach was to run intensive value-enhancement workshops in London and Helsinki to calculate the current valuation of GIA and then design an action plan to improve that valuation.

We formulated a plan which would increase the valuation of GIA by more than 100% by identifying unnecessary overheads and removing non-value-adding expenditure and encouraging each senior member of the team to commit to improved sales over a period of 12 months. Once the improvement plan was underway, we began our arrangement for sale.

How did this deliver value to the client?

During the process, GIA improved their EBITDA margin to greater than 15% and we were able to demonstrate to potential acquirers that these profit improvements were permanent, resulting in a much stronger valuation proposition.

  • We ran a comprehensive global marketing process, comprising approximately 80 buyers, which garnered significant interest in the business with more than 30% signing NDAs and taking the information memorandum
  • In a competitive process the final sale price achieved was significantly above the target valuation

GIA recognized our efforts in the sale and the performance improvement as critical to achieving the result. All shareholders, including the private equity house, were delighted with the result.

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Eight mistakes to avoid when building a sale-ready business

Eight mistakes when building a sale-ready business

Over the years, Equiteq has worked with many entrepreneurial owners of consulting firms to help them grow value and sell their businesses. However, from experience we see that only a fraction of consultancies grow to a saleable scale. In this blog, we’ll explore some of the mistakes leaders make that affect their success.

  1. Working IN, not ON the business – Particularly for early stage firms below $5m revenue size, this is a common reason why businesses fail to scale. Business owners should recognize whether they are spending too much time delivering for clients, as opposed to delegating and working to lead the growth of the business.
  1. Innovation distractions – Ultra-entrepreneurial leaders can get into the habit of spotting new ideas and innovations that promise to bring in millions to their firms, but often just suck resources out of the core business. Think: Will this new idea add leverage to the core service? Will potential buyers be interested in these assets together or is it worth considering launching a separate venture that does not distract?
  1. Value negative diversification – It is important to scale up while also remaining attractive to potential buyers. Diversifying and growing into different markets or verticals can dilute the focus of the company and its niche. Because buyers are often interested in specialized firms, business leaders should contemplate whether the company’s focus is spread too thinly and if a buyer will be interested in all of their business – if not, the business may be growing in a value negative way.

For more on the equity value risks in international office expansion, click here.

  1. Failing to professionalize the business – A business made up of very smart people who generate work by network selling may make a lot of money, but may have very little value and be hard to scale. Unfortunately, many owners can be slow to introduce the necessary cogs in the machine needed to guarantee future growth. Buyers are only interested in organizations with high potential to grow, but there isn’t any value in a company that relies too heavily on a small set of highly skilled individuals. When you come to sell the business, it is the demonstrable evidence of these disciplines and business constructs that will enable the buyer to place a value on your company.
  1. Misunderstandings of valuation – Consultancy owners sometimes mistakenly assume that their business is both valuable and sellable when buyers approach them speculatively. In the real world, poor knowledge on value often results in premature, bad, or failed deals. If you don’t know the realistic current value of your company, how do you know what good or bad looks like when decisions are to be made?
  1. Lack of a plan to become ‘sale ready’ – Sale readiness has two meanings: firstly, that the business is at a stage where it has reached the desired value and, secondly, that it is well prepared for a transaction. If the plan is to grow to $20m and exit in three years, then it is important to bear in mind that, though, the target of $20m might have been met, there might still be a high risk in completing a successful transaction. A lot can go wrong in the six-to-nine month transaction period.
  1. Inadequate shareholder alignment on exit strategy – If you are not the sole shareholder, then other shareholders will have their unique needs and goals. If these goals are too diverse, then growth may be held back, or a potential sale may be hindered.
  1. The Johari Window mistake – Supreme confidence is a valuable thing. While entrepreneurial achievements deserve all the hard-won kudos and respect earned, does this mean you don’t need to take advice on value growth and selling your company? Savvy owners that avoid this mistake build into their plans that they ‘don’t know what they don’t know’. They build a support structure around them to ensure that hazards are foreseen during value growth and that there is a high probability of a successful transaction when the company sells. So hire an advisor; if not Equiteq, then someone else.

If you’d like to read more about entrepreneurs’ eight biggest mistakes in building a sale ready consulting business, please read the full article here.

