Profit from your hidden IP

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Intellectual Property (IP) is the primary asset and source of profit for people businesses like consulting.

In a consultancy, IP refers to the knowledge, experience, tools, techniques, case studies, training materials, client lists, relationships and similar assets that belong to your firm. However, in more cases than not, these assets exist in the minds and on the computers of individuals within your firm. Unless IP is securely imbedded internally, this poses risks to your business: if the individual leaves your assets leave too!

There are three main benefits of building IP into your firm:

  • Speed up growth
  • Increase competitiveness
  • Build equity value

Speed up growth

Faster growth is achieved through leverage. Leverage occurs because knowledge can be packaged into consulting tools used in delivery processes. This makes it easier to induct new consultants and reduces reliance on senior consultants by enabling junior consultants to deliver at a repeatable level of high quality to the client, which in turn, delivers higher project profitability.

Increase competitiveness

By utilizing the knowledge and experience from senior consultants, you should produce publications that expose your content to a wider audience and consequently, increase credibility within your space. Additionally, if you package content into consulting delivery tools it will increase client reliance on your IP and make it harder for your competitors to encroach on your relationships. There is something very elegant about increasing client dependency on your firm and reducing your reliance on senior consultants in the process.

Build equity value

If you are considering selling your firm, building IP internally removes growth constraints and induces scale-ability, which results in an increase of equity value. Your buyer can take what you do with 50 consultants and quickly leverage your process to 1000 consultants in new clients and markets. Additionally, by extracting the knowledge from your staff it reduces the fear that buyers may have of your employees leaving your firm following the acquisition, taking clients and methods with them. Losing key staff is less of a threat to the buyer if IP is securely imbedded into the fabric of your firm prior to acquisition.

How can you capitalize on your IP?

Setting up an effective IP development and management process that harnesses knowledge and utilizes it both internally and externally is vital. This could be in the form of case studies for marketing purposes or publications directed at your target audience to build credibility.

The most important driver to capitalizing on your IP however is to package it into consulting delivery tools that provide the leverage discussed earlier.

If standardization isn’t firmly imbedded within your firm, the opportunity for inconsistencies may appear. The goal is to create tools using scale-able technology that results in a more efficient delivery of client projects, which in turn, produces consistent results.

These tools should ideally:

  • Combine wisdom of the firm into one set of diagnostic questions
  • Act as a knowledge base for supporting content for consultants and clients
  • Be easily implemented using online technology
  • Link the gap between current performance and potential to a cost or value

IP is one of our 8 Levers of Equity Value. The 8 levers contain 80 of the most important measures that a sophisticated buyer would look at to evaluate the risk in your business. Read our article to find out more.

Consulting Sector M&A Deals for week beginning 8th September

businessman doing handstand on the beachVertex Resource Group Ltd. (Canada) acquired Navus Environmental Inc. (Canada)
Deal Size: Unspecified Industry: Environmental consulting Date: September 2014
Vertex Resource Group Ltd. is pleased to announce that it has acquired Navus Environmental Inc., an environmental consulting firm servicing the oil and gas and mining industries, within Alberta, British Columbia and Saskatchewan. Navus employs over 100 professionals from its offices in Edmonton, Alberta, Fort McMurray, Alberta and Fort St. John, British Columbia. Founded in 2005, Navus is an industry leading environmental consulting firm specialising in remediation, environmental planning and reclamation. In addition to these core services, Navus’ professionals also specialise in spill response, hydrogeology, soil mapping, peat harvesting, botany, revegetation/restoration planning, wildlife, aquatics and geomatics. Terry Stephenson, President of Vertex stated: “In addition to complementing Vertex’s already well-established land and environmental consulting services, the acquisition of Navus will greatly enhance our service offerings and technical expertise in the oilsands and mining industries. We are really excited about the talented Navus management and staff that will be joining our organisation and believe this will be a very transformational acquisition for our environmental consulting practice; allowing us to better serve both of our customer bases. Cultural fit was a major deciding factor for both Vertex and Navus in contemplating this partnership. Navus has a well-respected reputation for superior customer service, innovation, teamwork and collaboration which aligns well with the culture at Vertex.” Vertex Resource Group Ltd. provides consulting, construction, and rental services to oil and gas, mining, utilities, infrastructure, and real estate sectors primarily in Alberta and Western Canada.

