When I ran WCI Group I accidentally grew the firm to £4m in 11 years! Then I climbed aboard what we now call The Equity Growth Wheel and it took only another 7 years to grow to £63m. As the leader of a consulting business there are eight levers you can pull to increase the speed of the wheel and the equity growth of your firm. If you build your strategic business plan around them, then you can ratchet up the value of the firm and your pension fund. Ignore them and you may have to live off your annual income for a long time! So let me tell you all about the wheel and its eight levers of equity value.

There are two uses for The Equity Growth Wheel; we use it as part of our Valuation and Market Risk Assessment process to calculate the valuation of a firm, but it should also be used as a strategic planning tool for equity growth at any stage leading up to sale. If you understand how the model works in a valuation assessment, then you can build a plan to increase value over time. In other words, set your exit goals now and use The Equity Growth Wheel to achieve them.

Many of you will have heard me say this before, but in simple terms your firm is worth a multiple of the last 12 months profit and when someone invests in your firm they’re gambling that profits will continue, or indeed grow over time. Therefore if the market risk assessment is high, then the profit multiple will go down, if it’s low it will go up. The eight levers in The Equity Growth Wheel are used to assess the risk, so if you get them right you’ll drive up your multiple, get them wrong and it will go down.

 

Each lever is an area of opportunity to either increase or decrease the probability of your firm delivering predictable and robust profit growth. By assessing your performance in each lever and giving it a weighted score (some levers are more important to buyers than others), an overall risk factor can be developed. This is then applied to the current multiple for the prevailing market conditions to determine an equity value for your firm. Also, by benchmarking your performance in each, you can create an improvement plan to increase growth and therefore increase equity value relative to profits over time.

So what would a buyer be looking for in a quality firm and what should you be striving for in each lever to grow your equity value?

1. Sales and Profit Growth

Can you show a consistent growth in revenue and profits?

This is the primary driver of equity value and a firm with a track record of erratic revenues and profits sends a concerning message to buyers and investors, so if you can show sustained revenue and profit growth AND high margins, you have an attractive proposition. Before you take you firm to market, you want to be able to demonstrate consistent growth over the last 3 years. Sales and profit growth is a reflection, or an output of your performance in the other 7 levers and the most important factor by far is your Sales and Marketing Process.

2. Sales and Marketing Process

Can you predict top-line sales revenue with accuracy?

If you can then there’s a high probability that you can forecast profits, which is why a quality sales and marketing machine is vital in the valuation equation, because it delivers a healthy business pipeline and de-risks the traditional feast and famine issues often found in consulting firms. If you leave all your sales and marketing activity to a small number of rainmakers, or serendipitous sales opportunities, then you’re hostage to a group of very mobile assets and your sales pipeline will be vulnerable and unpredictable.

Investors want lead generation to be independent of any individual, with automation embedded into the sales and marketing process. A marketing-led firm, where prospects are attracted through a balance of ‘pull marketing’ and ‘push sales’ is more likely to deliver a robust sales pipeline. Overall they want a culture where sales and marketing is seen as an investment and not a cost, and by ‘cranking the marketing handle faster’ you can drive more sales and cash into the business.

3. Market Positioning

Does your value proposition provoke a ‘WOW’ or a ‘so what’?

The more unique, compelling and targeted your value proposition, the better you can demonstrate that your firm can command market attention with greater ease than its competitors and the higher you can push up your fees. If you’re in the ‘me too’ zone, then the risk of future profits is higher because competition risks are higher and you have to fight harder for business. Quality firms with a strong ‘unique value proposition’ tend to have robust processes around such things as market research, competitor analysis and win/loss reviews. Notwithstanding your magnetism to the market, a clear value proposition helps you stand out in the crowd when a buyer is hunting for a firm like yours!

4. Management Quality

Does you leadership team work ‘on’ or ‘in’ the business?

An investor wants to see a balanced, experienced leadership team with a track record of delivering results, working in an environment where they spend more time working ‘on the business’ rather than in it! If this is happening then the firm is likely to be innovative, focused, and tightly managed with good KPI measurement and financial control. If the management style in the firm is right then not only will your buyer see effective processes, but they will also see people willing to go the extra mile when they interview key personnel in the delivery team.

5. Client Relationships

Do you have a well managed contact base and low client attrition?

