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


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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Why phantom shares may grease the wheels when selling your firm

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When selling, or planning to sell, a professional services firm, it is important that the key personnel who are crucial to the on-going performance of the company are aligned to the majority shareholders’ exit goals. Without this alignment, they could be a less potent force in making those goals happen. Consider phantom shares as an alternative to employee share plans, in order to get that alignment in place.

What are phantom shares?

In simple terms, phantom stock does not include any real stock, it is like a cash bonus plan linked to the success of the company, where the timing, magnitude and phasing of the payout is determined by the deal terms you get in a liquidity event, such as your firm being acquired. Just like other forms of stock-based compensation plans, phantom stock serves to align the interests of recipients and shareholders, but without the same level of cost, complexity, and risks associated with a share scheme.

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Dealing with your own perception of selling in order to sell your services firm

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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.


  • 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

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Demand for acquisitions in the consulting sector? What buyers say.

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We’re pleased to bring you the results of our second annual Buyers Research. We commissioned an independent researcher to speak to over 100 consulting firm buyers across North America and Europe. The results provide valuable intelligence for both consulting firm owners with an eye on selling their firms at some point in the future, and consulting firm acquirers wishing to understand buying trends in the current market.

The research found that buyers’ acquisition expectations have more than doubled in the past year and there are huge amounts of capital set aside to enable these acquisitions. Within those spoken to for the research, there are over $7.7bn of funds available for the acquisition of over 400 firms in the next two to three years. This is an 11% increase from last year’s budgets and is encouraging given the continuing economic uncertainty we have seen over the past year.

When it comes to the size of consultancies most in demand, buyers are looking for larger firms than they were last year. On average the target acquisition size for the next two to three years ranges between $18m and $45m in revenues, with an optimum size of $31m. This reflects a 20% increase in size preference at the lower end and a 15% increase at the upper end. However, if you’re looking to sell your firm, it is important to recognize that the vast majority of consulting sector deals are consistently done at the smaller end of the market. Because of this, knowing the right buyers to approach can make the difference between success and failure when selling your firm.

Buyers are polarized in their use of qualitative and quantitative measures when evaluating acquisition opportunities in consulting. Quantitatively, buyers prioritize margins and growth above all other metrics. Qualitatively, buyers focus in on your client base and quality of your intellectual property (IP). A deep understanding of what buyers are looking for will allow you to tailor your approach accordingly.

IP continues to be of paramount importance for buyers, as 68% of all buyers cited IP as being extremely or very important as a factor when assessing potential acquisition targets. When considering the different types of IP, buyers prefer IP that directly generates revenue, or that supports the delivery or standardization of a target firm’s consulting services. While IP plays a key role in buyers’ consideration of consulting firms, consulting firm owners need to draw a clear line between their IP and the real value it creates for the firm.  Forty-five per cent of all buyers found it difficult to understand how the IP in the target firm contributes to the success of those. If you’d like to learn more about this, please view our webinar on how to build IP which will grab a buyers’ attention here.

Earn-outs continue to be a reality for the majority of consulting sector transactions. The ‘average’ deal will include 45% in up-front cash, with the rest over a period of 2.7 years; 83% of buyers measure earn out performance on gross margin, but measures range from partner retention to net profit performance. There is a wide range of ways that deals can be structured and a lot at stake, so the need for good negotiation skills is critical to get the best deal for you and your business.

Finally, once the champagne cork is popped and the focus turns to integrating an acquired consulting firm, the survey found that buyers tend most often to focus on the integration of people above all else in the first 90 days post deal. This is due to the fact that human capital is the real asset of a consulting firm. As any acquisition is a disruptive time for a seller, buyers are keen to ensure their assets don’t walk out the door during or immediately after an acquisition. Following the integration of people, clients are the next highly prioritized area and the more mechanical integration of technology and systems follows on from these. How long do integrations typically last? On average, as a seller of a consulting firm you can expect to be involved in an integration period for just under two years following an acquisition. Buyers start thinking about how a seller’s services will integrate with their own early on, although it is also critical for sellers to consider how integration into a buyer’s firm will impact the firms culture and its ability to retain the attributes that make it successful.

