Next year is shaping up to be a very strong year for M&A activity in the Knowledge Economy. In order to assist your preparation for 2021, take a look at our M&A Preview, in which we discuss the following eight key trends:
- The adoption of digital is accelerating
- Emerging technologies are being commercialised rapidly
- There is a convergence across the sector and delivery models are blending
- Private equity participation in the knowledge economy is increasing
- Next-generation technology platforms are emerging
- Vertical software solutions are playing an increasing role
- Buyers are returning to nearshore locations for access to new skills
- Shareholders are aligning expectations and addressing structural risks
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Six percent growth rate in deals expected over next few years
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Cultural fit is the biggest deal breaker for buyers
Nearly a third of the 100 senior buyers of consulting firms that were surveyed* said they expected their growth to come through acquisitions rather than organically and an equal number are seeing more opportunities to buy than last year.
There is certainly money to spend too. The average budget over the next year for those doing two acquisitions or more is $90m and for those doing one acquisition it is $35m. Nearly one in six of the buyers surveyed have budgets in excess of $100m.
“This is undoubtedly a good time to sell,” says Paul Collins, Managing Partner at Equiteq. “The challenge for sellers is to get on the radar of the companies who are most likely to buy their business and have the type of money to spend that meets their expectations. They also need to make sure that their first approach to a potential buyer is well researched and thought through as they may only get one chance.
“Selling your consultancy is not an easy journey. Of all qualified opportunities looked at in the early stages, just 18 percent get to a non-disclosure agreement (NDA) stage and just two percent receive a Letter of Intent from the buyer.
“For buyers, it’s a more competitive market. The more prolific buyers will have the combined advantages of greater deal experience and larger budgets. Less experienced buyers will therefore need to make use of all the tools and advice at their disposal to remain competitive,” adds Collins.
‘Cultural fit’ and a ‘diverse set of services’ are the biggest deterrents to a deal. The most attractive factors are ‘financial stability’, ‘deep domain experience’ and ‘leveragable IP’.
“Careful strategic planning is crucial: its vital for sellers to build their core services, defining who they are selling to and clarify their proposition. The number one deal breaker is cultural fit. Both buyers and sellers need to work together to establish if there is a good fit in the early stages to avoid wasting a lot of time,” commented Collins.
©Equiteq Ltd 2014