Delivering a premium sale for GL Hearn

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GL Hearn (GLH), a market-leading UK property consultancy, approached Equiteq as part of its annual strategy development process to provide an assessment of the M&A market.

Through Equiteq’s Valuation and Market Risk Assessment (VMRA) methodology, the board of GLH gained a good insight into the strategic sale potential of the business, prompting a decision to sell. Based on our deep consulting transaction experience, we were appointed as the lead advisor for the sale. Eventually, GLH was sold to Capita for £30m in 2015, a valuation which substantially exceeded shareholder expectations.

The client’s situation

GLH approached Equiteq as part of its annual strategy review to provide an assessment of the M&A market and, in particular, the outlook for GLH in a strategic sale scenario. We utilized our proprietary VMRA tool to provide a thorough analysis, which the board of GLH incorporated into its decision-making process to sell the business.

Our approach

Following the initial workshop, we set to work preparing high-quality sales documentation and undertaking research into potential strategic advisors, drawing on our knowledge of the buyer universe and key value drivers for these buyers.

We identified and shortlisted the most likely buyers, and approached the shortlisted companies as a priority. This enabled the process to remain focused and efficient whilst maintaining confidentiality. The ultimate result was a number of credible offers for the business which Equiteq negotiated and improved before the shareholders selected their preferred party.

During the due diligence phase, the focus was on quick execution and maintaining value, both of which we were able to achieve though strong project management and supply of quality information to the buyer.

How did Equiteq deliver value to the client?

It was clear that GLH had been well positioned for growth in certain areas of the property consultancy market, with management having made a number of strategic investments during previous years in this regard.

  • We presented these investments carefully; alongside the opportunity they created for a potential buyer, adjusted the historic performance of the business to show the strong underlying growth trend.
  • This led to a significant interest in GLH from the buyer community, soliciting a number of well-structured and valuable offers from credible international buyers.

This allowed GLH to make an informed and positive choice about which partner to consummate a transaction with.

Ultimately Equiteq achieved a premium valuation in excess of the GLH shareholders’ expectations and a final sale value of £30m.

To read some of our other case studies, please click here.

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What’s the point of knowing the value of your firm?

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Occasionally we encounter owners of consulting firms who believe that developing a simulated valuation of their business is a meaningless exercise before taking their firm to market. Their position is that the only valuation that counts is whatever a buyer is prepared to pay.

We agree that the actual price paid in the transaction is indeed the only one that counts! However without a simulated valuation in advance, the price paid is more likely to be lower than it could have been. Or there could even be no sale at all because you entered a process wanting far more than the hungriest buyer would ever be prepared to pay.

So how is it possible to produce a credible simulated valuation and why does it matter?

Every firm we take to market starts with a valuation exercise that gives us a range – the worst case, best case and most likely outcome. We can do this because we know the M&A market for consulting firms and have a tried and tested methodology which looks at a business through the lens of the buyer.

It takes into account the financial performance, forecast and risk in the business, as well as the market conditions and prices comparable consultancies have achieved. We’re able to factor in the likely synergy value to the buyer groups that should be interested and the potential effect of buyers competing for your firm (depending on how hot your consulting sector or discipline is).

Now armed with a valuation, what are the benefits to you as a seller?

  1. By modeling the valuation range, we can identify where short term value enhancements can be made. If these weren’t addressed the sale price could be reduced before or during due diligence. As everyone wants to sell their business for the best price, it makes sense to get the business in the best possible shape before going to market.
  2. The development of the valuation provides good input to the strategy adopted in the sales process which increases the chances of taking the price up to a premium level or beyond.
  3. If you don’t have a view of the value of your business before you enter a sale process, you don’t know what good or bad looks like. Do you want the nagging feeling that you undersold your business when you later see competitors do exceptional deals? It could also be that you fail to strike a deal because of an inflated or unrealistic expectation.