When selling your firm, knowledge of buyers in the market is critical. The more informed you are about buying behaviour and preferences in the market, the better equipped you will be to navigate through to a successful sale.

To read more detail about the findings from the research you can access the full report 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. 

What are the exit options for Professional Services firm owners?

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Many of our clients spend years building a consulting firm and dedicate the majority of their careers to the task. It is very common at some point in the life of a firm for the owner, or owners, to suddenly come to the realization that they have built something of significant value. However, the equity value in a privately held consulting firm is not a liquid security (like gold, or shares in IBM), so how does an owner turn their equity value into liquid cash? In this series of blogs we will cover not only the different options available for realizing equity value, but also the key stakeholders that a firm owner will likely want to protect in the context of a transaction.

Exit options

Fundamentally, the exercise of extracting value from a consulting firm requires placing it (or part of it) in the hands of a new owner. That might seem self evident, but in the professional services industry it is never enough to simply find someone willing to extract the financial benefits from a going concern (as you might for a traditional manufacturing business). In a people business, we are always looking for the right partner. That is why making deals in this space is difficult and requires special expertise and experience. It is also why many transactions start with industry relationships between the buyer and seller, whether that is a competitive relationship or a partnership.

The importance of relationships is also what drives the next important category of considerations: stakeholders. The overall ecosystem of people and partners that is important to your business now becomes even more important in the context of a sale of your business. If you have an important client, that client will be important to the buyer as well. And that is true for employees, providers, contractors and so on. It isn’t enough for you to want to treat your stakeholders well; a buyer will want to know what the stakeholders are going to think about the deal.

As you can see, there are many things to think about as you prepare to realize the value of your firm. There are also several avenues to consider when planning an exit – so what’s the most important single thing to remember? There is no substitute for proactive planning, so develop a relationship early with a professional advisor who can guide you through the preparatory steps to what is likely to be the single largest financial transaction of your life.

We will be exploring the different exit options in more detail in future blogs.

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. 

Equiteq’s Global M&A report 2015 – Who’s buying?


For those aiming to one day sell their consultancy, who is buying is naturally of great interest. This week we’ll be delving into our Global Consulting M&A Report to see where the buyers are coming from.

In 2014, 2,274 targets were bought by 1,722 different buyers, meaning buyers in 2014 acquired, on average, 1.32 targets each. This is broadly consistent with a similar ratio of 1.29 in 2013, illustrating that the overall market is steady – neither consolidating, nor fragmenting – as the ratio of new buyers and new sellers entering the M&A market has remained consistent.

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 group, acquired 52 companies in 2014, of which 23 were consulting businesses. They were also a leading buyer in 2013 with 22 acquisitions in the consulting sector during that year.

The second most prolific buyer was Publicis Groupe SA, who provides a range of advertising and communications services worldwide and was also the second most prolific buyer in 2013.

In third place, with 14 acquisitions in the consulting sector, is Japanese telecommunications company Nippon Telegraph and Telephone Corporation (NTT Corporation). They are a keen acquirer of IT consulting and services businesses.

The ‘Big 4’ and Grant Thornton are typically the most prolific buyers. Deloitte have had consistently high levels of acquisition activity per year, although KPMG was the most acquisitive in 2014.

Private equity (PE) is increasingly attracted to the consulting sector for investments and 2014 was a record year for PE acquisitions.

Roughly 85% of buyers are categorized as ‘trade’ or ‘strategic’, where the buyers seeks some form of synergistic benefit from the acquisition. And approximately 15% are ‘financial’ or ‘investment’ focused, buying in the consulting sector for a straight return on their capital. PE groups can be attracted to consulting businesses because they consume very little of the high profits they generate on fixed or working capital. The free cash flow that is generated in many consulting firms can be used to pay back the interest and capital on the loans that are an integral part of PE investments.

