Thinking about expanding internationally? Four common misconceptions every business owner should know the truth about

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By Adam Blatchford, Associate, Equiteq

For many business owners, establishing a strong local presence is only the first step on their road to success. Once they’ve achieved this, they want to continue growing the value of their firms, and many are tempted by the thought of expanding geographically beyond their home markets. It is a seductive idea littered with potential pitfalls that could not only jeopardize the business’s financial position but also significantly erode equity value.

In this blog, we look at how you, as a consulting firm owner, can make smart decisions around ‘if’ and ‘how’ to scale your business abroad, to ensure you are protecting and building your company’s value rather than hindering the attractiveness of the company to future buyers.

We’ve compiled some of the most common reasons business owners give for expanding internationally, and the potential risks that those reasons might be hiding.

1. We have exhausted our home market

There is a significant opportunity cost to international expansion; while it can provide opportunities to grow, it is usually far easier to grow in your current market where you already have relationships and credentials. So it should only be attempted if you have truly saturated your market:

  • Be absolutely certain that other factors are not hindering growth

i. Check that your proposition correctly resonates with your client’s issues
ii. Examine if you are competing with internal capacity
iii. Assess your account management to ensure you maximize your current clients
iv. Confirm that your sales focus is on the right type of client

If these issues are the true cause, rather than a saturated domestic market, then they will hinder your progress in the new market too.

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Kick-starting margin improvement in your consulting firm

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By Jason Parks, Director – Strategic Advisory Services, Equiteq.

Gross margin is an important metric in consulting organizations. It can be the difference between steady growth, and running to keep the lights on. It’s also one of the key metrics potential consulting firm buyers focus on as they look to acquire firms with strong profitability.

We recommend that gross margin should represent 50% of a firm’s revenue. If it’s less than that then you’re unlikely to be generating the funds needed for growth or delivering a net margin that will drive equity value.

The challenge with improving gross margins lies in the fact that they rarely have a singular root cause.

There are three main areas to focus on to improve profitability in a consulting or professional services firm, and they are all intertwined:

  • Increase revenues generated by the business by selling higher value work
  • Improve the leverage structure of the delivery organization (i.e., people, IP, QA)
  • Optimize overheads

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Readying Crossbridge for a premium sale by focusing on growth

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This week’s blog looks at how Equiteq, with a three-year growth support programme, helped Crossbridge to grow in preparation for sale. Crossbridge was transformed into a fast growing business, which later sold for a value that exceeded shareholder expectations.

Crossbridge is a specialist management consultancy which works with clients in the financial services sector to improve their operating model, internal operations and culture. Three years prior to the sale of the business, Crossbridge employed Equiteq to run an Equity Growth Accelerator (EGA) workshop with the aim of building the business’s value.

To get started, Equiteq ran a two-day workshop with the leadership team to see how they fared against other sector peers. From the outcome of the workshops we were able to map out where the company needed to be positioned, agree timescales, and lay out the actions the leadership team needed to commit to in order to achieve these objectives.

Using our ‘8 Lever model’, Crossbridge were able to chart their progress on an annual basis. During this period, our approach contributed to 66% revenue growth in two years.

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Sales and profit growth (Part 2)

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Lately, we’ve been running a series of free 30-minute webinars to help attendees grow the equity value in their consultancy firms and prepare for a sale of their business. Attendees at each webinar submit questions, and we’re going to be sharing and answering these questions in a series of blog posts. This week we’re looking at the final part of the Q&A session during the webinar on what your company’s sales and profit numbers say about how you run your business. You can read the first part here. 

  1. Which is more valuable to a buyer, a consultancy with (a) a lot of clients with lower revenue per client, or (b) fewer clients with higher revenue per client?

Client concentration is a risk for any organization. Buyers would be worried if your consultancy is earning 70% of its revenue from a handful of clients. This would cast doubt on whether the business would be able to sustain its current revenue levels should any of the clients leave or cut back on their spending.

The quality of your clients is a critical factor for attracting buyers, and it is important to have key clients that demonstrate your ability to service and sustain such relationships. However, spreading client concentration shows buyers that your offerings have the potential to be applied to their clients as well, and that your firm has resilience in its target market.

Tip: Try to diversify your client concentration and offerings as suggested here in our eight essential tips for planning for growth and exit.

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David Jorgenson appointed as new CEO at Equiteq to develop and execute our global growth strategy

We have made several key appointments across our US and UK offices to broaden our global leadership team. Equiteq operates from offices in London, New York, Singapore and Sydney.


New York based David Jorgenson, who joined Equiteq two years ago as Global Head of M&A, succeeds Paul Collins as CEO of Equiteq. Jorgenson has advised business owners, shareholders and C-level executives on every aspect of growth and value realization during his 20-year career as a technology consultant and investment banker. He is an expert in every aspect of corporate financial advisory – from valuation, strategic financial advisory, public and private equity and debt financing, exit planning, M&A strategy and execution.

Collins, who will take on a new role within Equiteq as Chairman of the Board of Directors, commented: “Following expansion into North America and Asia-Pacific, Equiteq is closing a record number of deals and will benefit from a new team to take it forward. David is a very experienced advisor in the professional services and IT services space and is uniquely suited to lead Equiteq in its next phase of growth.”

Jorgenson, has made two new appointments: Nicodemo Esposito, has been promoted to Managing Director, Head of M&A and Strategic Advisory North America and Alex White, previously Head of Private Equity at BDO Corporate Finance, joins Equiteq as Managing Director, Head of M&A and Strategic Advisory Europe. Jean-Louis Michelet will continue to lead the Asia Pacific region as Managing Director, Head of M&A and Strategic Advisory Asia Pacific.

Jorgenson commented: “Equiteq has developed a unique business model combining deep industry expertise with premier transaction capabilities. I am very excited about the opportunity to develop our global execution model and continue delivering outstanding outcomes for our clients.”

To read more about our team, please click here. 

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.

To read some of our other case studies, please click here.

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