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

Company culture cropped

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

Cogs cropped 2 - Six key principles

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.

Growing equity value webinar series: Market proposition

Close up of businessman holding graph in palms

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 questions asked during the webinar on what you need to know to attract the right clients and buyers.

1. How would a specialized consultancy firm, such as a law firm, go about quantifying its unique value proposition (UVP)?

The UVP has to answer the question ‘why should I buy from you?’ so start thinking about ways you’re differentiated from your competitors along industry, geography and services lines. In terms of industry, perhaps you focus on one or two industries and are recognised experts in say, construction law, or oil & gas exploration. In terms of your geography perhaps you’re able to offer international clients representation in their major jurisdictions. And in the case of your services think about what might set you apart, perhaps you use technology to automate low value-add services so that your clients pay Lawyers for the work only they can do, or perhaps your firm offers a flexible fee structure, or ‘subscription pricing’ for a steady stream of work, or even fixed fees when you know you can leverage your own IP and juniors while still maintaining quality.

As to quantification, think about the way a prospect can relate to the benefits and therefore what kind of quantification is meaningful. What’s the pain point that gives rise to the need for your service, and how will that situation be improved by using your services? List out all the benefits, quantitative and qualitative then get some feedback from your current clients about the relative priorities. And on that point, the process for developing a UVP should start by looking at what you’ve successfully sold in the past, then inviting your clients to give you the unvarnished truth about why they chose you and the benefits they received. And if that conversation isn’t as comfortable as you’d like, well, all the more reason to do the exercise!

You can read more about the power of a UVP for consulting firms here.

2. When looking to attract new clients, is it better to emphasize the benefit of the services provided or demonstrate the firm’s technical competence?

While doing both is important in the sales process, it is important to prioritize the emphasis on the benefit of the services when speaking to prospects because you will have plenty of time to demonstrate your technical competence at a later stage in the process. When approaching potential clients, they are very interested in finding out the benefits of using your products and services as opposed to your competitors.

So, you must first outline the benefits of your services to clients, and then reassure them that you have the technical competence to deliver these outcomes.

3. Should we have a UVP for each service offering or just one for the whole company?

We advise you to do both. You need to have an overarching UVP for the company and then one for each service you offer. This is because there is a process of attracting, nurturing and converting prospects, which move from the broader lens of the firm, and zooms in on the individual services your firm provides.

For more information on why it is important to focus on clients with the specific needs your UVP addresses, read our blog on the importance of focus for consultancy success.

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 your market proposition in your consultancy:

Start: Explain in three jargon-free sentences what you do, and the benefits you deliver

Stop: Putting your technical expertise at the start of your sales messages

Continue: Creating content that showcases the benefits of your services (e.g. videos, articles, case studies)

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 prepare for sale and sell their business. Register here to gain full access.

How an international office expansion may risk equity value

International Expansion Blog Photo Cropped

Expanding your consultancy business and opening new offices abroad can seem an attractive proposition, however, it’s advisable to proceed with extreme caution. It’s important to consider the significant equity value and financial instability associated with such a move. If your consultancy is smaller than $10m, a failed international expansion can be catastrophic or make your business unsellable. While there are several sound strategic reasons for expanding overseas, those looking to grow value and realize equity must consider an overseas expansion through this lens.

There are often two assumed benefits made by consultancy owners when thinking about expanding overseas:

  1. The business will grow faster by selling current services into a new market
  2. The consultancy’s M&A position and attractiveness to strategy buyers or investors will improve, or at least not be impaired by such a move

The first point suggests that the business will grow faster and be more profitable, but is this true and is the timing right? The business owners may sense that the business has hit a growth ceiling in the home market, or the business is experiencing sufficient demand in other markets, but when digging deeper this is often not the case.

For instance, has the business really reached a glass ceiling or is it flat lining because there isn’t a disciplined approach to client acquisition? Or is the current sales and marketing process simply inadequate to drive growth?

If you are attracting prospective clients across borders, then consider the distraction; the cash flow commitment of setting up shop to cater to new markets is significant. To lessen these risks, make sure that the business is making enough profit in these markets before committing to a move.

The second assumption – that moving abroad will attract greater M&A demand and a higher equity value – is by no means certain. Buyers in the consulting M&A market acquire for a wide range of strategic reasons. Yet most buyers will focus on acquiring consultancies with deep domain expertise and intellectual property that can be leveraged (see our Buyers Research Report). Tight geographic focus is a key factor, but not necessarily a deal breaker either; top tier buyers, those with the deepest pockets, already have an international footprint and might not see the value in a consultancy that is spreading itself across borders.

This doesn’t mean that SME firms cannot be attractive or valuable if they are international. There may be a buyer out there for whom you are a perfect fit. However, it is generally true that the buying market will be more limited.

So, think very carefully about the risks of opening up an office in a new country for business growth and development purposes. SME consulting firms operating out of multiple countries will appeal to a more limited acquisition market than those with niche capability in a single growth market.

It’s important to consider the implications of international expansion against your M&A market positioning, in conjunction with your value growth plans and target time to sell.

If you’d like to read more about the equity value risks in international office expansion, 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.

