Five Steps To Get Your Consulting Business to Market

The consulting M&A market has completely transformed over the past five years, with dramatically increased demand driven largely by private equity. When we founded Clearsight in 2011, only a handful of private equity firms considered investing in a professional services business. Today, there are hundreds of private equity firms looking to invest in the sector, and corporate acquirers have ramped up their activity to keep pace. This multi-faceted increase in demand has pushed values higher, at times represented by EBITDA multiples 2x where they were five years ago. We expect the current level of heightened M&A activity in the sector to continue through 2025 and beyond.

For business owners evaluating a potential sale transaction, there are a few steps you can take before going to market to make the process more seamless, maximize the number of interested buyers, and ultimately, drive value for you and your shareholders:

1) Support Leadership Development: We see many founders of consulting firms who lead fantastic businesses, have meaningful industry and client relationships, and are truly exceptional at what they do. The problem? They haven’t developed their next generation of leadership. Acquirers are often spooked by key-man risk. To avoid this common pitfall, diversify key-man risk by mentoring the next layer of leadership and having them lead the management of client accounts. Proper incentive mechanisms and opportunities for growth can inspire employees to step up and share the responsibilities of company leadership. Buyers also prefer to see equity ownership beyond the founder, which can be effectively used to incentivize the firm’s future leaders.

2) Invest in Infrastructure: It can be tempting in a consulting business (especially when preparing for sale) to boost the company’s profitability by hiring only billable employees. However, it is important to build a “well-oiled machine” and repeatable business processes. Firms need adequate infrastructure – HR, finance, marketing, recruiting, and training; access to databases and other tools; and proprietary processes – to do their best work. By investing in the processes that make a business run smoothly, the jobs of billable employees can become highly repeatable, efficient, and in turn, more profitable. Building the appropriate infrastructure is a critical piece of the puzzle to stand out to buyers.

3) Have a Clear Company Vision: Consultancies often undertake a wide variety of projects for the sake of revenue. As a result, their portfolio of services and solutions can be confusing to acquirers. It can be beneficial to streamline the company’s service offerings to focus on its strengths and organize the business accordingly. It can also be helpful to retool the sales strategy and financial reporting to mirror the firm’s service offerings, so the market can clearly understand the company and its strengths.

4) Enhance Brand and Market Awareness: Brand and market awareness is becoming increasingly important in a sale process. It provides tangible value – and acquirers frequently pay more for it. There are a few ways to boost brand and market awareness in a relatively short timeframe:

1. 1. Apply to industry lists and reputable awards – whether it is in Forbes or a local business publication, getting the company’s name published demonstrates market leadership and awareness.
   2. Modernize your web presence – an easily navigable and interesting website is extremely valuable in today’s digital world.
   3. Create content – thought leadership, such as blogs, whitepapers, and webinars, offer a great way to demonstrate the company’s innovative thinking and sector expertise.

5) Get Serious About Company Culture: Consulting businesses are all about human capital. Established promotion criteria, utilization and “burn-out” monitoring, community impact initiatives, continuing education, and competitive compensation packages can help a firm hire and retain best-in-class employees while establishing the firm as a premier consulting business.

We hope these tips are helpful as you think about building your firm for 2025 and beyond. Reach out to the Clearsight team to discuss more on preparing your consulting business for transaction.

Contact Greg

Greg Treger

Co-Founder and Managing Director, Clearsight Advisors
Washington, DC
gtreger@clearsightadvisors.com

This article is based on an original blog published in January 2020.