Contenu connexe Similaire à Pick the right partner for your exit goals (20) Pick the right partner for your exit goals1. Strictly Private and Confidential© Equiteq 2016 equiteq.com
Growing equity, realizing value
Learn which buyer could be right for you
and how best to attract them.
What should consulting owners consider when
selling their business to these buyers?
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Antonio Bonet. International Development Consulting.
Sold.
Selling to Private Equity vs. Strategic Buyers
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are investment firms investing private capital
into businesses, which are typically held and
exited after a hold-period.
Overview
3
Selling your consulting firm to a Private Equity will have different implications for a consultancy than selling to a trade buyer.
Strategic (or trade/corporate buyers)
are non-private equity investors who have
existing businesses which will typically make
acquisitions which form part of their existing
operations
Private equity (or financial buyers)
Attracted to consultancies due to:
Relatively high profit margins
High levels of profit to cash conversion
The potential for high growth
The barriers to entry that can be maintained through IP
Returns can be risky since the company’s core assets (people)
can walk out the door. And since most consulting work is project
based, future forecasts are difficult to predict.
Looking at opportunities to enable synergies:
Expanding existing core services
Adding complementary products, services
Expanding geographic footprint
Cultural fit
Ability to easily integrate with their existing business
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M&A by Large Accounting Networks
4
Strategic Buyers
The vast majority of deals are undertaken by strategic buyers. Accounting networks have historically been major acquirers, but listed trade
buyers are becoming more aggressive, benefiting from rising quoted valuation metrics.
Quoted Valuation Metrics of Listed Consulting firms
(2007 to 2016)
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Private Equity
Private equity are enthusiastic investors in consulting firms and have substantial capital available to allow you to grow and reach new
markets and geographies.
PE capital raise: Consulting-focused
(2007 to 2016)
Consulting M&A by Private Equity buyers
(2007 to 2016)
0
25
50
75
100
$0
$20
$40
$60
$80
$100
$120
$140
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Billions
Capital Raised Fund Count
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Considerations for selling your business
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As the owner of a consulting firm, strategic and private equity buyers will offer you different opportunities. Ensuring you pick the
right partner is key, but how do you know which one better fits your exit goals.
Private Equity Strategic Buyers
Evaluating your
business and the buyer
Standalone growth potential Synergy potential
Cash-generation capability Integration and cultural fit
Opportunities for investing growth capital and further
upside
Access to larger back-office support
Career opportunities for your people
Valuing your business
& deal structuring
Flexible funding options Majority buyout
Financial gearing Mostly funded from earnings
Equity & second bite of cherry Loss of control for cash and earn-out
Due diligence
considerations
Efficient and disciplined Longer period (if not serial acquirer)
Rigorous financial analysis and market
diligence required
Potential regulatory issues and anti-trust considerations
Validating growth plan & exit planning Validating synergies and cultural fit
Post-deal
considerations
Brand retention Integration / Loss of brand
Periodic RoI reviews Periodic reviews of earn-outs
Bolt-on opportunities and organic investment
Long-term growth plan
Exit after investment hold period
One note of caution - these are typical buyer characteristics, but remember that all buyers are unique
and cannot be completely categorized.
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Evaluating the opportunities from each buyer
Strategic buyers offer you the opportunity to generate cross-selling revenue opportunities, and financial buyers offer you the opportunity to
deploy growth capital, which can be used to expand your business
Expert strategic advice, market access through relationships and help you
enter new markets or geographies.
Retention of your firm’s identity and brand.
Flexible ownership and more growth options, with a potentially bigger
pay out.
Immediate synergy opportunities with respect to cross-selling a broader
set of services and products to existing clients and winning new clients.
Integration and cultural fit are paramount to enable joint working.
There are staff development and career progression opportunities for your
people.
A global platform to service international clients. You will also have access
to a larger firms back office support and structure straight away.
A private equity buyer could offer you…
A strategic buyer could offer you…
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How the buyer will evaluate your business
Private equity will use more quantitative performance measures as often the qualitative measures used by strategic acquirers isn’t relevant to
a financial buyer.
Blend of qualitative versus metrics used to evaluate acquisition opportunities
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Private equity KPI expectations and target valuation metrics
How the buyer will evaluate your business
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Buyer research highlighted that private equity take a
discerning approach to evaluating business performance and
focus more on evaluating the strength of a consulting firm’s IP
LBO modelling / IRR used by financial buyers, DCF / NPV
analysis used by strategic buyers
Private Equity target businesses that have strong management, robust long term drivers for growth and barriers to entry that are maintained
by proprietary expertise, retained and leveraged through scalable Intellectual Property
Note: Data reflects average responses. The responses relate to questions on the minimum
acceptable KPIs required and the target valuation metrics for an investment.
Strategic buyers Private equity
Annual revenue growth rate (%) 11% 14%
Gross margin (%) 44% 52%
Revenue per employee ($k) 269 370
Utilization (%) 66% 71%
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Approach to valuing your business
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Although private equity cannot extract the synergies available to strategics, they often have a more rapid value creation plan than
most strategic buyers, which can enable them to be competitive on pricing for the deals they really want to do.
The value you can achieve for your consulting firm is dependent upon properly positioning the value of your
business within the lens of a prospective buyer.
Average targeted current year Enterprise Value / EBITDA multiples by buyer group
11. Strictly Private and Confidential© Equiteq 2016 equiteq.com
Approach to deal structuring
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If you are looking for a definitive exit from your business within a shorter time period then a strategic buyer will enable you to exit
the business faster, with a pay-out upfront and an earn-out over 2 – 3 years
Strategic Investors
Private Equity
Majority buyout
Smaller and midsized deals funded from earnings
Loss of control
Deal structured with a combination of cash upfront, fixed deferred payments and an earn-out
Flexible funding options – minority and majority recap
Financial gearing
Management retains equity
Entrepreneurial management team has a “second bite of the cherry” to gain more upside
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Approach to due diligence
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Private Equity can act more swiftly and flexibly through a sale process as compared to a strategic buyer with limited M&A
experience. Strategic buyers will want to see that your capabilities are unique and enabled synergies with their own.
Strategic Investors
Private Equity
Pre-existing knowledge of target company’s industry
Focus of due diligence will be on validating potential synergies and cultural fit
Regulatory issues e.g. audit restrictions for accounting buyers
Anti-trust considerations for larger deals
Need for gathering intelligence on the industry if no prior or existing platform investments in the space
Focus of due diligence will be on raising finance, assessing external growth opportunities, cash flows, management and
potential exit routes
Expect rigorous financial analysis
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Post-deal considerations
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Private equity will have significant influence on your strategic decisions and direction of growth. Strategic buyers will have an
earn-out period, for which the first hundred days after an acquisition are critical
Strategic Investors
Private Equity
Business operations are eventually integrated into the buyer to enable synergies
Periodic reviews of earn-outs
Business is considered on a long-term basis
Business independently operated and brand retained
Management subject to periodic financial and performance review - cashflow management crucial
Bolt-on opportunities to be considered
Exit after investment hold period of c.3 to 5 years
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More resources
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Notes de l'éditeur One note of caution is that all buyers cannot be neatly categorized. Sometimes “strategics” are just looking to boost their earnings and end up acting like financials. Other times, “financials” already own a company in your space and are looking to make strategic add-ons, so they’ll evaluate your business more like a strategic. By understanding the motivations of the buyer, you can understand how they’re determining your business value. Refer to Core project and buyers research – due out next month