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Case study: Strengthening and leading Blue Sky to a premium sale

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Background

Blue Sky Performance Improvement, a boutique performance improvement consultancy, create a different approach to training and developing people to improve business results. Blue Sky leadership engaged with Equiteq to help build value over several years with the aim of finding and securing a deal with an acquirer who would buy at a premium price.

We worked closely with Blue Sky to grow their equity value, improving and strengthening key areas of the business such as market propositions and intellectual property that proved vital in demonstrating their synergy to the eventual buyer. At the end of a three-year process, Capita approached Blue Sky. Equiteq led the sale of the firm to Capita, who offered £12m, equivalent to a revenue multiple of 1.7.

The client’s situation

Because Blue Sky had sound business propositions and a steady client base in the performance improvement area of consultancy, the ambitious management team wanted to sell to de-risk the value they had built and sell whilst the business was performing well. To begin with, we conducted an Equity Growth Accelerator, and a quarterly review of progress continued over 36 months.

Although Blue Sky later decided to switch to another advisor to try and clinch a sale deal, it fell through, and they found themselves back at square one. Once we were re-engaged, we set about building growth and securing a buyer prepared to pay a premium price for its assets in 2014.

Our approach

Over three years Blue Sky used Equiteq’s 8 lever ‘Equity Growth Wheel’ with on-going consulting support to set up a best practice operating model and grow revenue, profits, and equity value.

Selling a ‘people’ business, where your strongest assets and intellectual property could walk out of the door, requires a unique approach to sale.  We helped Blue Sky build stronger market propositions, put rigour and process around capturing their intellectual property and strengthen the management structure.

Three years into the process and with profits growing healthily, Capita approached Blue Sky. Capita had recently won a large government contract and Blue Sky were seen as a key part of the delivery solution. We managed the sale process throughout, and negotiated a premium price.

How did this deliver value to the client?

  • Using our Equity Growth Wheel, Blue Sky made fast progress over four years towards best practice in key areas
  • Equiteq helped grow Blue Sky’s sales from £4.2m to £7m
  • Blue Sky were offered £12m, negotiated up by Equiteq from an initial offer of £10m, with 60% payable cash up front
  • Earn out period was reduced from 33 to 27 months
  • Equity value increased from 5 x profit to multiple of 7.6 x profit
  • The revenue multiple increased to 1.7

Equiteq took Blue Sky from being an attractive sounding business and transformed them into a robust business asset that sold at a premium.

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Case study: Focus on profit and leadership brought buyers to Easton

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Background

Founded in 2000, Easton Associates provided product and business strategy consulting services to companies in the life science industries. In 2009 they approached us asking for a business valuation and market risk assessment and we valued them at $5m. By helping them restructure the leadership and to improve sales and marketing over the following two years we helped them grow their profit and the value of the business increased to between $12-$15m. In 2012 Easton sold to Navigant for $15m.

The client’s situation

Easton was a consultancy on the up, but it was struggling to convert sales into revenue and profit. The ambitious leadership team was keen to rectify this and turn the business into a thriving consultancy that had a true handle on its bottom line and was worth something on the M&A market. They asked Equiteq to help.

Our approach

When we first came on board, Easton had five partners. To improve decision making Equiteq helped the team re-structure and Easton appointed a chief executive officer. She was charged with, and given a bonus for, delivering a new profit target. Easton used Equiteq’s 8 lever Equity Growth Wheel to help them introduce best practice in driving sales and profit growth, improving intellectual property, and formalizing sales and marketing processes. Turning sales into revenue and profit was a key priority, and Easton needed to put consistency around their sales and business development processes and to make staff more accountable for delivering targets. Gross margin targets were set in line with capabilities and incentive bonuses offered on delivery. Elsewhere, building value into a ‘people’ business, where, in theory, your intellectual property is in people’s heads and on laptops, requires a unique approach. We helped Easton build detailed market propositions and put rigour and process around how they captured and recorded their valuable intellectual property.

How did this deliver value to the client?

Easton made rapid progress over a two year period using the Equity Growth Wheel, with a specific focus on sales and profit growth, market proposition, intellectual property and management quality

Equiteq supported Easton in:

  • re-structuring their leadership team to provide better clarity and focus
  • growing revenue by 37% – from $9.5m to $13m in two years
  • growing profits from $650k to $2.5m – an increase of 280%
  • Easton’s valuation grew by $10m in two years

The EBIT value of the firm started at four but reached a multiple of 7.5 at the end of the engagement