14 Oct A few principles of M&A.
I’m always pleased when I read an M&A survey that mirrors our experiences in the market. It’s a validation of sorts that the trends we see are corroborated by others. M&A, as one scribe put it, is one of the most unnatural acts in business, and it’s good to know there are certain principles that anchor the often exasperating process of conducting a successful M&A.
This latest survey was sponsored by Equiteq, an advisory and M&A firm focused on the global consulting market. It was conducted by an independent research firm that interviewed 100 senior managers responsible for acquisitions for accounting, engineering, management, IT, and other types of consulting firms in North America, Europe and Asia.
While this research goes well beyond the market in which we work – that is, primarily domestic-based, small to midsize IT services firms, with revenues in the $5MM – $50MM range – the findings are consistent, for the most part, with what we experience.
Here are a few of the key findings:
- Deal appetite is very much on the rise. Buyers of consulting firms are anticipating a 6% plus growth in deals over the next two-three years.
- Among these companies 47% expect their source of growth to be equally driven by organic and acquisitive strategies; 29% mostly by acquisition; 14% mostly by organic growth.
- The top three factors that strongly attract buyers to a consulting firm are, 1) historical and projected financial stability, 2) depth of domain expertise in one main service area, as opposed to having a broad range of services, 3) possession of unique and leverageable intellectual property.
- The top three factors that deter buyers from acquiring a consulting firm are, 1) a poor cultural fit, 2) diversity of service offerings. The broader the spectrum of services, the less likely they are to be interested, 3) poor growth and profitability.
- Prolific buyers (more active buyers) get their deal opportunities via third-parties, and 38% with their own internal M&A teams.
For those of you who have been following us, you know by now that we have long been an advocate of many of the principles outlined by this survey. Chief among them are:
- Growth in the IT services market, I mean serious growth, necessitates a dual organic and acquisitive growth strategy,
- Both technology buyers and consulting firm buyers value IT services firms that specialize, with a “depth of domain expertise in one main service area”,
- Future attractiveness to both technology buyers and consulting firm buyers will come from your ability to successfully create and market IP offerings that flow naturally out of your specialized expertise,
- The hierarchy for acquisitive evaluations are, in order, a) strategic fit, b) cultural fit, and c) financial fit.
For IT services firms with an ambitious growth appetite, an M&A strategy has to be one of your top priorities. Getting it done right goes a lot smoother following these key principles.