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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Equiteq advises HS2 Solutions on its investment from Mountaingate Capital

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Equiteq is pleased to announce that it has advised HS2 Solutions, Inc. (HS2), a full-service digital transformation agency offering a broad range of strategy, experience design, development, analytics, and marketing execution services to help clients address their digital priorities, on an investment from Mountaingate Capital (Mountaingate), a Denver-based private equity firm. The transaction closed on November 1, 2016.

Colton King, Managing Director of Mountaingate, said “We are thrilled that Phil and Keith have selected Mountaingate to be their partner; the market opportunity for digital transformation agencies such as HS2 with a value proposition centered on customer experience is very compelling.”

Phil Hollyer, CEO and Co-Founder of HS2, said “Mountaingate brings a unique market perspective stemming from their extensive digital agency services investment experience that will be invaluable as we look to prioritize strategic investments to accelerate our growth and better serve our clients.”

Phil Hollyer said “We initially hired Equiteq to assess the value and market attractiveness of our business. Given their IT and marketing services industry focus and M&A advisory expertise, Equiteq was the logical choice to be our exclusive advisor for the overall process. Equiteq orchestrated a comprehensive and engaging transaction process, demonstrating a keen understanding of the buyer / investor landscape and providing us with sound advice every step of the way. The process led to a handful of transaction pathways to choose from, and Equiteq came through on their value promise and their commitment to delivering a successful transaction outcome.”

To see the full press release, please click here.

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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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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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Do you have enough deal support as you prepare for sale?

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By David Jorgenson, CEO, Equiteq.

Preparing for sale and going through the sales process is time consuming and potentially a very distracting procedure. Interested buyers will demand huge amounts of information on an ongoing basis. And while you’re compiling this, you must also ensure that the day-to-day running of the business continues on its positive trajectory to retain value.

At the heart of the deal support is a finance director (FD) who is up to the task. The FD and finance department are of crucial importance as you will need someone who can stay on top of the hundreds of questions that will be asked during due diligence. If you don’t have someone like that on the team then hire in a contractor; treat selling the business like you would any other project and resource it appropriately.

As well as financial reporting, the FD will also need to keep a close eye on the visibility of booked work and the pipeline. If there are discrepancies between what is forecast and what work occurs, this raises concerns in the minds of investors. Is the consultancy disorganized? Is there internal confusion? Are different processes being used? The FD will need to be on top of the financials and forecast and be able to update the view of the future performance quickly, as this will be requested frequently when a company is being examined for acquisition.

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September 2016: Consulting Market Update

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

In September, we saw a number of high-profile deals being announced, particularly amongst buyers in the IT consulting and broader technology sector. This month also saw the performance of many listed consulting players contained within the Equiteq Consulting Share Price Index being positively impacted by macro-events such as poll results following the debates in the lead up to the U.S. elections and OPEC’s tentative agreement to cut oil production.

Accenture, a listed consultant tracked within the Equiteq IT Consulting Share Price Index, reported quarterly earnings above estimates, highlighting strength in their new bookings and an expansion in their profit margins. The announcement was followed by a 4% jump in their share price.

Accenture remains highly acquisitive, announcing three notable acquisitions this month:

  • DayNine, a leading 400-person global Workday consulting firm. The acquisition builds on past acquisitions by Accenture to strengthen its enterprise cloud services offering.
  • Kurt Salmon, a retail-focused consulting business and part of Management Consulting Group plc (MCG) was acquired for $165m in cash payable on completion. MCG’s disposal of Kurt Salmon follows recent exits from its healthcare and French operations, leaving MCG focused on its international operational performance consulting subsidiary Alexander Proudfoot.
  • OCTO Technology, a French IT consulting business focused on digital transformation and software development. The deal valued OCTO at €115m.

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How sustainable is your consultancy’s performance as you prepare for sale?

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By David Jorgenson, CEO at Equiteq.

Selling your business is a long and demanding process that can last anywhere from 4 to 9 months. During this entire time the business needs to continue to show the same growth trajectory as in the years leading up to the sale – all the while dealing with the added demands of compiling the information required by those investigating whether they’d like to make an offer.

Potential investors continually monitor the company’s financial forecast throughout the process as this is an excellent lead indicator as to whether the business is being well managed. If the forecast is inaccurate by a large amount (either low, or high), this will set off alarm bells with buyers, so it needs to be reliable. If what you forecast differs dramatically from what actually eventuates, this needs to be addressed as a priority before thinking about selling.

This links to how much visibility of booked work versus the budget the company has as it enters the process. A firm with significant work booked 12 months ahead is more appealing than one with work booked only 3 months in advance. However the work also needs to be happening when it’s scheduled to happen, as unlike product sales – in consultancy there’s no way of making up lost time; once a day has passed with someone sitting on the bench due to a start date being pushed back then that day – and fee – is gone.