If you are selling a firm in Europe, there is a 26% chance that your buyer will be foreign, whereas in the USA it is most likely (88%) that your buyer will be internal. The number of cross-border deals in 2014 is slightly higher than 2013, increasing by 3%. Seventy-five per cent of deals done worldwide were completed by only five countries: USA, UK, Australia, France and Canada.

If you’re interested in a more detailed analysis on any of these areas, more information can be found in our full report. To download a copy you need to be a member of Equiteq Edge – registration takes only moments here.

Focus on Private Equity Buyers

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In this blog we will spend some time examining Private Equity (PE) buyers – a group of buyers that acquire consulting firms primarily for investment reasons. We will explore some of the benefits that a deal with this buying group offers, as well as the considerations you need to think about as a consulting firm owner.

In our latest Global Consulting M&A Report, we divide the buyers of consulting firms into two groups. Roughly 90% of buyers are categorized as ‘trade’ or ‘strategic’, where the buyer seeks some form of synergistic benefit from the acquisition, such as reaching a new market place or geographic area, and just under 10% are ‘financial’, such as PE, buying for a straight return on investment.

PE buyers tend to become more interested as firms increase in size – the percentage of financial buyers rises to 18.9% if we eliminate deals under $20m. However, if your firm is small but in a hot sector with a certain set of attributes attractive to PE buyers, they could be interested in investing. And if rapid growth is your goal, then a financial buyer could be a good match.

Why would a Private Equity investor want to buy a consulting firm?

Unlike strategic buyers, PE buyers exist to sell profitable companies at a value higher than they purchased them. This is their business model. Service businesses like consulting firms, if well run, have a reputation for delivering high margins and good cash flow. This presents an opportunity for PE buyers to put capital to work building high growth, high margin businesses.

The consulting sector is an industry with high-growth opportunities, especially in the right sector and with the right service offering. The oil and gas industry is one such area of interest, for example, and you can read more about our intelligence on this here.

What would make a consulting firm attractive to a PE buyer?

There are certain characteristics that would attract PE buyers. We’ve mentioned size being one such factor. But others include: a concentrated ownership consisting of just one or two partners, a focused service offering with healthy profit margins, as well as concentration within one or two key sectors.

Why would a PE buyer be attractive to a consulting firm owner?

A PE buyer can make a very useful and strategic partner in the right situation. The following are some of the key benefits that the right PE partner can deliver:

  • At the right time, investments from a financial buyer can provide the impetus to accelerate a firm’s value
  • A PE deal can allow an owner to ‘de-risk’ by diversify ownership but still keeping a stake in the business
  • PE firms with experience in the sector can provide crucial guidance through difficult growth phases, and potentially make helpful introductions to partners or clients

Why wouldn’t a PE buyer be attractive to a consulting firm owner?

There are a number of factors to be wary of if you plan to sell to a PE buyer. Firstly, you will have to be prepared to have a partner and give up some control of your business. Because of this, the best deal for your firm might not be the highest price. You will need to look very carefully at the buyer, are they a good partner for your firm? Do they have the expertise and track record to help you? There is a balance to strike between trading the current value of your firm with the long-term benefits the deal will bring.

In the right circumstances PE buyers have much to offer consulting firm owners, especially those owners focused on growing their firm.  You can read more about the two main buyer groups – financial and strategic – and their motivations for buying in our blog: Merger and Acquisition deal drivers in the consulting firm sector.

How serial buyers of consultancies see you


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In our M&A work with buyers of consulting firms, we see some clear differences in behaviours and capabilities between serial buyers and those who acquire less frequently. Our recent Buyers Research Report revealed that serial or prolific buyers, as we call them in the report, are each looking to acquire an average of 4.4 consulting firms over the next two years. Not only do they buy more, they have more money to spend. The average budget for all buyers next year is $65m but for serial buyers it is $90m. So, if you are looking to sell your consulting firm now or in the next few years, it is worth having an understanding of how serial buyers think, what they are looking for and what this might mean for your firm.

Prolific consulting firm buyers typically have their own internal M&A capabilities that focus on finding and integrating new acquisition targets. These targets are largely found through two routes:

  • A targeted search by the internal M&A team; or
  • Opportunities sent by intermediaries.