The quality of client relationship management extends from your account planning methods to the way you nurture influencers, decision makers, dormant clients and old contacts. Good firms employ methodologies like Miller Heiman’s Large Account Management Process (LAMP) to protect and grow strategic accounts; they use a CRM or contact management system to assist in relationship development with individual contacts. Quality processes such as these enhance your ability to acquire, retain and build your client base, increase your revenue per client and improve the quality of your fee income.

6. Quality of Fee Income

Do you have long term contracts and no bad debt?

If a good percentage of your future fee income is locked in through long term contracts (12 months or more) with a number of clients, then you’re in the right place. Investors like to see a diverse client portfolio (not too many eggs in one basket) with fee income growth balanced across existing clients and new business. Add to that a quality approach to billing and debt collection, resulting in zero bad debt and low to zero working capital requirement, then you have a very strong card to play with investors!

7. Intellectual Property

How much IP is in your very mobile people and laptops?

A systematic approach to innovation, knowledge management and IP building will make your firm more valuable because it de-risks the acquisition from the buyer’s perspective. Their vulnerability to losing people post-acquisition is less a threat and it makes the firm more scaleable if IP can be ported to other resources. Also, effective IP development and management improves your market position by raising the height of the bar for competitors.

8. Consultant Loyalty

Can you stop your equity from walking out the door?

There’s no point in winning all those new deals if you can’t provide the skills and manpower to deliver, so you need an environment people want to work in, where they get recognition, reward, personal development and have fun. If you create this environment, then you’ll be more likely to hire the best people to keep your business growing and reduce their desire to take the next head-hunter call! Also, if you’ve locked your key staff into the future of your firm through profit-sharing and share options, then you’ll have a team where all are focused on the equity growth of your firm and its future acquisition. This is probably one of the harder issues for an owner to grapple with…the thought of giving up equity in return for a bigger pie at the end of the line!

So in summary…

Wherever you are on the growth journey, use The Equity Growth Wheel to increase value over time. Even if you’re at the ‘preparation for sale’ stage, use it as a tool to polish up your act. If you have a firm with a solid track record of profit growth over the last 3 years; that has a lead generating ‘machine’ independent of any individual; has a proposition that WOWs your market; has a management structure with breadth and depth, has effective client relationship management; can demonstrate long term relationships with blue-chip clients, that has mined and built its IP; and has its staff locked-in to the future of the firm; then you’ve probably used The Equity Growth Wheel without realising it!

This is a quick and simple tool to get a gut feel for how you think you're performing against the 8 levers of equity value - the output is a radar chart like this below...

 

Nothing is much more exciting than the prospect of selling your firm and gaining financial security from the business you’ve worked hard to build, but the M&A road is littered with casualties where the positive has turned negative because of bad foresight, planning and preparation. It doesn’t matter whether you’re aiming to sell your company in the next year or in future years, preparation is the key to success and by understanding the process now you will be better able to plan your timing, mitigate the risks and maximise the value of your firm. Read on for the nine steps in a quality process that will take you all the way from valuation to company disposal with minimum pain along the way.

Step 1 – Initial valuation and market risk

This crucial first step is about establishing a target valuation and unearthing any show stoppers or issues that might harm your sale. Your initial valuation will be based on four main factors and by understanding these you will place yourself in a strong negotiating position with your bidders down the line:

1. return on investment based on your current financial performance and growth prospects
   
2. buyer risk factors that may cause them to downgrade the value of your firm
   
3. a market premium based on current market activity (currently 30% to 40% in 2007)
4. a synergy factor based on your ability to positively impact the buyers’ business

We use our Valuation and Market Risk Assessment process to assess those risk factors that might cause problems or inhibit the maximum value. Once you have identified the issues, you can then put a plan in place to eliminate or mitigate the risks and maximize the value of your firm in the process.

Step 2 – Maintaining business as usual

While conducting the sale preparation, you must ensure that the business continues to grow on its current trajectory. This is a crucial issue and is one of the main causes that either delays a sale or reduces the price achieved. Your organization plan must ensure that there are sufficient resources to manage both the ongoing growth of the firm as well as the sale process. Of course one of the reasons to employ advisers at this stage is to reduce the management load of the sale process so that you can get on with ‘the day job’.

Step 3 - Building the buyer list

The buyer (or bidder) list is the group of target firms that on paper could be interested in acquiring your consulting company. You should be looking to build a list of 40 or more potential bidders and they are likely to come from two main sources. Your team will almost certainly have intelligence on potential buyers, but the majority will probably come from your M&A advisor. The list should be categorised into groups based on a view of their potential synergy with your firm. Synergy factors can dramatically affect the price achieved and so it is important that you develop a strong story about synergy, customized for each buyer group.