Ryan, LLC (USA) acquired Definitive Consulting Services (Canada)
Deal Size: Unspecified Industry: Management consulting / Strategy Date: September 2014
Ryan, a leading global tax services firm with the largest indirect and property tax practices in North America, announced that the Firm has acquired Definitive Consulting Services. The acquisition adds a team of experienced Canadian tax professionals to provide additional knowledge and client support that strengthens the Firm’s industry-leading Canadian Sales Tax practice. It also adds a large complement of respected Canadian companies to Ryan’s portfolio of clients across North America. “Ryan and Definitive clients will benefit tremendously from the unparalleled tax knowledge, expertise, and commitment to client service that our newly combined team of Canadian tax professionals will provide,” said Garry Round, Ryan President of Canadian Operations. “This acquisition launches a new phase of Canadian growth and market leadership for our Firm, and the professionals of Definitive will play a key role in our future success.” Ryan & Company, Inc. provides tax consulting services.

WorleyParsons Limited (Australia) entered into an agreement to acquire MTG, Ltd. (USA)
Deal Size: Unspecified Industry: Management consulting / Strategy Date: September 2014
WorleyParsons is pleased to announce an agreement to acquire MTG, Ltd. MTG is a US based management consulting firm in the oil and gas, petrochemicals and chemicals industries with operations in North America, the United Kingdom and Australia. MTG specialises in improving operational performance across every aspect of the exploration and production, midstream, refining and marketing, petrochemicals and chemicals industries. The company has a 30 year history of providing strategic management advice and will provide Advisian, WorleyParsons’ advisory business, with deep strategic skills in business transformation. David Henderson and Jim Nichols, partners of MTG, Ltd said: “On behalf of the MTG organisation, we are very excited to join Advisian and the WorleyParsons Group. The combined capabilities and resources of our two companies will enable us to broaden the services that we provide to our clients as well as expand our geographic footprint.” MTG, Ltd. provides consulting services for projects across various aspects of the exploration and production, midstream, refining and marketing, petrochemicals, and chemicals industries worldwide. WorleyParsons Limited provides professional services to the resources, energy, and industrial sectors. Continue reading

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.

Equiteq sells Finnish consulting and market intelligence firm

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We are pleased to announce the sale of our client, Global Intelligence Alliance Group (GIA), to M-Brain.

GIA is a strategic market intelligence and advisory group, formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

M-Brain is a European based information services company with offices in seven countries. M-Brain offers media and business intelligence solutions, analytics and consultation services, as well as online intelligence tools and technology to bring insight into its clients’ business environment.

“GIA is an exceptionally well-managed business” said Dan Bowtell, the Equiteq lead advisor to GIA. “Since inception, it has been at the forefront of development in strategic Market Intelligence. GIA’s unique, high quality services generated significant interest in the business, particularly from overseas acquirers. However, M-Brain provided the most compelling deal. The combination of two businesses creates a group with complementary global operations and substantial future growth opportunities.”

Commenting on the growth and sale process for GIA, Markko Vaarnas, CEO and co-founder of GIA said: “This process started a year ago with a consulting project during which Equiteq helped our management team to identify the value growth levers for our business. Looking back, the decisions we made at that time proved to be highly valuable and we were able to boost our profit growth significantly. This had a major impact on the way we presented the company in discussions with prospective acquirers and ensured we achieved a successful outcome for all shareholders.”

Following the sale of Equiteq client ACE International to AECOM, this latest successful sale is further evidence the market is turning a corner and that 2014 is likely to see significant growth in volumes and prices, as our Global Consulting Mergers & Acquisitions Market Report 2014 suggests.

We have extensive resources that provide information as to what firms can do to make themselves attractive to buyers in the Growing equity value in your business section within our online resource, Equity Edge.

