Shifting personnel model within the consulting space

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Advancing technologies and cloud computing, a maturing millennial generation and the rise of the ‘gig economy’ are creating an environment where consulting businesses are increasingly looking beyond the traditional employed model toward more flexible employee solutions.

This way of working suits consultancies, but they need to consider how it affects the equity value of their company.

Does a stigma still exist in the minds of buyers of knowledge-intensive firms when considering an acquisition? Potential suitors may view a more traditional, fully staffed model as more attractive for reasons of consistency, continuity and a deeper entrenchment of brand values and culture. However, these characteristics and contract working are not mutually exclusive.

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November 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.

In November, we continued to observe strong deal activity amongst prolific IT services buyers such as Accenture, Cognizant and CGI Group. This month’s sale of AlixPartners by CVC Capital Partners also marked one of the largest private equity exits within the consulting industry. With respect to equity market performance, U.S.-based listed consultants tracked within the Equiteq Consulting Share Price Index have rallied following the Presidential election result. This is expected to be reflective of hopes amongst many investors of an improved business outlook in the U.S. stemming from future fiscal stimulus plans, corporate tax rate reductions and regulatory reforms.

CVC Capital Partners agreed to sell its stake in AlixPartners to company founder Jay Alix, as well as to investment firms: Caisse de dépôt et placement du Québec, Public Sector Pension Investment Board and Investcorp Group. The deal values AlixPartners at over $2.5bn and implies a current year revenue multiple of approximately 2.5x.

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M&A trends amongst buyers indicate the potential for premium valuations in 2017

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By
 Ramone Param, Buyer Coverage Associate, Equiteq.

We’re pleased to be launching our third global research report from our annual survey amongst buyers of knowledge-intensive services businesses. The report delivers current, actionable intelligence that isn’t available from any other source and covers each of the five consulting segments that Equiteq specializes in: Management consulting, IT consulting, Media & Marketing, Engineering consulting and HR consulting.

Demand for acquisitions remains as strong as last year, with respondents expecting to make nearly 4 acquisitions in the next 2-3 years. However, buyers are seeing a slowdown in the growth of new opportunities coming to market. This may be a momentary slowdown, or it might suggest the start of a period of increasing competition for assets, supporting stronger pricing power for selling shareholders of unique knowledge-intensive services businesses.

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October 2016: Consulting Market Update

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By Ramone Param, Buyer Coverage Associate, Equiteq.

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

As we anticipated in our third quarter update, significant deal activity is continuing to occur in the IT services segment, with a number of notable transactions in the sector being announced this month. This comes as the broader M&A market has observed a wave of mega deals across sectors, with October being reported as one of the busiest months for deal activity in the US, according to data from Dealogic.

In the month, the share prices of many listed consulting players contained within the Equiteq Consulting Share Price Index were impacted by quarterly earnings announcements, the release of macroeconomic data and US Presidential election uncertainty. The share price of WPP, a constituent of the Equiteq Media Share Price Index, was boosted by stronger than expected third quarter earnings. These results were in contrast to weaker quarterly earnings from some of its peers like Publicis. This variation in results amongst large listed media players has led some equity analysts to attribute these differences to rising competition for key client accounts as the evolution of digital media continues to disrupt the industry.

There were three notable deals announced this month within the IT Services segment:

  • In our recent article analyzing trends within Cloud Consulting M&A, we discussed the landmark acquisition of Appirio by leading Indian IT-Services player, Wipro, for $500m. Appirio will position Wipro as the leading Indian technology services player in the cloud services space.
  • The Blackstone Group sold Chinese IT outsourcing and consulting firm, Pactera, to a unit of Chinese shipping and air giant HNA Group. This deal reportedly values the business at c.$930m and returns Blackstone c.1.5 times on its initial investment of over $600m that it made in March 2014.
  • Aon agreed to acquire a 550-person US-based cyber-security specialist called Stroz Friedberg. The deal was seen as a move within the insurance industry to capitalize on the risk management opportunities from rising client concerns over cyber threats.

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How to create marketing IP that generates consulting leads

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

We spend a lot of time talking about the three types of consulting intellectual property (IP) with our clients:

  • IP to run the business
  • IP to deliver and scale the work
  • IP to market and sell the business (often referred to as ‘content’)

Of the three, marketing IP is the forgotten child.

Consulting is a crowded and vague market. You’ve got to be heard above the noise and differentiate yourself. To do that and sell higher value work, your sales and marketing engine has to have content that opens and closes sales opportunities.

