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.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

Sale to a trade buyer

Trade buyers (also known as strategic buyers) are companies that buy other operating companies as part of their growth program and to fulfil other corporate objectives. As the most active category of buyers in the market, it is critical to understand how trade buyers think and behave as you build your business for eventual sale.

The primary driver for them is the overwhelming need for growth. All professional services firms require growth, and stated another way, protection against shrinkage and loss of relevance. This is true not only for large publicly traded firms that have to explain their financial results every quarter to investors, but also for smaller firms that compete with them for specific business. If you are building your own firm, you know how difficult it is to grow through hiring, service line expansion and finding new clients (organic growth). As firms become larger, the need to supplement organic growth by acquiring revenue becomes more and more acute.

There are two primary reasons why trade buyers make acquisitions:

  1. To build scale in the current business footprint (service line, geography) through the acquisition of similar firms which are rapidly integrated
  2. To expand the current model by acquiring adjacent firms, new service lines or new geographic coverage

Sale to trade buyer table

The most active trade buyers are the household names that you might expect. However, do not make the mistake of casting the net too narrowly when thinking about who might be a buyer of your business. As the business world seeks solutions and bundled services from their suppliers, we are seeing more and more companies who do not traditionally offer consulting services look to acquire businesses that can help them provide more of a solution-based offering to their clients.

Take the example of a multi-national equipment manufacturer client of ours. They are looking to buy consulting businesses in several of their product lines, such as in workplace safety consulting, so they can bundle that service as part of a broader solution to larger clients.

As you consider your options for selling your firm, it is critical to understand your position relative to larger competitors in your space and adjacent firms that might see your services and clients as additive to their current offerings. Even if a potential sale is years away, it is never too early to understand who might be interested in your firm and what you might do – and not do – to use that knowledge to your advantage.

NB: The term ‘trade buyer’ refers to those who acquire for strategic purposes and includes in it our definition of consulting and corporate buyers.

To listen to the recording of our webinar that we hosted on exit options when selling, please click here.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.

Growing equity value webinar series: Consultant loyalty

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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. 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 questions asked during the webinar on how to create the right organizational culture that embeds consultant loyalty and attracts the right buyers.

  1. How would a potential buyer evaluate our culture?

There are a number of ways a firm projects its culture externally. Think about the company’s public face, its mission statement, its website, company values, written content (i.e. blogs, articles, whitepapers), awards the firm and its people have been recognized for. These all provide an external party with a window into the culture of the business.

A really good example of this is how your firm recruits new employees. The manner with which you describe the profile of your ideal candidate, where you recruit and the language used are all indicators of the culture within the organization. These are just some of the things a potential buyer would research before approaching your firm.

Once a potential buyer engages in due diligence there is an even greater focus on culture from this initial ‘outside in’ look, because a buyer is looking for areas of compatibility and areas that will prove challenging to a smooth integration after sale.

You can read more about what deters buyers of consulting firms here.

  1. Would buyers replace your consultants with their own after sale?

Buyers are always keen to protect a company’s assets. Assets are more than just a firm’s intellectual property, but the client relationships, future sales pipeline and staff competence. These are all crucial to a buyer.

Research has shown that less than 50% of mergers realize their intended value and synergy. So there is an acute need, on the buyer side, to make sure the integration between the companies delivers the intended strategic extension to their existing offering. Getting rid of staff will likely hinder this objective.

Click here for more information on what to expect from consulting buyers following an acquisition.

Finally, as with all of our webinars in this series, our key takeout is presented in our Start, Stop and Continue strategies. To immediately improve consultant loyalty in your consultancy:

Start:           Thinking of culture as an intangible asset which should be actively managed

Stop:            The traditional carrot and stick approach to performance management

Continue:     To create a culture which attracts, motivates and develops by offering autonomy, meaning and purpose.

To sign up to listen to a recording of this webinar, please click here. To view other webinars in the series, please click 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.

Dealing with your own perception of selling in order to sell your services firm

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This week we have a guest blog from Lars Tewes, MD of SBR Consulting. SBR Consulting is a sales transformation consultancy that works closely with consultancy owners to increase revenue by liberating sales potential within their practices.

Many consultancy owners start out as specialists in their fields, yet when they set up a business their responsibilities change. In order to ensure the growth of the company, they need to be involved in the sales side. Whether it is being the main person responsible for winning business or overseeing the consultants, this is an uncomfortable step as they often do not see themselves or their consultants (billable deliverers) as salespeople. Let’s look at how this may be affecting your business and how to overcome this prohibitor.

When we’re born, we don’t have any perception of sales but then something happens! Many of us experience bad selling tactics: a salesperson attempts to convince you to buy something you don’t want, being pitched when you’re not even the right person to talk to, being lied to about the facts needed to make a decision; talking at you without listening to what you want, etc. Equally, there are impressionable films depicting salespeople in their worst state of money-making greed such as, “Wolf of Wall Street” and “Glengarry Glen Ross”. You turn on the TV and see comedians caricaturing a salesperson as looking in the mirror and saying things like, “I’m a tiger!” We watch programmes like “The Apprentice” which seem to bizarrely endorse forceful selling tactics and unrealistically high-pressure environments.

I’d best stop before it becomes too negative, but think about it, if these are the pictures and impressions you have been indoctrinated with about sales, no wonder you or your team of consultants have bad feelings about having to “sell” or motivating your people to sell. The truth is that tragically most salespeople do not sell well but that does not mean the “selling profession” is all bad. So, whether you are asking your technical specialists to sell or you are selling yourself, you might be experiencing inner resistance because of this negative view of salespeople. It sometimes hides itself in the form of “I do not have time for business development,” which is rational but extremely illogical. You do not say this when asked to complete a technical project, you find a way to make it happen! What is fact however, is that every profession, not only the sales profession, has its unethical individuals. What is also fact is that every profession has its inspirational, trustworthy and caring individuals.

To help you change your view of what selling is, we define professional selling in the consultative arena by using the acronym S.K.I.L.L. ©

Selling is a partnership experience:

  • Partnerships are rarely built overnight. Someone may not be ready to buy from you today but by building the right relationships over time, you may be the ideal partner when the time comes.

Knowledgeable:

  • Keep building your knowledge around your value proposition, service, market trends, competition and most importantly clients. It will differentiate you and ensure your conversations are always valuable for prospects.

Individual relationships

  • Consultancy is a people business. You need to make building new relationships part of your job. Attend industry association events and form the habit and discipline of keeping in touch with your network even if just for coffee. They will appreciate it and want to work with you when the time is right.

Listen and add value

  • Become comfortable asking the right questions. Listen and add value by helping the prospective client understand their situation better. As a consultant you always did it. You’re just now doing it before the sale is made! This applies to existing clients too as there will be many opportunities you are not aware of where you could add value.

Liberate your own sales potential

  • Become proud of selling professionally. Stop linking the whole of the sales profession with the bad practices you have experienced. We can all be really effective at professional selling if we decide it’s about establishing trusted relationships and partnerships where both parties benefit and would be happy to act as a reference.

Try it! Decide to change your personal view of selling by tapping into our definition of selling – SKILL©. You’ll find yourself in healthy business development discussions. You’ll start to pick up the phone and call people you have been meaning to call for the past year for a coffee. As one recent CEO client expressed; “I’m looking forward to my new world of business development as I am knowledgeable about my market sector and all our clients to date have seen real RoI. I just need to get back out there.”

© SBR Consulting 2015. All rights reserved www.sbrconsulting.com

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.