Consulting Sector M&A Deals for week beginning 1st September

businessman doing handstand on the beachPublicis Groupe SA (France) acquired Nurun, Inc. (Canada)
Deal Size: $114.4 million Industry: Marketing consulting Date: September 2014
Publicis Groupe has acquired Nurun, an independent global design and technology consultancy, from Quebecor Media for 125 million Canadian dollars, or about $114.4 million at the current exchange rate. The acquired firm has two divisions including Nurun Global, which offers strategy, design, ecommerce and technology services worldwide. Nurun IT Consulting Services has one big client: the Quebec Provincial Government, for which it provides IT outsourcing and system integration services. “The acquisition of Nurun is another step forward in strengthening our world-class digital operations, and position as The Human Digital Agency,” said Maurice Levy, chairman and CEO of Publicis Groupe. “Nurun’s expertise, based on a combination of design and new technologies, will not only bring widely recognized talent and capabilities to our clients, but also strengthen Publicis Groupe’s digital global presence.” Nurun, Inc., a global design and technology consultancy, specialises in digital design and technological innovation. Publicis Groupe SA provides a range of advertising and communications services worldwide.

Willis Risk Services Limited (Ireland) to acquire Irish Pension and Advisory Business from IFG Group plc (Ireland)
Deal Size: Unspecified Industry: Management consulting / Strategy Date: September 2014
The Board of IFG Group plc (“IFG”) is pleased to announce that it has signed an agreement for the sale of its Irish pension and advisory business to Willis Ireland, part of Willis Group Holdings. Paul McNamara, CEO of IFG Group, welcomed the agreement saying “The newly combined business, backed by the global scale and presence of Willis, represents a compelling opportunity for our colleagues and enhanced services for clients. This transaction is consistent with our strategy to focus on the continued growth and development of James Hay Partnership and Saunderson House. The sales proceeds will further strengthen our balance sheet and facilitate investment in these businesses. IFG is now a more sharply focused Group with well-positioned businesses and the resources to pursue increased growth in our core markets.” Willis Risk Services (Ireland) Limited provides insurance and re-insurance brokerage, pensions, actuarial, and risk management consulting services. IFG Group plc, Irish Pension and Advisory Business represent the combined operations of IFG Pensco Limited, IFG Private Clients Limited, Planlife Trustee Services Limited, Retirement Strategies Ltd, and Trade Credit Brokers Ltd. IFG Pensco Limited provides pensions consultancy and administration services. IFG Private Clients Limited and Retirement Strategies Ltd provide financial advisory services. Planlife Trustee Services Limited operates as a professional trustee company. Trade Credit Brokers Ltd. provides trade credit insurance brokerage services.

IHS Inc. (USA) acquired PCI Acrylonitrile (UK)
Deal Size: Unspecified Industry: Management consulting / Strategy Date: September 2014
IHS Inc., the leading global source of critical information and analytics, announced it has acquired PCI Acrylonitrile, a strategic provider of chemical market insight and consulting services for the global acrylonitrile and derivatives industry. The acquisition of PCI Acrylonitrile further deepens and strengthens the existing IHS Chemical global market coverage in the commodity and engineering plastics and fibers sectors. Together with the expertise and insight offered by IHS in the areas of aerospace, electronics and automotive, the addition of PCI Acrylonitrile demonstrates the company’s commitment to providing leading information, insight and consulting capabilities across the entire spectrum of the chemical to end-user value chains. “The acquisition of PCI Acrylonitrile is a tremendous addition to our industry-leading chemical market advisory service covering the fibers and plastics businesses,” said Scott Key, IHS president and CEO. “The acrylonitrile analysis, combined with our IHS Chemical olefin, propylene market and special reports coverage, as well as the upstream market coverage we deliver at IHS, will provide unparalleled integrated analysis that is essential to our customers. We are excited to welcome Simon Garmston, who is recognized globally for his expertise in this highly specialised, but strategically important and growing chemical market.” IHS Inc. provides critical information, insights, and analytics worldwide. Continue reading

Who should you trust?

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It is very tempting to surround yourself with advisors with whom you are comfortable. But are they the right people to help you grow and/or sell your consulting business?

When in search of advisors for your firm, one of the first places you are likely to look is in the non-executive director community. Another may be through a previous client relationship. There can be benefits to using these types of advisor but you also run the risk of surrounding yourself with people that don’t have the relevant experience to help you grow your consulting business.

For example, in the non-exec director community most are likely to have worked in large corporates. They will be able to offer very good advice on matters such as corporate governance but this isn’t applicable to an entrepreneurial consulting firm looking to grow quickly.