Specifically, marketing IP does this by:

  • Reducing the perceived risk in hiring you
  • Making you more “findable”
  • Demonstrating expertise
  • Enabling your inbound marketing to attract better qualified prospects
  • Making your outbound marketing campaigns more effective

Simply put, marketing IP is an umbrella term used to describe any type of information used in some way to acquire customers. This information can be in the form of blog posts, articles, eBooks, DIY or how-to guides, industry news, question-and-answer articles, case studies, whitepapers, videos, podcasts, slide presentations — the list goes on and on.

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Consulting firm M&A market intelligence on digital marketing

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The media industry has experienced significant change in recent years. Despite the ongoing presence of the printed medium, online content continues to gain prevalence and has now become the medium of choice. In line with this, digital media and marketing companies are becoming more attractive than ever as acquisition targets.

But what is digital marketing and why is it generating so much M&A interest? Analytics and intelligence software provider SAS describes digital marketing as ‘The promotion of products or brands via one or more forms of electronic media.’ SAS concludes that what sets digital apart from traditional marketing is data. Digital marketing uses channels and methods which allows a firm to analyze marketing campaigns and understand what is working and what isn’t in real time.

Digital marketing is comprised of three main categories: earned media, paid media and owned media, according to Titan SEO. However, each category does not stand alone, and using all three techniques in unison can be the most effective marketing method. The venn diagram below, from Titan SEO, outlines how each media segment exists in the digital marketing ecosystem.

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Since 2010 digital marketing deals have doubled, outstripping the growth in overall media deals. This means deals in digital marketing are outpacing the market.

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The heat in this market is coming from the fact that this is a fast moving industry seeing huge amounts of change. Acquisition interest is thus driven by the need to quickly obtain these skills, rather than growing them in-house, which tends to require more time. The shift to digital means media and IT firms need to quickly acquire new media skills, technology and intellectual property (IP). There is also the opportunity for new customer channels to be acquired through various methods including mobile and social. Digital marketing is playing a pivotal role in this.

Nicola Kemp, Head of Features at Marketing magazine, agrees that the digital marketing ecosystem is in the midst of fundamental change and the industry’s true growth potential is only just beginning to be realized.

She says: “From the rise of the smartphone to the social media revolution, businesses are being challenged to meaningfully collect and analyze an ever-increasing pool of data. The importance of acquiring and embedding new skill sets into existing business models in order to better meet this demand cannot be over-estimated.”

Media and advertising companies are overwhelmingly the most prolific buyers in this area, having been responsible for 106 acquisitions since 2012, with the likes of WPP and Publicis Groupe involved. The next biggest acquirers are technology/IT services firms, such as IBM and Google, with 44 acquisitions. In a hot, fast moving sector, private equity firms will always be represented and firms such as The Carlyle Group and Berkshire Partners have made 23 acquisitions in this space since 2012. Finally, management consultancies such as Deloitte and McKinsey have also invested in this space, albeit in lower numbers, with 10 acquisitions made during the same period.

The areas within digital marketing that gain the most attention include customer analytics, mobile marketing and social media marketing, along with digital agencies and CRM/database marketing.

It goes without saying that digital technology organisations have had a dramatic impact on M&A in the world of marketing. Activity in this area is likely to continue apace in the coming years. As increasingly more services are digitized, it is only natural that digital marketing will grow alongside them.

If you’d like a full copy of our marketing intelligence report, please email us on info@equiteq.com

Buyers’ view: Hot sectors update March 2015

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We spend a lot of time talking with buyers of consultancies and listening to their strategic growth needs. We also track several markets in consulting and monitor acquisition activity across the world. In doing so, we develop a good sense of hot spots for consultancy M&As. So as we head towards the end of the first quarter of 2015, what are the areas that buyers are the most interested in?

IT consulting

IT consulting continues to make up the largest proportion of deals in the management consulting space, as it has done for many years now. IT consulting covers a large and disparate set of firms, horizontally across technologies and vertically along a ‘value stack’ in IT. From IT strategists to system integrators, SAP to Workday consultants, business intelligence and data analytics specialists to IT transformation advisors; this space is broad and continues to evolve at a rapid pace.

The fact that IT is driving change in so many other industries, such as media/marketing (digital), telecoms, healthcare and financial services, amongst others, means that this section of the consulting market will, somewhat unsurprisingly, continue to evolve and change in line with demands from various different industries. As this happens, not only does it drive the need for increased IT services and advisory, it also begins to drive acquisition demand from the industries becoming increasingly dependent on IT.

Subsectors in this category where we are seeing particular acquisition interest include the so-called ‘SMAC’ areas (Social, Mobile, Analytics and Cloud), as well as cyber security. For IT consulting firms, these areas have become a necessary focus, given the new IT deployment models and the heightened threats that come with them. Our next sector insight will be on cloud computing and the various areas of consulting within it, so check back next week for a more detailed analysis on this area.