Continuing the theme of forward visibility, buyers will also be scrutinizing how the company is doing against its current year plan. If it’s behind, then they will want to know why. But even if it’s ahead, this is not necessarily a good thing as it shows inaccuracy in the planning.

People are of course the resource that drives the most value in a consultancy-style business, so if there is high staff turnover – especially key staff such as senior salespeople – then this will worry buyers. Are your key strategic people happy and well looked after to ensure that they don’t seek out other employment opportunities? If they’re walking out the door they’re likely taking with them some of the value you want to sell in the business.

The sales process itself impacts on employees in a number of different ways. If staff are excited about the potential buyer and new work opportunities it may bring, or even increased remuneration, then this can increase motivation. However, if the buyer is not seen as stimulating then the opposite can be true. Staff may have to help compile information for the sale which can add to their workload and decrease their motivation; you don’t want their performance dipping as you’re trying to maintain profit growth.

The buyer could also impact on the clients the company is able to sell to once the deal goes through. For example, if a management consultancy is sold to one of the Big 4 who audits an important client of the consultancy, then this will mean that they can no longer sell in consultancy services, impacting upon revenue.

There are a lot of balls to juggle during the sale process and to ensure you achieve the best possible price, they all need to be kept in the air. Dropping one could see a potential buyer dropping out.

If you are preparing to sell your consulting firm and would like to discuss your exit plans, please get in touch.

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August 2016: Consulting Market Update

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

In August, we saw some notable deal activity from regular buyers of consulting businesses and mixed performance from listed players contained within the Equiteq Consulting Share Price Index.

The share prices of consultants focused on cyclical industries, particularly the energy sector, were impacted by volatile oil prices and the release of favorable U.S. and European economic data in the month. We also saw some earnings announcements from listed professional services businesses, most notably from prolific consulting buyer WPP, whose earnings for the first half of the year highlighted that the advertising giant had benefited from the U.K.’s vote to leave the European Union as a favorable currency translation more than offset any negative effect of Brexit on the British economy. WPP’s shares rose following this earnings announcement by as much as 5.7%, its biggest intraday gain in almost 3 years.

There was continued notable activity in the month from professional services buyers, building on their growing Channel 2 (non-Assurance) offerings. The most notable professional services deal in August was EY’s acquisition of Society Consulting, a 150-person Seattle-based specialized analytics consulting firm. Growth in the consulting businesses of large accounting players has countered falling profitability from some of these firm’s assurance businesses, which are feeling the impact of increasing competition and the technological automation of elements of the statutory audit. In line with this trend, PwC UK announced at the end of the month that it will be recruiting over 1,000 new specialists by 2020 to meet increasing client demands for cyber security and privacy, data management and predictive analytics, as well as business systems and technology risk and controls. This week, Deloitte UK also announced its fastest revenue growth in 10 years, noting a strong year for its already well established advisory business, highlighting high levels of demand for M&A, risk management & regulatory, as well as business transformation capabilities using technologies such as digital, cloud and analytics.

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Consulting Sector M&A Deals (July 19th – August 1st)

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Research America, Inc. Acquires Viewpoint Consulting
Deal Size: Undisclosed Industry: Healthcare Date: July 19, 2016

Research America, a nationwide provider of marketing research, qualitative and quantitative surveys and analysis, announces the acquisition of Viewpoint Consulting, a leading agency specializing in Pharmaceutical Payer Research to augment its existing pharmaceutical offerings.

Headquartered in Langhorne, PA, Viewpoint Consulting offers a diverse and comprehensive portfolio of marketing research services to pharmaceutical and healthcare companies throughout the United States. Viewpoint Consulting’s team members have played roles in valuable healthcare payer research conducted by some of the largest, global pharmaceutical and healthcare companies. The acquired firm was founded in 1998.  “This is a tremendous opportunity for our staff to realize new projects and growth opportunities. Expanding the services offered to our existing medical clients, allows us to compete for projects on a much larger-scale,” said Robert Porter, President and CEO of Research America.

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Consulting Sector M&A Deals (July 5th – July 18th)

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BTS acquires two Italian companies and strengthens Southern European position
Deal Size: Undisclosed Industry: Professional Services Date: July 6, 2016

STOCKHOLM, Sweden, July 6, 2016 (GLOBE NEWSWIRE) — BTS GROUP AB (publ), – BTS, a leading global strategy implementation firm, acquires the operations and certain assets and liabilities from Cesim Italia Srl and Design Innovation Srl based in Milan, Italy.

Cesim Italia, with some 34 employees and contractors earning revenues of about 3.5 MEUR 2015, offers Business Acumen, Leadership, Innovation, Change Management training and consulting services. Design Innovation is a boutique design house with six employees and revenues of about 0.5 MEUR specializing in innovation and design consulting services. Both companies have a long history of repeatedly serving major Italian companies.

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