Creating a C-suite to build equity value

If you own a knowledge-led services firm in a sector such as consulting, IT services or media and you want to grow revenues to, say, $30m, it is unlikely that the expertise of the founders will be able to drive this. What you need is a team of specialist C-suite executives on board.

However, at some stage a founders-only team will put a break on growth. Here are three reasons why founders maintain the status quo and fail to see the damage it may be doing to their business:

  1. Growth creeps up on you so you don’t notice the degree to which the requirements have changed

During the start-up phase your main focus will be delivering on your particular domain expertise, but as time goes by you’ll spend more time on anything from finances to dealing with people issues.

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April 2017: Consulting M&A Update

By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

SNC-Lavalin acquires Atkins

SNC-Lavalin is acquiring British engineering consultancy Atkins for £2.1bn ($2.6bn). The offer represented a c.35% premium to the undisturbed closing price of Atkins prior to acquisitions talks were announced. As highlighted in our January market update, CH2M had been rumored to be in discussions with Atkins about a possible merger earlier in the year.

The acquisition would boost the Canadian engineering and construction firm’s European revenue as it emerges from a self-imposed freeze on acquisitions in 2015. The deal is expected to expand SNC’s projects outside the energy industry, while oil prices continue to remain significantly below their 2014 levels.

In combination with John Wood Group’s acquisition of Amec for £2.2bn ($2.7bn) last month, the deal represents a consolidation of the UK engineering consulting market, a trend that we anticipated globally in our latest Engineering M&A Report.

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Equiteq’s tenth annual review of the global consulting M&A market highlights that deal activity has reached a nine-year high

By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

The Equiteq Global Consulting M&A report is the most comprehensive publicly available study of the knowledge-intensive services industry.

The review covers deal activity and equity market trends across fives consulting segments: Management Consulting, IT Services, Media Agencies, Engineering Services and Human Resources. Equity market trends are analyzed through the Equiteq Consulting Share Price Index, the only published share price index for the industry.

Strong deal activity

In 2016, the number of completed transactions in the consulting sector nudged up to reach a nine-year high. This was in spite of the restraining influences of slowing growth in global GDP, the UK’s vote to Brexit and the US Presidential election, which caused a slowdown in the preceding quarters. Activity from both strategic and financial buyers swiftly bounced back, and the year ended with conviction and momentum that has carried into 2017.

The top consulting segments for deal activity were the rapidly evolving Management Consulting, IT Services and Media Agency segments.

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H1-B visa reforms could drive an acquisition spree from Indian IT Services firms

By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

Earlier this week, the US Citizenship and Immigration Services (USCIS) announced that it would take a more targeted approach to site visits of H-1B requesters and issued guidance that entry-level computer programmer positions could not be presumed specialty occupations, a requirement for the issue of a H1-B. The Justice Department also issued a press release cautioning employers petitioning for H-1B visas to not discriminate against American workers. There is an expectation that an executive order will also be introduced to call for a further review of the H-1B work visa.

Indian IT Services firms expected to face increasing pressures from H1-B reforms

The tightening of U.S. visa rules under the new administration is expected to place increasing pressures on costs for the Indian IT outsourcing industry. Over 60% of the industry’s export revenue comes from the U.S. and this work is dependent on cheap non-American coders and engineers. These workers will typically use H1-B visas to work locally, while getting paid a lower wage as compared with local non H1-B employees. Although the H1-B visa system works via a lottery system, Indian outsourcers are considered to be the top recipients of these visas, with some believed to be using loopholes, such as filing multiple applications for individual workers, which are not available to smaller companies.

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March 2017: Consulting M&A Update

 By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

Oracle reportedly exploring Accenture acquisition bid

According to a report by The Register, Oracle has hired consultants to conduct due diligence research on acquiring Accenture. Accenture is a major Oracle partner, while Oracle has a material services business which operates alongside its software offering. The combination would significantly enhance both companies position in their respective markets, creating a leading provider of end-to-end digital transformation products and services.

A deal with Accenture would follow Oracle’s recent acquisition of NetSuite for $9.3bn and its acquisition of PeopleSoft in 2005 for $10.3bn. With Accenture’s market cap at over $77bn, the deal would be by far its largest acquisition to date.

Oracle has been focusing on its cloud business, but is still considered to be behind market leaders Amazon Web Services, as well as Microsoft, Google and IBM. Following reports of the deal, Accenture’s stock fell, with some equity analysts raising concerns about the deal’s implications for Accenture’s independence and the risks to Accenture’s strong relationships with Oracle’s competitors like SAP, Salesforce, ServiceNow and Workday.

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Lift & Shift: following the rise to cloud migration

For every consultant who spotted the cloud opportunity and raced to embrace it, there will be another who is still not quite fully convinced.