As you can see in our annual M&A Report, the ‘typical’ firm sells for approximately one times its revenue. However every average comes with a range and in the consulting sector it’s a very wide range (anywhere between half and three times your revenue).

If you want to be towards the premium end of that range and achieve the best price for your consultancy, it’s important to be aware of what the market is likely to pay. By understanding the value of your business and remedying any weaknesses prior to going to market, you’re more likely to achieve a price that you’ll be delighted with.

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Nine steps for selling your consulting business successfully

 

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This blog will give you an overview of the nine steps involved in a quality sales process. Taking you from valuation to company disposal with minimum pain along the way.

To ensure the process runs smoothly and to mitigate any risks, as well as maximising the value of your firm, adequate planning and preparation is the key.

Step 1 – Initial valuation and market risk assessment

In the first instance, it is crucial to establish a target valuation and identify any potential issues that may affect your sale. To place yourself in a strong negotiation position with your bidders, it is important to have an understanding of the following factors:

  • Return on Investment (ROI) based on your current financial performance and growth prospects
  • Buyer risk factors that may cause them to downgrade your firm’s value
  • A market premium based on current market activity
  • A synergy factor based on your ability to positively impact a buyer’s business

Our Valuation and Market Risk Assessment process assesses the risk factors that may cause problems or affect the maximum value. Once identified, you can put a plan in place to mitigate or eliminate the risks and maximise the value of your firm in the process.

Step 2 – Maintaining business as usual

Ensuring there are sufficient resources to manage business as usual activities and the on-going growth of the firm, in addition to the sales process is another vital step. Failure to do so may cause delays in the sale or reduce the initial price of the firm. It may be beneficial to employ advisors at this stage to reduce the management load of the sale process.

Step 3 – Building the buyer list

Using the intelligence from your team and your M&A advisor, form a list of 40 or more potential bidders/buyers who may be interested in acquiring your consulting company. Categorise the list into groups based on a view of their potential synergy with your firm. Synergy factors can dramatically affect the price achieved so it’s important to develop a strong story about synergy, customised for each buyer group.

Step 4 – Preparation of sale documentation

Your M&A advisor will be required to collect and produce the appropriate documentation in preparation for the sale of your firm. This comes in three forms:

  • The ‘Blind Profile: a two-page marketing document containing the financial, operational, service and client details without disclosing the name of your firm. It will also highlight the buyers’ synergy with your firm and may be slightly altered to target different categories of buyers.
  • The Information Memorandum (IM): a 30-page document containing all strategic, financial and operational information. This includes financial history and projections, service line descriptions, clients and markets, staff and compensation, assets and liabilities, firm strategy and reasons for the sale.
  • A compelling management presentation needs to be produced that can be customised and used in initial meetings with bidders.

Step 5 – Lining up legal and tax planning experts

Engage lawyers and tax planning experts early to minimise or avoid any issues that may impact on organisational structure and remuneration, contracts, shares, liabilities or company incorporation. Your M&A advisor will be able to recommended a trusted expert if you don’t have access to one.

Step 6 – Engaging the buyer list

With all prior background work completed, you can now start contacting your buyer list to begin the sales process. As an initial step, send out the Blind Profile then follow up with a phone call or email to establish interest and pre-qualify buyers.

Interested buyers will then be invited to sign a Non-Disclosure Agreement (NDA) preventing them from releasing information to third parties and reducing the risk of them poaching your staff should they be unsuccessful in buying your firm. These buyers will also receive a copy of the IM so they’re aware of the benefits of their purchase.

Step 7 – Initial offers from interested buyers

Those that wish to progress further will wish to meet the Management team. This will provide you with the opportunity to impress bidders by highlighting the quality of your firm as well as the aligned synergy elements relevant to the buyer.

Offers will comprise a total value and the proposed structure of payment but pay attention to both the relative value of the offers as well as any contingent risks. They may not necessarily provide the maximum offer value but perhaps offer a higher value upfront with the remainder of the consideration in safer, non-contingent financial instruments such as bank-guaranteed loan notes.

