The announcement in the pages of PR Week of yet another consultancy
being bought or merged is enough to make the hearts quicken and mouths
water of those consultancy directors who dream of their place in the
These seamless looking acquisitions or mergers belie the considerable
amount of hard work and general angst that involves not only the
decision to sell but also for the entire gut churning process.
In an industry bedazzled at times by its own image, it is often
difficult for its practitioners to focus on the one true purpose of
being in business - to make a profit and build that profit into a
The fact that it is not obvious in many agencies with incomes below
pounds 1 million whether the directors work as a way of life or as a
means to end causes many of the difficulties encountered in eventually
selling their businesses.
Like most service industries, the practitioners tend to be qualified by
experience rather than by professional training and, whilst there are
some extremely able individuals running both large and small
consultancies there are also considerable numbers of smaller
consultancies run with no clear business plan.
The ideal acquisition is an agency with: a clear market position;
clients under contract; loyal and dedicated staff; talented junior
managers; no lease problems; clean financial accounts, demonstrating
both growth and good cash management; and a principal who either wishes
to exit cleanly or who wants his or her consultancy to be acquired in
order to accelerate the company’s growth.
Unfortunately, many of the smaller consultancies are stagnating and
often do not have a clear market position. Most are prepared to handle
the full gamut of consumer, corporate, healthcare, business-to-business
and technology accounts across a wide range of industry sectors. Many of
their clients are charged at fee levels that, although profitable, would
be deemed uneconomic in a larger organisation.
The agency’s staff have joined because they want to work for a smaller
company and are often unsuited to the strictures of a larger corporate
body. Leases remain a problem hangover from the days when long leases
seemed the sensible option.
Accounts can demonstrate a track record of the business acting as the
personal fiefdom of the principal and can require complete
reconstruction going back several years in order to understand the true
profitability of the business.
Principals having been wedded to their business are often reluctant to
let go, even after agreeing to do so.
Planning the eventual sale of the consultancy business to a larger
consultancy will take several years of preparation in order to truly
maximise the value.
For those who simply wish to sell and depart, the simplest way is to
develop good second tier management which is motivated enough to put
together a management buyout - thus reducing all the problems to simply
agreeing a fair price.
Businesses have to grow or stagnate. Critical mass is an important
factor when client companies are looking to appoint a consultancy. If
selling or merging into a larger firm is the answer for growth in your
consultancy then start planning now. Whilst everyone wins the occasional
pitch the reality is that large firms win most of the time.
Mark Madsen is the chief executive of Macneil, a specialist search and
broking firm and chairman of a group of recruitment businesses