Confidential© Equiteq 2015 equiteq.com
Growing equity, realizing value
How can you smash the growth glass ceilings?
Confidential© Equiteq 2015 equiteq.com 2
Equiteq is the leading M&A firm focused exclusively on the consulting sector
What we do for our clients Global presence and consulting industry credentials
Equity value realizationSale to a Strategic Buyer or Financial Investor
Sell45+ Deals
Value creation and sale preparationBetween 1 and 5 years ahead of a desired transaction
Prepare300+ Clients
Why we’re different• Deep domain expertise in the Consulting sector
• Add value and engage at any stage in the exit destination journey
• Unique blend of consulting, corporate finance and investment banking skills
NEW YORK
LONDON
SINGAPORE
Established in 2004 Regular AMCF USA speaker
35 people across 3 continents Regular MCA UK speaker
Clients in 27+ countries Widely published in industry media
Confidential© Equiteq 2015 equiteq.com
To what extent do you feel confident of growing your firm in a smooth
trajectory at 10-20% p.a.?
Confidential© Equiteq 2015 equiteq.com
What are the 5 stages of growth and the areas for focus at each stage?
Agenda
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What’s the impact of glass ceilings on equity values?
What are the crises that occur at each stage and what can be done to plan ahead to mitigate the chance of a plateau?
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Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
What are the 5 stages of growth in building a firm with equity value?
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Percentage of firms that reach each stage
83% 12% 4%1%
£5m £10m £20m
Confidential© Equiteq 2015 equiteq.com
Stage 1
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Focus on getting
your value proposition
clear
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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Stage 2
8
Focus on scaling the business
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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Stage 3
9
Focus on delegating authority
to individual practices
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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Stage 4
10
Focus on coordination of resources
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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Stage 5
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Focus on collaboration
between consulting practices
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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Developing service offerings & UVP
Stage 1
Summary: What are the 5 stages of growth and the areas for focus at each stage?
Stage 2 Stage 3 Stage 4 Stage 5
Scaling the Business
Delegating authority
Co-ordinating Resources
Collaboration across Practices
Focus area
Key Message: What you don’t focus on at each stage of growth will require you to circle back later.
Reflection: If your financial growth, both historic and projected is not steady, where are you stuck?
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2014 Buyers Research Report available to download from Equiteq Edge on our Website
• M&A within professional services is very active and growing
• There is limited aggregate information available on why and how buyers of consulting firms behave
• We commissioned independent research:– Overall demand trend– Types of consulting firms in demand– Deal sourcing preferences– Deal structures– Reasons that buyers fail to close
Confidential© Equiteq 2015 equiteq.com
The ideal consulting firm target is US based and approximately $15-40m in Revenues
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• Geography: 50% buyers are very or extremely interested in the US (33% UK, 20% EU).• Size: Revenue - on average, buyers looking for revenue of $15m to $40m.
US UK Europe Asia S America0%
10%
20%
30%
40%
50%
60%
70% 65%
42%
27%22%
13%
Low High$0$5,000,000
$10,000,000$15,000,000$20,000,000$25,000,000$30,000,000$35,000,000$40,000,000$45,000,000
$15000000m
$39000000m
$28000000m $28000000m
Range Mean
$m
Geographic preference for consulting firm acquisitions Size preference for consulting firm acquisitions
Confidential© Equiteq 2015 equiteq.com
Factors attracting buyers to and deterring buyers from consulting firm acquisitions imply conflicting priorities
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Tight geographical focus
Differentiated in its market
Unique and leveragable IP
Deep domain expertise in one area
Financial stability
4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
6.3
7.8
7.9
8.1
8.4
Wide geographical spread
Good growth, but no profits
High ratio of contracted staff
Good profits, but no growth
Diverse set of services
Cultural misalignment
4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5
5.7
5.9
7.1
7.3
8.3
8.5
Scale: 0.0 to 10.0. 10 – Strongly Attract; 0 – Not Attract at all.
Scale: 0.0 to 10.0. 10 – Completely Deter; 0 – Not Deter at all.
Factors attracting buyers to a consulting firm Factors deterring buyers from acquiring
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How do you create a smooth growth trajectory?
