These slides reveal the findings of our annual survey of buyers of knowledge intensive services businesses, on their M&A appetite and what makes them tick when evaluating acquisition targets.
We will be revealing our key findings on:
- What sectors are hot?
- Market dynamics - is now a good time to sell?
- Are you the right size and in the right financial position?
- How do buyers evaluate your business?
- What deal structure could you expect to be offered?
The insights presented will help you, the future sellers of consulting firms, to be better informed on key exit strategy questions, by understanding what your potential buyers will find valuable and attractive.
Hello and Welcome to our Webinar on our Findings of our Annual Survey of how buyers of consulting firms will spend their M&A budgets in 2017.
I am Paula Allerton, our Marketing Director at Equiteq and our presenters today will be Alex White, our Head of M&A and Strategic Advisory in Europe, as well as Ramone Param, our Buyer Coverage and Market Intelligence Associate based in New York.
Alex and Ramone will be presenting for about 45 minutes and I will then be presenting your questions to them. You can post your questions using the control panel to the right of your screen, the question box appears toward the bottom.
Over you to Alex and Ramone.
Alex
Thank you Paula and hello everyone and thank you for joining us in our Webinar.
Just a quick introduction to myself and Ramone before we begin. I head M&A and Strategic Advisory in Europe for Equiteq. I have 20 years’ experience as an M&A adviser and private equity investor buying and selling companies as a principal. I previously was a founding member and latterly a senior partner of a large generalist M&A practice in an international accounting firm and also raised £200m of private equity commitments, as well as co-founded an investment vehicle for PE investments in Europe, Middle East and the Americas.
… Ramone.
Ramone
Thanks, Alex.
I work as a Senior Associate within the Market Insights and Buyer Coverage team within Equiteq, providing thought leadership and buyer insights relevant to the knowledge-intensive services industry.
I started my career training with Macquarie Group in Sydney and subsequently joined the firm's Corporate Finance business in London where I advised on buyside M&A opportunities and restructuring distressed assets for Macquarie's managed funds. I subsequently joined PwC’s Corporate Finance business, where I helped found PwC’s Global Corporate Development team, advising PwC’s global leadership team on inorganic growth activities, as well as the transformational acquisitions of Booz&Co and PRTM.
Alex
We have around 45 minutes of content and will be answering questions at the end. The content will cover the key findings from our third annual survey of global buyers of consulting firms, which we hope to provide you with some of the content from our report, which is available to download from our website, as well as some potential additional insights to consider.
The key topics which we will be focusing on are:
Findings of M&A activity expectations and demands, looking at trends impacting PE and each of our five knowledge-intensive services segments – Management consulting, IT Services, Media & Marketing
Buyer’s approach to evaluation of acquisition opportunities
The adjusted EBITDA valuation metrics that buyers target
Approaches to deal structuring & earn-outs
We will then finish with some key conclusions from the report and move on to Q&A.
Now all of this is intended to provide you with a unique lens into those regular buyers of knowledge-intensive services firms to help you consider how to effectively prepare and position your consulting business for sale.
Alex
Before we commence, I would like to give you some context on Equiteq.
Ramone
Thanks Alex.
So a brief introduction to the report.
The report reviews the key findings of our annual buyer survey
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and is the only source of primary research into the trends amongst those regular buyers of consulting companies across the globe.
Ramone
This year’s survey consisted of the results of a study we asked an independent third-party to undertake over Summer of 150 buyers around the world.
This includes strategic buyers within each of our five consulting segments: Management consulting, IT consulting, Media & Marketing, Engineering consulting and Human Resources.
And for the first time, the perspectives of private equity that invest in the industry.
The report is designed to distil the large amounts of exclusive data that we gathered from this survey to provide you with insight into buyer’s appetite for acquisitions; their demands; their approach to evaluating opportunities, how they value businesses and finally how they structure deals.
Ramone
So with that introduction, lets dive in and take a look at what we learned about buyers demand for deals over the next year.
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Ramone
We summarise some of the information from the latter slides and also present some data on optimum size of business and average budget across buyers for M&A.
With respect to budget size, IT consulting buyers have much larger budgets than other groups, which along with some of the other strong acquisition trends for this buyer group, reflects a highly active segment of the market for deal activity in 2017
We expect demand to be focused on expertise relating to the latest cloud apps, which we are continuing to have a disruptive impact on the broader tech industry.
