Consultancies needing help on building value or exit strategies are seeking professional expertise, says our management consultancy columnist Mick James. He talks to David Bailey about how he advises such firms during key transitions.
But who will advise the advisers themselves? The question of how well – or how badly – consultancy firms manage themselves has always been a source of amusement to me but there are signs that the industry is increasingly moving away from the cult of the gentleman amateur and beginning to bring in professional expertise wherever it can have the most impact.
One of the drivers behind this trend has been the increasing awareness by consultants of the need to both build up value in the business and have some sort of exit strategy. So it’s no surprise that someone like David Bailey, who grew and then sold his consultancy business Impact Plus to Hitachi in 2007, finds himself in demand.
Since stepping down from Hitachi, Bailey has pursued a number of projects including advising a number of consultancy firms during key transitions.
“There has to be a specific objective,” he says. “If people say something like ‘it would be really interesting to have a sounding board’ then that’s not interesting enough in itself.”
Bailey says the work he has been doing has fallen into three broad categories: the first is turnaround:
“One firm had gone for growth but had ended up smaller than they were before yet with all the costs of where they wanted to be,” he says. “Another was geared up for an avalanche of work that wasn’t closing – they had all these sales opportunities but they were hanging around for ages.”
In both cases, the answer was a more focused approach – in one firm stripping out underperforming areas and reducing the number of sectors served, in the other ensuring sales leads were properly qualified and making sure that marketing was aligned to what the firm actually excelled in.
This theme is reflected in the second area Bailey works on which is making growth happen: an IT services firm had a resolutely flat turnover despite – or perhaps because of – having products that appealed to a broad range of companies. By replacing a scattergun approach with a concentration on three key verticals the firm was able to grow turnover by leaps and bounds and is now readying itself for sale at a greatly increased valuation.
Which brings us to the third area – mergers and acquisition. This is an area where consultancies often manage to be ruthlessly destructive of value. As well as acting for the marriage of equals, Bailey has helped a Big Four firm on the acquisition trail as well as a small firm looking for a trade buyer.
“I don’t mind whether I work at the tiny end or the global end,” says Bailey. “So long as there’s something interesting and valuable to do.”
This work is informed by his experiences selling his own consultancy: post acquisition Impact Plus grew by 55% in the next 12 months, which shows the value the right acquisition can deliver to a buyer.
“It was the same people selling broadly the same things, so what changed?” he says. “There were some tender questions about balance sheet that were easier to answer, an established global brand helped certainly but there was also more confidence within the team about being able to make bigger decisions.”
The sale was good for Impact Plus.
“The timing was perfect – a few months before Lehman Brothers,” he says. “If we’d sold earlier – like five or six years earlier – we’d have probably got more but that was because consultancy was valued more on revenue multipliers back then.”
More sophisticated buyers have transformed the way consultancies are bought and sold:
“Before the downturn, buyers would look at a consultancy firm and ask what have you done, where are you positioned, how can I as an acquirer make use of you,” he says. “Now it’s all about how you are positioned and what you are doing going forward – the past is largely irrelevant.”
Consultants who are thinking of a sale need to change their mindsets towards having a demonstrably solid and predictable future – “you almost have to prove the numbers” –and also avoiding some common mistakes. One of these is opening an office outside the UK when it’s not justified.
“People follow a client abroad, but how many consultancy firms have a truly global relationship with a client,” says Bailey. “Less than a dozen. The same with propositions and sectors: I ask people, ‘how many differentiated offers are you dealing with? As, say, a 50 person firm, how many could you handle?’”
Bailey says that this is a tougher time than ever for people trying to set up and grow a small consultancy firm:
“People come out of KPMG or Ernst & Young and set up a firm but they never quite realise the length of time they have to go without taking a salary,” he says.
The key to success – it should come as no surprise – is a relentless focus:
“The ones that are making it are the ones that realise you have to be a legend in your own lunchtime,” says Bailey. “You have to get known for that one thing really fast and only sell that – as soon as you start doing something else you quickly become just another generalist – why would people want to buy from you?”
All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.
Contact Mick with your views or suggestions at: firstname.lastname@example.org