There may be several meetings with each bidder before indicative offers are made and the competitive nature of this bidding process will help to maximise the value of each offer.

Step 8 – Heads of terms and due diligence

Once you’ve chosen a successful buyer, you will need to request a ‘Heads of Terms’ document which describes the detail of the offer subject to successful Due Diligence (DD). You then enter a period of exclusivity where you’re prevented from progressing a sale with another third party.

The buyer will typically have four weeks to perform their DD, which includes financial, legal and potentially commercial and HR. In most cases, the buyer will wish to speak to one or more key clients so you will need to manage this part of the process carefully as not to expose your relationship with the client.

Step 9 – Signing the sale and purchase agreement

Your lawyer will then draw up a Sale and Purchase Agreement, together with warranty and disclosure documents for signature. If you’re certain the DD will not expose any problems and you’re comfortable taking the risk on legal fees if the sale doesn’t progress, the legal and DD process can be done in conjunction with each other.

Unless you’re lucky enough to find a buyer prepared to knock out other potential bidders, the entire sales process will take around six to nine months. You will need to be aware of any external factors that may cause a delay such as a market collapse or a key client who ceases doing business with you. Additionally, the longer the sales process, the higher the risk that something will come out of the woodwork for you or your buyer so keep this in mind.

If you have any questions about this process, we have started a discussion in our Equity Edge LinkedIn Group. Our experts will respond to any of your comments or questions.

Consulting company valuation method

dollar cropped 1Often the stimulus for a company sale starts with an understanding of the value of your firm in the current market. As market conditions change from year to year, timing a sale can make a dramatic difference to the price achieved. Some firms however are just interested in the current value in order to create the benchmark for value improvement over the coming years.

Our work not only involves sale and acquisition transactions, we also help firms grow equity value over the long term. The valuation methodology we use calculates a current value but it also makes the link between cause and effect on company value. As you will see this goes well beyond just an understanding of the financials.

Calculating your equity value as an EBIT multiple

Our valuation method is a 4-step process that starts by looking at averages: an average firm in your sector sold in average market conditions over the past 5 years to the average buyer. We then adjust that value up or down depending upon your financial profile, your investment risk profile, current average market conditions and our view of the buyer’s appetite for your firm if it was on the market today.

Our consulting industry M&A database that provides us with a lot of the base data used in the valuation process, is 50% historical information on previous M&A deals in the industry and 50% company information. The latter is broken down to include financials, sector and service expertise profile of all firms in the UK and other places across the world. Our 4 steps to a company valuation are as follows:

1. Financial Analysis

We look in detail at your historical and projected financials. We make adjustments for any one-off expenses that could be argued as not part of normal trading costs. We also adjust for abnormally high or low compensation levels. We calculate the year on year growth in this ‘adjusted’ EBIT and assess your ability to generate free cash flow from profits in a sustainable way. We then apply a multiple to this adjusted EBIT to generate an investment return commensurate with the risk profile for the average consulting firm.

2. Equity Risk Assessment

We use our 8 levers of Equity Value’ model to determine if there are any risk factors associated with your firm that would make it a worse or better than average investment opportunity as compared with the average for the industry. For example, under the section ‘Quality of fee income’, if you could demonstrate long-term contracts with clients then you would have a lower risk profile than most consulting firms. Alternatively if more than 25% of your fee income was with one client and with no long-term contract then we would judge you to be higher risk than average. This would affect your score in this segment of our equity value wheel and may increase or decrease the multiple applied to your EBIT in calculating value.

Our 8 levers are based on extensive experience and research into those factors that buyers assess when looking to value a consulting firm. We review them regularly. This is important because buyer sentiment does change over time. For example, even 5 years ago, it would have been difficult to get a good price for a consulting firm where 50% or more of its consultants were freelancers or ‘associates’. Today this is seen by many buyers as attractive because it infers an ability to reduce costs fast – and thus protect earnings – if the market takes a downturn.