Market Proposition
IntellectualProperty
Quality ofFee Income
Sales &MarketingProcess
ConsultantLoyalty
ClientRelationships
Sales &Profit Growth
ManagementQuality
EquityGrowthWheel
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Identify which levers are driving equity value up, and dragging it down
Key Market
Proposition
IntellectualProperty
Quality ofFee Income
Sales &MarketingProcess
ConsultantLoyalty
ClientRelationships
Sales &Profit Growth
ManagementQuality
EquityGrowthWheel
Driving value up
Dragging value down
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Make sure you have a Unique Value Proposition (UVP) that fits the current market environment
Market Proposition
IntellectualProperty
Quality ofFee Income
Sales &MarketingProcess
ConsultantLoyalty
ClientRelationships
Sales &Profit Growth
ManagementQuality
EquityGrowthWheel
Strength of proposition & effectiveness in client sales, reasons why we win & loseMarket positioning, uniqueness & focusDifferentiation from and understanding of competitionThe importance to Buyers:Buyers are attracted by a focused set of propositions that deliver value into a clearly defined set of needs & hot issues. Such propositions are easily understood and more importantly drive up fee rates & volumeKey messages• Firms with UVPs always survive best in difficult times• Make sure you are part of the client business plan rather
than just a cost line in their P&L• Ensure your offer includes an ROI and, if practical, share in
results• Promote your expertise
Market Proposition lever is about:
Confidential© Equiteq 2015 equiteq.com
Revisiting your UVP - Identify the ‘hook’ on which to hang your value proposition
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CONSULTING SKILLS
CONSULTING SOLUTIONS
UNIQUE VALUEPROPOSITION
CONSULTING OFFER
VALUE CREATION
VALU
E
Example ‘hooks’• Increased market share• Earnings per share• Profit growth• Sales growth• Cost reduction• Working capital reduction• Process improvement• Staff Development• IT Development• Technical Skills
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Make sure your target audience is aware of your expertise and invest in lead generation and sales
Market Proposition
IntellectualProperty
Quality ofFee Income
Sales &MarketingProcess
ConsultantLoyalty
ClientRelationships
Sales &Profit Growth
ManagementQuality
EquityGrowthWheel
The method, process and spend on generating leadsThe management, effectiveness and predictability of converting leads into billed revenueClarity of communication using strongly branded web and presentational materials delivering a proposition value message to target clients The importance to Buyers:Consistent, predictable & effective sales conversion into targeted client groups is at the core of any potential investor’s interestKey Messages• Sales and value growth will only happen if you make prospects
aware of your value and are persuasive in winning business• Focus your services where you have a ‘right to win’• Proactively drive, measure and manage sales performance
Sales & Marketing Process lever is about:
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“Their values have to fit with own otherwise we would never make it work…”
“Culture is the key one….anyone who tells you they’ve never had a deal go wrong because of culture is probably lying to you”
Buyers sometimes say they buy management teams first and consulting firms second.
Market Proposition
IntellectualProperty
Quality ofFee Income
Sales &MarketingProcess
ConsultantLoyalty
ClientRelationships
Sales &Profit Growth
ManagementQuality
EquityGrowthWheel
Impact on equity values
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Revisiting the impact of glass ceilings on equity values
Firms north of $15m are in greatest demand
Top 3 factors that strongly attract buyers to consulting firms:
• Financial stability – both historic and projected• Depth of domain expertise in one main service area,
as opposed to having a broad range of services• Possession of IP that is unique and leveragable
Deal structures usually have a 50% earn out over 3 years
Requires a management team able to navigate through the stages of growth
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Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Different stages encounter different types of crisis
Founders’ Crisis
Autonomy
Control
Red Tape
Management Talent
Confidential© Equiteq 2015 equiteq.com
Stage 1: Mitigating the leadership crisis
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Do more: Do less:
• Strengthen your leadership from ‘doers’ to managing P&L
• Invest in an FD• Use marketing to drive
leads • Build deep domain
expertise
• Regarding every dollar as having equal value
• Reacting instead of generating client demand
• Inconsistent project controls
Confidential© Equiteq 2015 equiteq.com
Stage 2: Mitigating the autonomy crisis
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Do more: Do less:
• Delegate with clear guidelines (hiring, investment, IP)
• Focus on strategic accounts to create enduring relationships
• Succession planning and building a leadership pipeline
• Knowledge transfer and management
• Relying on the heroic efforts the founders (the business needs to be able to run without you!)
• Which undermines your culture (e.g. failure to train everyone, rewarding mavericks)
Confidential© Equiteq 2015 equiteq.com
Stage 3: Mitigating the crisis of control
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Do more: Do less:
• Create some form of management committee
• Delegate specific issues• Invest in HR and
Marketing leadership
• Stop thinking everyone's’ domain expertise lasts forever
• Thinking your IP offerings remain current (is it time to create/retire some IP?)
Confidential© Equiteq 2015 equiteq.com
Stage 4: Mitigating the crisis of red tape and bureaucracy
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Do more: Do less:
• Get admin support for the leadership
• Ensure real time visibility of major KPI’s with integrated dashboards
• Looking inwards• Thinking of the business
planning process as an empty ritual
• Getting dragged into every policy meeting!
Confidential© Equiteq 2015 equiteq.com
Stage 5: Mitigating the crisis of talent
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Do more: Do less:
• To create alignment between strategic planning, organisational structure, leadership development & performance management
• Unplanned investments (services and/or markets)
• Regarding culture as intangible or un-manageable
Confidential© Equiteq 2015 equiteq.com
Each stage of growth needs a different focus, and a different crisis will present with the potential to cause a stall in growth.
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Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Focus areaDeveloping Service
OfferingsScaling the Business
Delegating Authority
Co-ordinating Resources
Collaboration across Practices
Crises Founders Crisis Autonomy Control Red Tape Talent Mgmt.
Do more of Managing P&L Building
leadership pipeline
Get an executive
committee and delegate
accountability
Real time visibility of
KPI’s
Create alignment between
strategic plan and talent
mgmt.
Do less ofRegarding every dollar of revenue or profit as equal
Relying on the efforts of the
founders
Thinking domain
expertise has an unlimited
lifespan
Looking inwards
Non-strategic investments
Confidential© Equiteq 2015 equiteq.com
Contact [email protected] resources are available at www.equiteq.com/equiteq-edge
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Confidential© Equiteq 2015 equiteq.com
Growing equity, realizing value
UK +44 (0)203 651 0600USA +1 (212) 256 1120Singapore +65 6352 7482Email [email protected]
www.equiteq.com