Similarly, how useful is someone from within a client community? If they have previously held a senior-level position and now have a portfolio career, have you taken them on to your board because of your previous good relationship, or because their rolodex can deliver you new business?

Both types of advisor can charge from £30-£60K to attend anywhere from 4-12 board meetings a year. Does this offer you good value?

There are cases when such contacts do work but this is when there is a rotation system; an advisory board is refreshed every couple of years, and there is a strong financial advantage to having each member through the contacts they offer you.

The advisor you will most benefit from understands the growth issues of a small consulting firm; knows how to bring in the next big piece of business; anticipates problems, and draws on previous experience to solve them.

So yes, trust is important but just one element of what you need. The right experience is essential and what you should be looking for in an advisor that offers you and your firm value.

Consulting Sector M&A Deals for week beginning 25th August

businessman doing handstand on the beachNational Financial Partners Corp. (USA) acquired Benefit Resources, Inc. (USA)
Deal Size: Unspecified Industry: HR consulting Date: August 2014
National Financial Partners (NFP) has acquired US insurance consulting and brokerage firm Benefit Resources, for the expansion of its corporate client group business in the country. Established in 1988, Benefit Resources offers group benefits, HR and benefit compliance, benefit administration and individual insurance services. NFP expects the acquisition to expand its corporate client group in Midwest. NFP chairman and CEO Douglas Hammond said that Benefit Resources has deep expertise, which will continue the firm’s growth in employee benefits and corporate services. NFP corporate client group president Ed O’Malley said: “Benefit Resources brings over two decades of employee benefits and HR expertise to our team, further strengthening NFP’s ability to provide superior services to our business clients.” NFP offers advisory and brokerage services to companies and high net worth individuals through the benefits, property and casualty and life insurance and wealth management businesses. The company operates in three business segments, corporate client group, individual client group and advisor services.

Ernst & Young Global Limited (UK) agreed to acquire Net Balance Management Group Pty Ltd. (Australia)
Deal Size: Unspecified Industry: Management consulting / Strategy Date: August 2014
Professional services firm, EY (formerly Ernst & Young) is set to acquire Net Balance, one of Australia’s largest sustainability consulting firms. Net Balance was founded in 2006 by Terence Jeyaretnam, who said the organisation was looking forward to joining EY. “The combined EY and Net Balance team will clearly be the largest sustainability service provider in Australia with deep technical expertise and experience. Joining our colleagues at EY is very exciting as it will present both our clients and our staff with significant opportunities especially as we look to expand into new markets and broaden the range of services, projects and initiatives we can offer,” Jeyaretnam said. “This acquisition will further strengthen EY’s ability to service our clients across all areas of sustainability and climate change, particularly social, supply chain, energy and sustainability advisory services,” EY Asia-Pacific Climate Change and Sustainability Leader Mathew Nelson said. Net Balance Management Group Pty Ltd. provides sustainability advice, assurance, and research services in Australia. Ernst & Young is a multinational professional services firm.

Smart Employee Benefits Inc. (Canada) to acquire Paradigm Consulting Group (Canada)
Deal Size: $15.7 million Industry: Management consulting / Strategy Date: August 2014
Smart Employee Benefits Inc. is a technology company providing, via a SaaS business model, “business processes software solutions and services” to corporate and government clients with specialty practices focused on “managing group benefit solutions and health claims processing environments.” SEB, through its wholly owned subsidiary SOMOS Consulting Group Ltd., is pleased to announce it has entered into a letter of agreement to acquire Paradigm Consulting Group Inc. and PCGI Consulting Services (collectively referred to as “Paradigm”). Paradigm is a strategic acquisition for SEB, bringing significant government and corporate client relationships along with technical skills and expertise, which allow SEB to compete more effectively in Western Canada, particularly in the areas of healthcare and benefits administration and adjudication. SEB has made significant progress in developing a presence in Western Canada and Paradigm consolidates SEB’s strength, providing local presence and delivery capability to service and manage important client relationships in this marketplace. The purchase price of Paradigm is up to $15,793,436, made up of firm consideration of $13,427,864 and additional consideration of up to $2,365,572 if certain performance targets are achieved.

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