When a buyer’s internal M&A team conduct a targeted search, which they may also outsource to intermediaries, they usually have a mandate to find targets with a specific capability, sector alignment or geographic focus. Outside of a specific mandate, broad acquisition criteria aligned with the firm’s growth objectives exists. Buyers are constantly assessing acquisition opportunity profiles from intermediaries against their broad acquisition criteria, as an initial filter. These opportunity profiles are called ‘Teasers’ or ‘Blind Profiles’, as they provide key financial and qualitative information about the company, while maintaining confidentiality by excluding the name and any sensitive information about the target.

So buyers initially see you through the lens of a blind profile, much like how an employer would view a CV. How do you stand out? The following are some typical questions buyers will ask when looking at you as a ‘blind’ acquisition opportunity.

1. Are the financials sound?

Buyers often ‘calibrate’ their view by assessing whether your revenue is growing and if a good percentage of this is profit. This reflects the success of the firm in the market and how well it is managed. Serial buyers may also look at key metrics from your blind profile, such as revenue per partner or per consultant, as an indication of value. Strategic advisory typically commands higher fees than implementation services, but the number of partners or consultants will impact this metric. Whether this ratio is high or low, buyers will have a view on why that is

2. Do you have deep domain expertise?

This is difficult to fully assess from the blind profile, but typically buyers will want to know how deep your expertise runs. If you are too generic in your services and struggle to show a competitive advantage, this can turn buyers off as they will need to understand the depth or breadth you add to their existing services. By highlighting the depth of your expertise, the question changes from ‘is this useful?’ to ‘how can we use them?’.

3. Do you have unique and leveragable Intellectual Property (IP)?

Buyers will ask, “Should we spend money on acquiring this company or hire the expertise and build skills internally?”. Buyers are looking for tools and practices that help make money beyond what’s in an individual consultant’s head. So you need to be able to show what assets you have beyond your skilled people. This comes down to how you embed your IP into the fabric of your firm. Any IP you have would be highlighted on your blind profile, citing how you use this and its relative rarity (e.g. benchmarking data and capabilities, etc.). This is viewed favourably by buyers and helps to differentiate your firm as having value beyond the people in the firm.

In conclusion

Think about how you would look on a blind profile, highlighting only your: Key Financials (Revenue and EBITDA), Services, Top Clients, and Staff numbers.

Ultimately serial buyers will be looking at how they can acquire the highest value. Each buyer will measure value differently but they will all want to see growth, expertise and value beyond the people. As a business, you have to prove that you are worth acquiring through these very limited key facts.

Is now a good time to sell your consulting firm?


Imagine you had the opportunity to sit down in front of potential buyers of your firm and ask them questions about their buying strategy, what would you ask them? That’s exactly what we went through in constructing the questionnaire for our first Equiteq buyers report. We wanted to make sure we were focusing on questions that would help you decide whether now is a good time to sell and also help you assess what expectations you should have. We even brought together chief executives of several consulting firms to ensure that our questions were right on the mark. The result is more than 100 interviews with some of the major buyers of consulting businesses in the US and Europe who provide some fresh and thought provoking insights. They help pinpoint exactly what buyers are looking for over the next two to three years, whether they’re looking to buy more or less, and what types of deal structures and earn-outs are being used.

Highlights from the research include:

  • More than a six percent growth in deals is expected over the next two to three years – heralding the first big growth rate for eight years.
  • Nearly a third of buyers said they expected their growth to come through acquisitions rather than organically and an equal number are seeing more opportunities to buy than last year.
  • The average budget over the next year for those doing two acquisitions or more is $90m and for those doing one acquisition it is $35m. Nearly one in six of the buyers surveyed have budgets in excess of $100m.

The 2014 Equiteq buyers report hopefully answers the questions you would want to ask. It will help you decide whether you’re likely to get a premium price or not. It pinpoints the problems in bringing a deal to a successful conclusion. And hopefully, it answers the question as to whether now is a good time to sell.

Read the 2014 Equiteq Buyers Research Report here.