M&A transactions by consulting firms set to rise

New research reveals that consulting firm M&A transactions are set to rise, with sector convergence and ‘dry powder’ driving increased competition.

IT services and management consulting companies expect to be the  most prolific acquirers, initiating close to 12 acquisitions on average.  This according to Equiteq’s 2017 global survey of buyers of knowledge-intensive services businesses. 

The average size of targets is also expected to increase in 2018, with optimal revenues of targets rising by over 50 per cent to $62.6 million.

The annual independently conducted survey of management consulting, IT consulting, media and marketing, engineering consulting and HR consulting buyers found that market convergence continues to be a key trend as buyers look to diversify.

‘This continued convergence across consulting segments means that although sellers can attract premium valuations for synergies, they are less likely to come across their optimal buyer in the normal course of their business,” David Jorgenson, CEO, Equiteq, said.

The research found an increasing appetite for transactions, with buyers expecting to initiate on average 10 acquisitions each over the next three years. Strategic acquirers  show an increased appetite for acquisitions and are prepared to pay increased multiples for the right levels of margin and revenue growth.

Buyers highlighted a quality management team, differentiated market proposition, long term client relationships and repeat client revenue as major considerations for evaluating a target.

Across the eight levers of firm quality, the research found that sellers could do a lot more to achieve optimal valuations. More than 50 per cent of buyers said that clearly describing their market proposition can improve sellers’ valuations by over 20 per cent. However, over half of targets are not doing this as effectively as they could be.

Making IP or codified methodologies apparent to buyers has a significant impact on purchase price, yet only 30 per cent of sellers are effectively demonstrating their IP. 

“This year we organised our survey to identify specific buyer behaviours in each of the eight levers of our core assessment of firm quality, the Equity Growth Wheel,” Jorgenson added. “It was clear from the research findings that many sellers are missing out on premium valuations by not positioning their businesses to be aligned most effectively with the needs of buyers.”

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

Related Topics

Management buyout