3. Market Premium

The EBIT multiple used in step 1 assumes average market conditions. We hold data on multiples in our sector going back to the year 2000. We have also correlated this data with general market data going back 75 years. At any point in time we are able to calculate a discount or a premium to the market average. It is a seller’s market for consulting firm owners in the UK at present with premiums of around 15%. This is down considerably from the 40% high we saw in 2009, but our prediction now is that 2014 will see significant growth in volumes and prices in the market in line with the improving macro-economic climate and the general M&A market.

4. Buyer Synergy Premium

So far all of our calculations are independent of the type or specific buyer. However the price premium associated with finding the right synergistic buyer can swamp any premium associated with your growth, profit levels or even market premium. We have seen synergy premiums of 400% and so it really does pay to research the right buyer for your firm. Buyer synergy means that you have persuaded the buyer that your firm can grow their firm faster than it could grow without you. In these circumstances the investment return calculation becomes more than just based on your financial forecast. You are selling the story that together ‘2+2=5’ so that the buyer can justify paying a higher multiple of your profits to get this joint growth. It is in this area that Equiteq’s data excels. We can calculate a ‘buyer synergy premium’ based on our comprehensive database that we outlined above, which indicates the relative attractiveness of your firm to the potential universe of buyers.

In conclusion

The resultant valuation from the above 4-step process gets as close as you can get to a target price based on actual deals done in the consulting sector, comprehensive sector market data and the experience of hundreds of buyers of consulting firms.

Steps to selling your consulting business successfully


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Nothing is much more exciting than the prospect of selling your firm and gaining financial security from the business you’ve worked hard to build, but the M&A road is littered with casualties where the positive has turned negative because of bad foresight, planning and preparation. It doesn’t matter whether you’re aiming to sell your company in the next year or in future years, preparation is the key to success and by understanding the process now you will be better able to plan your timing, mitigate the risks and maximise the value of your firm. Read on for the nine steps in a quality process that will take you all the way from valuation to company disposal with minimum pain along the way.

Step 1 – Initial valuation and market risk This crucial first step is about establishing a target valuation and unearthing any show stoppers or issues that might harm your sale. Your initial valuation will be based on four main factors and by understanding these you will place yourself in a strong negotiating position with your bidders down the line:

  1. return on investment based on your current financial performance and growth prospects
  2. buyer risk factors that may cause them to downgrade the value of your firm
  3. a market premium based on current market activity (currently 30% to 40% in 2007)
  4. a synergy factor based on your ability to positively impact the buyers’ business

We use our Valuation and Market Risk Assessment process to assess those risk factors that might cause problems or inhibit the maximum value. Once you have identified the issues, you can then put a plan in place to eliminate or mitigate the risks and maximize the value of your firm in the process.

Step 2 – Maintaining business as usual While conducting the sale preparation, you must ensure that the business continues to grow on its current trajectory. This is a crucial issue and is one of the main causes that either delays a sale or reduces the price achieved. Your organization plan must ensure that there are sufficient resources to manage both the ongoing growth of the firm as well as the sale process. Of course one of the reasons to employ advisers at this stage is to reduce the management load of the sale process so that you can get on with ‘the day job’.

Step 3 – Building the buyer list The buyer (or bidder) list is the group of target firms that on paper could be interested in acquiring your consulting company. You should be looking to build a list of 40 or more potential bidders and they are likely to come from two main sources. Your team will almost certainly have intelligence on potential buyers, but the majority will probably come from your M&A advisor. The list should be categorised into groups based on a view of their potential synergy with your firm. Synergy factors can dramatically affect the price achieved and so it is important that you develop a strong story about synergy, customized for each buyer group.