Engineering / environmental / energy

Engineering has long been a popular area for M&A activity and is seeing a particular demand for firms that deal with infrastructure change. As well as this, demand is also being driven by the general developments occurring in emerging markets.

Environment and energy are becoming more topical as concern about global warming moves up the business agenda and the demand, supply and price of oil continues to have significant economic and political influence. These issues mean businesses seek advisors in this space, hence the uptick in demand in this sector. There is also the constant flow of civil design and architectural firms acquired each year.

As this part of the market is constantly being replenished with new engineering consulting firms coming to market and a fair bit of consolidation across the board, in addition to a growing global population, significant environmental factors and changing energy needs, we expect engineering consulting to remain as one of our hot areas.

Media and marketing

Media and marketing has always had a strong advisory component and the move from print to digital has seen this sector transformed, particularly in the past two years. While print is still represented, the new digital channels are where all of the change and activity is happening. The amount of customer data generated – and the opportunities afforded by effective analysis and monetization of this – make consultancies in this space hot property. We are seeing particular demand for analytics, mobile and social media marketing, which as mentioned earlier is driving change in both the media and IT markets.

To ensure they remain competitive, big media firms need to have the right skills or access to customer channels. As these areas can take time to develop organically, media firms continue to look for acquisitions in these areas to quickly gain access to new skills and intellectual property. Otherwise, they will continue to see their market share eroded as innovative and agile companies take bites from their customer base.

Technology companies are also buying into this space as it is very IT reliant. Customer analytics for example is critically important for predicting future customer behavior and therefore how best to reach them. As this is mostly about analyzing data, IT plays a key role and large IT firms with these skills are increasingly important to the media sector.

These three areas have seen a lot of activity in the past couple of years and we expect them to continue to be hot in 2015. We regularly produce market intelligence reports on these and many other sectors. If you would like to find out more about what reports we have available, please contact us at info@equiteq.com.

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How important is marketing in generating premium value?

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Jim Horsley, Chief Executive of CHA PR, shares his insight.

If you’re looking for sustained growth and premium value when you sell, how much should you spend on marketing? As importantly, where do you get the best return both in terms of the content you produce and the channels you use to engage with the audiences you want to reach?

The accepted wisdom is that you need a marketing budget of 5% of your total revenue just to maintain your current position. To grow or gain greater market share the rule of thumb is that you need to at least double that investment. Equiteq’s own best practice advice is that 10% of revenue should be spent on generating business through marketing and sales.

We undertook a survey of senior marketeers in management and business consulting firms* in the UK to identify not only what is their level of spend on marketing but what type of spend made the biggest contribution to the business.

Not surprising, perhaps, 70% of respondents spend between 1 to 5%; the consultancy sector has rarely had an ambitious approach to marketing. Another 15% are in the 6 to10% investment category. However, only 2% spend more than 20%. More than a third say that spend will increase over the next 12 months.

So what kind of return do those firms get on their investment? 30% say they get a £10 return for every £1 spent; 14% say the return is £5 for every £1 spent and 17% say the return is £4 for every £1 spent.

Based on those figures, there’s a strong argument that any increase in marketing is likely to pay dividends. Most companies want marketing to generate better quality and more leads and measure its success on the number of leads, the sales revenue generated as well as the quantity of sales. Brand building is not high on their agenda.

It is perhaps this focus on marketing purely as a lead generation tool that makes many firms reluctant to increase their marketing spend. The benefits of building the brand are not as easily measured and often don’t deliver the short term impact that sales leads can create.

However, without a strong brand, companies often find it difficult to sustain growth in revenue and profitability long-term and to generate premium value when the business is sold.

As you might expect, thought leadership and other content production is very or extremely important in our respondent’s marketing activities. It is case studies that generate the highest number of leads as well as the best quality. Blogs and web articles come second in the highest number of leads and third in the best quality. What’s less effective on both counts are videos, survey results, infographics and best practice guides.

In terms of marketing channels, the top three generators of the highest number of leads are events, websites and telemarketing. In terms of quality of leads, the winner by quite a distance is events, followed by cold calling and websites. PR, e-newsletters and social media are low scorers on both counts.

From a brand awareness viewpoint, the quality of websites, one-off emails and webcasts and webinars are seen as the biggest contributor to the brand. PR and social media score more highly in this category than in their contribution to lead generation.

It’s not always an easy choice to make to invest more heavily in marketing (as opposed to bringing on board new consultants or more sales resource). However, the survey clearly shows that many business consultancies do get a high return on marketing. Such investment long-term can impact revenue growth and the value of the business and the brand when you come to sell.

*100 structured quantitative telephone interviews were conducted amongst senior marketeers in management and business consultancies in September, 2014. The research was undertaken by Illuma Research.