how can you smash the growth glass ceilings?

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


To what extent do you feel confident of growing your firm in a smooth

trajectory at 10-20% p.a.?


What are the 5 stages of growth and the areas for focus at each stage?

Agenda

4

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?


Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

What are the 5 stages of growth in building a firm with equity value?


Percentage of firms that reach each stage

83% 12% 4%1%

£5m £10m £20m


Stage 1

7

Focus on getting

your value proposition

clear



Stage 2

8

Focus on scaling the business



Stage 3

9

Focus on delegating authority

to individual practices



Stage 4

10

Focus on coordination of resources



Stage 5

11

Focus on collaboration

between consulting practices



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?


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


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


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


How do you create a smooth growth trajectory?

Market Proposition

IntellectualProperty

Quality ofFee Income

Sales &MarketingProcess

ConsultantLoyalty

ClientRelationships

Sales &Profit Growth

ManagementQuality

EquityGrowthWheel


Identify which levers are driving equity value up, and dragging it down

Key Market

Proposition




ConsultantLoyalty

ClientRelationships


ManagementQuality

EquityGrowthWheel

Driving value up

Dragging value down


Make sure you have a Unique Value Proposition (UVP) that fits the current market environment

Market Proposition




ConsultantLoyalty

ClientRelationships


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:


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


Make sure your target audience is aware of your expertise and invest in lead generation and sales

Market Proposition




ConsultantLoyalty

ClientRelationships


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:


“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




ConsultantLoyalty

ClientRelationships


ManagementQuality

EquityGrowthWheel

Impact on equity values


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



Different stages encounter different types of crisis

Founders’ Crisis

Autonomy

Control

Red Tape

Management Talent


Stage 1: Mitigating the leadership crisis

24

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


Stage 2: Mitigating the autonomy crisis

25

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)


Stage 3: Mitigating the crisis of control

26

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?)


Stage 4: Mitigating the crisis of red tape and bureaucracy

27

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!


Stage 5: Mitigating the crisis of talent

28

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


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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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


Contact [email protected] resources are available at www.equiteq.com/equiteq-edge

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Growing equity, realizing value

UK +44 (0)203 651 0600USA +1 (212) 256 1120Singapore +65 6352 7482Email [email protected]

www.equiteq.com

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