Step 4 – Preparation of sale documentation While preparing the firm for sale your M&A advisor will be collecting the detailed, financial, operational and commercial information required to produce the sale documentation which comes in three forms: The first of these usually called the ‘Blind Profile’. This is a short two page document that is used to generate initial interest in the firm with buyers. It includes financial, operational, service and client highlights without mentioning the name of your firm. It is a marketing document that must show the firm in the best light to differentiate your firm from others that may be for sale during the same time period. It should talk as much as possible about the potential synergy between your firm and the buyer. Several variants of this document will be required based on the different categories of buyers. The second document is a rather longer Information Memorandum (IM). This 30-page document describes all the strategic, financial and operational information that is likely to be required by a buyer. It is meant to be a factual document and covers financial history and projections; service line descriptions; clients and markets; staff and compensation; assets and liabilities; firm strategy and reasons for the sale. The third piece of documentation is a compelling management presentation that can be customised and used in initial meetings with bidders.

Step 5 – Lining up legal and tax planning experts Issues that can take more time than you might expect relate to management organization structure and remuneration or share issues. By engaging lawyers and tax planning experts at this early stage you can make sure that legal issues relating to company incorporation, contracts, shares, liabilities and such like don’t delay the process later, or present nasty surprises! If you don’t have access to trusted legal or taxation experts, your M&A advisor will be able to recommend them to you.

Step 6 – Engaging the buyer list Having worked on all those issues that might raise questions with buyers and possibly reduce the price achieved, and with all the background work completed, you can now begin the sale process and start contacting the buyer list. The blind profile is sent out, then followed up with telephone calls and emails to establish interest and pre-qualify bueyrs. Those that appear to be both able to buy and also express an interest are invited to sign a Non-disclosure Agreement (NDA) that prevents them from discussing the details of your firm with third parties. It also reduces the risk of them poaching any of your staff in the event they are not successful in buying your firm. Those that sign the NDA would receive a copy of the IM followed up with email and telephone calls to ensure that they are fully aware of the benefits of buying your firm.

Step 7 – Initial offers from interested buyers Those that wish to progress further will wish to meet the Management team. This is your opportunity to impress bidders with the quality of both the firm and the Management, whilst also discussing those items of synergy that will increase the view of your value in the eyes of the bidder. There may be several meetings with each bidder before indicative offers are made. The offers will comprise of a total value and the proposed structure of payment. Of course the competitive nature of this bidding process will help to maximize the value of each offer. There are many variables here and it is not unusual for bids to be accepted that don’t provide the maximum offer value but perhaps offer a higher value upfront with the remainder of the consideration in safer non-contingent financial instruments like bank-guaranteed loan notes. It’s important for you at this stage to understand the relative value of each offer as well as any contingent risks.

Step 8 – Heads of terms and due diligence Once you feel you have received the maximum bids from each party the next stage is to decide which firm you would like to be the successful buyer and ask them for a ‘Heads of Terms’ document that describes the detail of the offer subject to successful due diligence (DD). You then enter a period of exclusivity where you are prevented from progressing a sale with any other third party. This typically provides the buyer with four weeks during which time they will perform their DD. This will include financial and legal DD but may also include commercial and HR. It is almost certain in a consulting business that they will wish to speak to one or more key clients and you will need to manage this part of the process carefully so as not to expose your relationship with the client.

Step 9 – Signing the sale and purchase agreement DD ends with your lawyers drawing up a Sale and Purchase Agreement together with warranty and disclosure documents for signature. The legal process can be done in parallel with the DD if you are pretty certain that the DD isn’t likely to expose any problems and you don’t mind taking the risk on the legal fees if for some reason the sale doesn’t progress.

In summary If you add up the elapsed time for all of the above activities then your firm could be sold within 6 to 9 months from the start of the process. It could be less if you find a buyer early on that is prepared to make an offer to ‘knock out’ other potential bidders. It could of course take much longer if you find some serious issues in Step 1. Then of course there are external factors that could cause a delay, like a market collapse, or a key client that stops doing business with you! Clearly, the longer the process runs on the higher the risk that something will come out of the woodwork for you or your buyer. That’s why with good planning and preparation you can limit the risks and run a smooth process that gets you from A to B, with a successful and lucrative completion in a controlled and speedy way.