Now across the board, we typically find that those listed strategic buyers across industries that are focused on EBITDA performance, are looking to make earnings accretive acquisitions and are therefore typically willing to pay up to their own publicly traded EBITDA valuation metrics.
Which with the current strong equity market conditions, creates the potential for full valuations for the right opportunity from this listed buyer community.
Ramone
So, big picture, deal activity for 2017 is expected to be strong, overall.
There is robust demand for buying businesses and buyers have significant capital available to do deals.
Although the proportion of buyers seeing more opportunities than last year is higher than the proportion that are seeing less – this latter proportion of buyers seeing less opportunities than last year has increased significantly this year from 8% to 25%.
So what does this mean?
Although there still is a substantial proportion of buyers seeing more opportunities than last, those buyers that have decide to be more selective on M&A recently, may have been presented with less new opportunities over the last year,
Identifying these buyers that remain acquisitive for the right opportunity and are relevant to your business, and positioning your company correctly with them in a carefully managed process, may enable you to achieve a premium valuation.
[Pause]
So we have looked at demand for acquisitions, let’s now move on and consider what capabilities and areas of expertise buyers told us they want to acquire.
Ramone
There were three evident findings:
Firstly, traditional management consultants, Media and IT consulting buyers all demonstrated interest in each other’s segments –
We continue to observe this trend in practice from organic growth and M&A investments of regular buyers of consulting firms like Accenture, Deloitte, ad IBM who are developing innovative customer-focused consulting services
which connect a strong knowledge of marketing, business advisory, and technology consulting.
Secondly, we found that Engineering and IT consulting buyers have converging acquisition demands.
Our dialogue with buyers in both of these industries suggests this reflects the opportunity from new trends impacting consulting clients in the engineering industry
Like building information modelling, digital transport and the use advanced data analytics solutions to improve efficiencies and cut costs.
Finally, we also observed HR buyers increasingly moving up the value chain to acquire traditional management consulting capabilities.
Many HR buyers, and for that matter buyers in other industries, that we regularly are in dialogue with typically view a traditional management consulting engagement as a precursor to their own offering.
Creating the perception that a strong management consultancy can be a “tip of the spear” acquisition to allow then to enter new clients.
Now, moving to the next slide, in addition to specific horizontal service lines, many buyers are also interested in acquiring capabilities within underlying client sector verticals.
Ramone
The majority of buyers highlighted North America or Europe & the Middle East as their priority for acquisitions.
Which we would expect– given most buyers are already established in these regions, that typically offer more mature consulting opportunities and typically with more businesses enhanced with some of the latest skills relating to cutting-edge technologies.
Now, of both of these regions, those buyers focused on North America had far higher M&A expectations – so this is where our survey suggests most of the deals will continue to happen over the next year.
Now, acquisition appetite was lower in Asia-Pacific.
However, in practice, we typically observe that M&A markets for consulting within this region varies considerably. Japanese buyers being highly active. And mature markets within the region like Australia and Singapore are buoyant –lots of activity is occurring there.
Private equity, they were focused on investing in developed economies, but demonstrated a stronger interest in emerging markets as compared with strategic acquirers.
Possibly reflecting a stronger risk appetite and demand for higher-growth opportunities.
So that covers our review of buyer demand and M&A trends. Ill handover to Alex to discuss our findings with respect to how buyers are evaluating, pricing and structuring deals.
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So in closing..
The overall picture is good
Increase in buyer appetite and budgets for consulting firm acquisitions
This is a significant increase from last year
Both quantitative and qualitative metrics are used to evaluate firms, but the market tends to be polarized in which they use
Earn-outs are common in the industry in terms of deal structures, with approximately ½ given upfront in cash and ½ based on an earn out over 2-3 years
And post acquisition, the market tells us that people and clients come before operational, financial and technology integration.
So with that I thank you for your time
You can find many more resources on our website at equiteq.com
If you aren’t already a member, then please do join our Equiteq Edge club– it’s a free source of information for consulting firm owners looking to realise equity value in their businesses – you’ll find expert guidance, unique research, guest articles and lots more including a monthly newsletter.
Thank you to Liz for a very insightful presentation and thank you to everyone for attending. A recording of this webinar will be available within 24 hours and we will be sending you a link.
Finally, if you have any questions or comments please feel to contact us, we’d love to hear from you!