Deals are cut pretty quickly; it’s that first impression thing. It’s the due diligence and the legals that take the time. So here are the few basics that you need to get right before you seek a buyer – how do you stack up?
Beaton Capital analyses M&A transactions of professional services firms globally, covering consulting and environmental engineering, architects, project managers, management consultants, law firms, IP attorneys and other professions.
Whilst there is a wide range of transaction size, the most active relevant to our constituency are those firms with revenues in the $15m – $40m range that demonstrate deep expertise, are financially stable and demonstrate steady predictable growth.
Below is a summary of the core criteria being sought by acquirers – does your firm make the cut:
✓ Revenue > $15m (otherwise deemed sub-scale)
✓ Growth > GDP and the industry average (so taking market share)
✓ Gross margin ≥ 50% (after normalized partner costs)
✓ EBIT ≥ 20% (after normalized partner costs)
✓ Cultural fit (it is what it is, you can’t change it to suit, be clear of your values)
✓ Focused deep expertise (the market is clear of your purpose and what you stand for)
✓ Leadership (broad spread and intergenerational)
✓ Capability bonding (balance of employees relative to contractors)
But in terms of what is a priority to an acquirer, these are the top four:
- Cultural fit – culture is a given, it cannot be changed to suit a buyer, so a vendor must seek out an acquirer that fits its culture, this is the first thing both a vendor and acquirer will seek to address.
- Focused deep expertise – creates a point of defensible differentiation and not only avoids the commodity trap but provides a platform for premium pricing.
- Profitable growth – demonstrates a growing market, probably increased market share, strong management and a stable business model.
- Leadership in place – most acquirers want to harness existing leadership talent, not replace it. So prove the vendors can remain as leaders for two to three years post-sale.
So take the test and see how you are placed, are you fundamentally sale ready? Or is there more work to do?
Interested in knowing more? Register using the button below to attend our beatonlive Growth, Ownership & Exit Strategies Conference on 14 May 2015 in Sydney.
Other related blogs and thought leadership from Beaton Capital can be found here:
- Whose interests are served by M&A in consulting?
- Valuation and price are not equal
- Selling the firm – does size matter?
- How much is my firm worth?
- 20 questions to test your resolve: do you really want to sell your firm?
- Succession: trade sales – gain, pain, both?
- Takeaways from a recent sell mandate – points to consider when it comes to selling your firm
This post was written by Warren Riddell, of Beaton Capital and Beaton Research + Consulting. Warren’s details can be found at LinkedIn.
Image courtesy of scottchan at FreeDigitalPhotos.net
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