After a sharp Q2 decline in deal flow due to Covid-19, Q3 shows a notable recovery in most markets.

Despite the headwinds of the global health emergency and the resulting economic uncertainty, deal volumes showed a strong bounce-back, with a 20 % quarter on quarter increase in completed deals.

Many of the deals closing in Q3 have been executed largely remotely, with limited direct engagement between sellers and buyers during the process – historically very unusual for a sector so dependent on talent and cultural alignment.

The strength of the M&A rebound showcases the speed of adoption of new ways of engaging customers, deploying technology and streamlining operations to leverage growth opportunities and preserve profitability – as well, in many cases, as the ability to adapt propositions to directly support the pandemic response.

C-19 has accelerated existing medium to long-term trends around digitization. This is driving sustained, competitive demand from multiple buyer and investor groups for knowledge economy firms that bring digital transformation advisory capabilities and service-enhancing digital tools.

These tailwinds have already helped technology services M&A back to year-on-year growth and are supporting improvements in adjacent and converging management consulting and marketing/information services players. The large drop in human capital and engineering deals in Q3, 2020 compared to last year should be considered in light of relatively low overall deal volumes which means those segments are in any case more volatile when compared over a short period – further data points are needed to establish if M&A in those markets will continue to be adversely affected.

David Jorgenson, CEO, Equiteq said “Despite the rising uncertainty about when this pandemic will end, the market is starting to bounce back and adapt to new working practices out of necessity with digital transformation driving the growth. Covid has caused us to change and this change is now our new normal”

Download the report here.

The Knowledge Economy Global M&A Report 2019

By Ramone Param, Director, Equiteq

We have released a summary of our detailed review of knowledge economy M&A and investor trends for owners of consulting and technology businesses.

  • 2018 was a year of strong M&A activity within an industry undergoing unprecedented change.
  • Deal volumes, average transactions sizes and median revenue valuation metrics rose.
  • Deal structures were more competitive, as observed by a rise in the upfront cash component and a shortening of the earn-out period for the average deal.
  • The Equiteq Knowledge Economy Share Price Index declined with broader equity market indices, but ended the year well above long-term averages.
Continue reading

Hot demand for big data and analytics consultancies

Big data cropped

Businesses are continuing to capture and interpret customer data, and as data analysis translates into increased profits, the acquisition demand for consultancies in big data and analytics is driven higher. Consider, as an illustration of this trend, the 165% increase in big data services’ global revenue between 2012 and 2014.

Consultancies advising on big data strategies play an integral role in a corporation’s long-term adoption of specific data and analytics technology providers. Because of this, such hardware and software providers have increased their pursuit of partnerships and collaborations with professional services (PS) firms. The sector wide shortage of PS practitioners who are able to implement, interpret and leverage big data is reflected in their revenue: In 2014, PS companies represented more than 38% of big data’s global revenue – almost US$10.5bn.

There are 4 primary drivers that enable acquirers to monetize the broad market opportunity in big data and analytics:

  1. Leverage existing services: Integration of big data and analytics capabilities into the existing advisory capabilities allows deeper, more robust insights to be drawn out. Integration also lengthens the advisory period by adding a valuable analytics advisory session at the start of a project and the potential for analytics services when nearing the project’s conclusion
  2. Acquire talent: There is a high demand for professionals with the required analytical expertise – and it can be more efficient to acquire this expertise via an M&A strategy, rather than developing the necessary skills in-house
  3. Fuel business development: With additional capabilities, there is the potential to increase client and market share by bringing the newer technologies through along with more traditional service offerings
  4. Gain access to big data and analytics intellectual property (IP): Acquirers are focused on how to remain at the cutting edge of technological innovation, with top consulting firms launching standalone ‘innovation labs’ for big data and analytics. To fuel development of these labs they are adopting an aggressive acquisition strategy

M&A activity in the big data and analytics sector is healthy across the globe, with top buyers being diverse and usually international. In North and South America, Teradata (5 deals) and IBM (3 deals) have been the most active 2010-2016. EMEA has seen SAP make 6 deals and Accenture, 5. In APAC, NTT has been active with 4 deals.

The years 2010-2016 (year to date February 2016) saw a total of 639 transactions in this space with 65% of the acquired firms based in North America. Big data and analytics firms continue to be able to command premium prices; IP and stable revenue growth, coupled with high profit margins and deep sector specialism are reflected in higher multiples for these businesses. These multiples lend themselves to a strong forecast.

With 17 deals in big data and analytics since the beginning of the year already, we believe this presents exciting opportunities for both consultancy owners looking to sell their businesses, and for acquirers determined to remain at the forefront of technological development to increase their market share.

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.

Equiteq’s Global M&A report 2015 is now available

M&A report crop

Equiteq has just launched our annual report into global M&A activity in the consulting sector – this is the only publicly available information on the global consulting M&A market.

This year’s report has found that while there was a minor dip in deals in 2013, deal volumes recovered in 2014, with a 13% uplift to the highest deal volume seen since 2007. Around 80% of all the 2,274 M&A deals in the consultancy sector were carried out in developed, western markets in 2014, with around half occurring in North America and a third in Europe (mainly in the UK).

There has been an upward trend in EBITDA and revenue transaction multiples and 70% of the M&A volume is from deals of less than $40m.

Shant Yeremian, Equiteq’s Global Buyer Relationship Director, believes that we are in a very positive seller’s market, good news for consulting firm owners who are aiming to sell.

Mr. Yeremian comments: “However, uncertainties are increasing in some markets that may impact the overall picture. We expect the US and UK to continue an overall upward trend in deal volumes and values, while uncertainty in continental Europe, Asia and Africa/Middle East will make these markets less predictable.”

Looking at the most prolific buyers of consulting firms in 2014, the top of the list was dominated by the communications and marketing agencies. WPP, one of the world’s largest communications services groups, acquired 52 companies in 2014, of which 23 were consulting businesses. The agency was also a leading buyer in 2013 with 22 acquisitions in the consulting sector during that year.

Private equity (PE) is increasingly attracted to the consulting sector for investments and 2014 was a record year for PE acquisitions. Looking at the long-term view of private equity or investment buyers in the consulting sector, we see an increasing proportion of buyers coming from this buyer category. This is in line with the overall sentiment in the PE buyer community, which is becoming increasingly competitive and thus looking more favourably on the consulting sector to find their returns.

This market trend report is aimed at shareholders, prospective shareholders, investors and corporate development executives in the consulting industry. It also provides valuable insight for those involved in running a consulting business or those looking to sell or acquire a consultancy.

In future blogs we shall be drilling down into other key areas of the report, such as geographical hotspots, a review of the market broken down by consultancy area and commentary on the overall market.

To download a full copy of the report please click here. You need to be a member of Equiteq Edge to do this but membership is free and takes only moments.