Clients have spent hundreds of thousands – or even millions – on their on-premise solutions, they are comfortable with their data centres and have established long-term relationships with their maintenance engineers. They’re not ready to give all that up in one go. And, as long they resist a wholesale move to cloud, there’s a role for IT consultants and specialists to offer support for these traditional models.

But the pace of change is quickening; clients have tuned in to piecemeal migration and with software vendor innovation being cloud-focused, the largest traditional consulting firms have seen the writing on the wall, turning to mergers and acquisitions (M&A) as the only credible way of rapidly building their cloud capability.

Shaun Fröhlich is UK managing partner of Incredibleresults, and works with leadership teams to accelerate value growth.

“We are all on a spectrum,” he says. “Many believe the world is changing because of the cloud and it is spurring them on to cash in their chips on their existing business, but there is an almost equal number that remain neutral and see it as an evolution, not reason to trigger a capital event.”

Despite the cloud offering faster, less disruptive deployment and easier global enablement – while cyber-security concerns have increasingly been addressed – migration to the cloud isn’t yet wholesale for most organizations.

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Private Equity firms demonstrate strong demand for consulting businesses

Eight mistakes when building a sale-ready business

By Alex White, Associate Director, and Ramone Param, Associate Director, Market Intelligence & Buyer Coverage.

Private equity (PE) providers are enthusiastic investors in knowledge intensive business services.  Last year was marked by some headline grabbing exits and new investments by the largest global buyout firms and this had a re-affirming effect on PE’s keen interest in this space.  These included KKR’s acquisition of Optiv Security from Blackstone, as well as the sales of AlixPartners by CVC and the divestment of Carlyle’s remaining stake in Booz Allen Hamilton.

Our own experience of achieving many great outcomes for clients who secured PE investment in 2016, and the line of investors queuing at our door for deal flow, bodes well for owners in 2017.

Sustaining growth in successful businesses – an owners challenge

A challenge for many owners of valuable businesses is the changing attitude to risk that creeps up as success is achieved. It’s natural for sentiment to shift from value creation to value preservation. While natural, it’s also a sure sign that owners’ personal financial portfolios are out of balance and a warning that excess cautiousness will be sub-optimal for their business in the longer term.

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January 2017: Consulting Market Update

Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

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By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

The New Year commenced with some notable deal activity and M&A news across all five of the consulting segments that we track. The share prices of many listed consultants that form part of our Equiteq Consulting Share Price Index also rose on the back of strong market sentiment and earnings announcements.

WS Atkins and CH2M $4bn merger talks

The Times reported that British engineering and design consulting firm, WS Atkins Plc (ATKW.L) and US-based CH2M are in merger talks. Atkins had said last year that plans by the new U.S. administration and U.K. government to increase infrastructure spending would benefit the company. Atkins had been using M&A to selectively increase its geographic footprint and capabilities, in a segment that is considered to be consolidating as players look to reduce overheads and increase global market share.

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Robust demand for M&A by corporates and private equity, and strong share price performance in the fourth quarter.

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By  Ramone Param, Associate Director – Market Insights & Buyer Coverage, Equiteq

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Global M&A activity across the Knowledge-Intensive Services sector, as tracked by the Equiteq Consulting M&A Index, remained strong in the final quarter of 2016. Deal volumes were broadly flat in comparison to a robust prior quarter and rose in comparison to the same quarter last year. The conclusion of the U.S. presidential race has been followed by sharp rises in investor confidence and the Equiteq Consulting Share Price Index has rallied strongly throughout most of November and December, outperforming both the S&P 500 and FTSE 100. The overall Equiteq Consulting Share Price Index is now rallying at an all-time high.

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As we anticipated, deal activity in the last quarter remained buoyant in the IT services sector. Appirio, was acquired by Wipro for $500m, positioning the buyer as the leading Indian technology services player in the cloud consulting space. Appirio was considered a prized acquisition opportunity amongst a range of potential suitors after a wave of deals left Appirio as one of the largest independent cloud consulting specialists remaining in the market.

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December 2016: Consulting Market Update

Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

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By Ramone Param, Market Insights & Buyer Coverage Associate, Equiteq.

2016 ended with a number of high-profile deals being signed across all five of our knowledge-intensive services segments. The share prices of many listed consultants that form part of our Equiteq Consulting Share Price Index also reached record highs. This continued strong investor confidence in the sector is also observed across other industries as reflected by the strong gains of the S&P 500 and Dow Jones, as well as the FTSE 100 which reached an all-time high by year end.

december-update-blog-image-1The largest deal to be announced in December was KKR & Co.’s acquisition of cyber-security specialist, Optiv Security, from The Blackstone Group. The deal followed Blackstone’s filing for an initial public offering of Optiv last month. The sale of the business follows a number of recent high-profile and lucrative private equity exits of portfolio companies operating in the consulting sector, including the sale of Pactera by Blackstone and the sale of AlixPartners by CVC Capital Partners. We expect that these successful landmark sales will support strong appetite from financial buyers investing in the sector in the New Year.

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