The importance of focus for consultancy success

customer-experience-focus

Where a consultancy looks for revenue is an indication of the level of focus. This is best done by identifying and focusing on a particular group of people or organizations with specified needs that your proposition addresses (a ‘needs group’). A needs group is often defined by a particular industry or sector and it is usually the case that a consultancy is easier to sell if it has a specific industry focus. However, the needs group could be industry independent, for example you may target senior executives requiring leadership training across different sectors.

Focusing on specific needs groups simplifies and clarifies where marketing activity is directed, intellectual property is developed and expertise deepened. A consultancy that has a razor-sharp focus will look for business within a specific needs group and will not market outside that group. By concentrating on work where you have a ‘right to win’, there is more likelihood of winning the work and by only taking on work that aligns with the strategic aims of the business, the value of the business is more likely to increase.

In all needs groups there are issues that have been established for some time; there are current topics which are hot and need to be addressed quickly; and there are future trends which are just emerging and which will require action soon. A weak proposition will be perceived by clients as being generic and not focused on their specific needs. A base level proposition will be seen as addressing well-established needs; an advanced proposition will address current hot topics; and a more advanced proposition will also address emerging trends. The most valuable proposition of all will lead clients to perceive the business as being the thought-leaders for their needs group and the go-to experts.

An example of a proposition indicating underlying thought leadership and specific expertise might be the ability to facilitate regulatory-driven change in the banking sector, requiring deep sector knowledge and specific knowledge of the regulatory impact, in addition to the broader ability to implement change.

If you are a start-up consultancy, it is not unusual for you to take work wherever you can get it – you have to eat! As the business grows, however, it becomes increasingly important to develop focus in order to drive growth and maximize attractiveness to future buyers.

It is worth regularly reviewing your consultancy’s focus to ensure that you are concentrating efforts on the clients and sectors where you have the most right to win. Effort spread too thinly will lead to your offer being less attractive to both clients and potential consultancy buyers.

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. 

The world is now ‘on demand’, but why are so many back offices still living in the past?

Blog photo back officefinalll

This week we have a guest blog from Mark Robinson, who has founded and sold several consultancies. His latest venture is professional services automation specialist, Kimble Applications, of which he is a co-founder.

Twenty or 30 years ago we organized our lives around how the world worked. We worked 9-5 because we had to be in the office to get work done, we sat down to watch a certain TV show at a certain time because that was the only chance we’d have to view it and we picked up a paper in the morning to get our news fix as that’s how we kept up with current events. That already seems like a long time ago now doesn’t it? These days we have flexible working, we can catch up on TV shows when and where it suits us and we can get a constant feed of news through our mobile phones. This has all been enabled through technology. But one area which has yet to embrace this new way of working is the back office.

Today, the back office is much the same as it’s been for decades. Invoicing is done at month end, as are payment runs and expenses, which are often physically uploaded, checked, approved and forwarded to finance. Resource planning is based on imperfect forecasting, often using a range of spreadsheets and a finger in the wind approach. Timesheets can take weeks to verify, leaving consultancy owners with little idea of how they are performing against budgets. This all adds up to challenges for any management team who wants to know how the business is doing at that exact point in time, as they have no idea how accurate or up to date the information they are using is. Imagine how much more quickly you could grow your consultancy if you had on demand information that showed you how the business was doing right then, allowing you to fix any problems much earlier and make decisions faster that improve your company performance.

That the back office is so behind is even more surprising given that we now accept that front offices need to function ‘on demand’. We know consultancies have to be responsive to clients’ requests and needs, so why are we leaving the back office wallowing in the past when they should be joined up with the front office and just as responsive?

The fact is that we now have the technology to make the back office on demand, which can bring huge benefits to consultancies. Rather than running a variety of untrustworthy spreadsheets or old fashioned packages, the correctly designed cloud application means that we can have a single, unifying system based around the processes the cloud enables into which we enter information as it happens and access from anywhere. This destroys the silos that previously existed between departments. From senior management, sales people, project managers, consultants and associates, every time anyone changed anything, the overall performance reporting would be updated across the system in real-time, so that whenever you looked at the information on the system, you know it’s completely accurate and a snapshot of where the business is at that time.

A client (or you, for that matter) wants to know what the status of a project is, how much time and money has been spent on it? They don’t have to wait until the next reporting run: you can tell them instantly. You’d be able to enter and approve expenses and timesheets from anywhere, at any time, and from any device. You’d know what capacity and skillsets you have on the bench at any given moment, and for how long, allowing better resource planning and pursuit of new business.

And alongside all of this, everyone in the business would have the same level or clarity meaning every employee understands how their actions can impact the business, empowering them to make a real difference to the growth of the consultancy.

And professional services automation (PSA) tools make a huge difference to the bottom line too. Invoices can be produced more quickly and are error-free, meaning they get paid more quickly, improving the company’s cashflow. Because much of the work is now automated, this frees up the back office to concentrate on more added-value work, meaning companies can grow without having to increase the headcount of non-revenue generating staff. Service Performance Insight is a global research, consulting and training organization dedicated to helping professional service organizations make quantum improvements in productivity and profit. Its last benchmark found that firms using PSA software saw more than a 6% increase in their billable resource utilization. On average, firms using PSA earned an extra $11,000 of revenue per consultant than those that have yet to adopt it and enjoy nearly 75% stronger profit margins as measured by EBITDA.

This technology is with us now. It’s time for consultancies to move their back offices from the past and into the on demand present. Just because it’s the way we’ve always done it, it doesn’t mean it’s the way we should continue to work.

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.