Step 4 – Preparation of sale documentation

While preparing the firm for sale your M&A advisor will be collecting the detailed, financial, operational and commercial information required to produce the sale documentation which comes in three forms:

The first of these usually called the ‘Blind Profile’. This is a short two page document that is used to generate initial interest in the firm with buyers. It includes financial, operational, service and client highlights without mentioning the name of your firm. It is a marketing document that must show the firm in the best light to differentiate your firm from others that may be for sale during the same time period. It should talk as much as possible about the potential synergy between your firm and the buyer. Several variants of this document will be required based on the different categories of buyers.

The second document is a rather longer Information Memorandum (IM). This 30-page document describes all the strategic, financial and operational information that is likely to be required by a buyer. It is meant to be a factual document and covers financial history and projections; service line descriptions; clients and markets; staff and compensation; assets and liabilities; firm strategy and reasons for the sale.

The third piece of documentation is a compelling management presentation that can be customised and used in initial meetings with bidders.

Step 5 - Lining up legal and tax planning experts

Issues that can take more time than you might expect relate to management organization structure and remuneration or share issues. By engaging lawyers and tax planning experts at this early stage you can make sure that legal issues relating to company incorporation, contracts, shares, liabilities and such like don’t delay the process later, or present nasty surprises! If you don’t have access to trusted legal or taxation experts, your M&A advisor will be able to recommend them to you.

Step 6 - Engaging the buyer list

Having worked on all those issues that might raise questions with buyers and possibly reduce the price achieved, and with all the background work completed, you can now begin the sale process and start contacting the buyer list. The blind profile is sent out, then followed up with telephone calls and emails to establish interest and pre-qualify bueyrs. Those that appear to be both able to buy and also express an interest are invited to sign a Non-disclosure Agreement (NDA) that prevents them from discussing the details of your firm with third parties. It also reduces the risk of them poaching any of your staff in the event they are not successful in buying your firm. Those that sign the NDA would receive a copy of the IM followed up with email and telephone calls to ensure that they are fully aware of the benefits of buying your firm.

Step 7 - Initial offers from interested buyers

Those that wish to progress further will wish to meet the Management team. This is your opportunity to impress bidders with the quality of both the firm and the Management, whilst also discussing those items of synergy that will increase the view of your value in the eyes of the bidder. There may be several meetings with each bidder before indicative offers are made. The offers will comprise of a total value and the proposed structure of payment. Of course the competitive nature of this bidding process will help to maximize the value of each offer.

There are many variables here and it is not unusual for bids to be accepted that don’t provide the maximum offer value but perhaps offer a higher value upfront with the remainder of the consideration in safer non-contingent financial instruments like bank-guaranteed loan notes. It’s important for you at this stage to understand the relative value of each offer as well as any contingent risks.

Step 8 - Heads of terms and due diligence

Once you feel you have received the maximum bids from each party the next stage is to decide which firm you would like to be the successful buyer and ask them for a ‘Heads of Terms’ document that describes the detail of the offer subject to successful due diligence (DD). You then enter a period of exclusivity where you are prevented from progressing a sale with any other third party. This typically provides the buyer with four weeks during which time they will perform their DD. This will include financial and legal DD but may also include commercial and HR. It is almost certain in a consulting business that they will wish to speak to one or more key clients and you will need to manage this part of the process carefully so as not to expose your relationship with the client.

Step 9 – Signing the sale and purchase agreement

DD ends with your lawyers drawing up a Sale and Purchase Agreement together with warranty and disclosure documents for signature. The legal process can be done in parallel with the DD if you are pretty certain that the DD isn’t likely to expose any problems and you don’t mind taking the risk on the legal fees if for some reason the sale doesn’t progress.

In summary

If you add up the elapsed time for all of the above activities then your firm could be sold within 6 to 9 months from the start of the process. It could be less if you find a buyer early on that is prepared to make an offer to ‘knock out’ other potential bidders. It could of course take much longer if you find some serious issues in Step 1. Then of course there are external factors that could cause a delay, like a market collapse, or a key client that stops doing business with you! Clearly, the longer the process runs on the higher the risk that something will come out of the woodwork for you or your buyer. That’s why with good planning and preparation you can limit the risks and run a smooth process that gets you from A to B, with a successful and lucrative completion in a controlled and speedy way.

The process of selling a consulting firm can be a fragile affair where all the initial goodwill and grace between you and the buyer can quickly turn into negotiating stand-offs and eleventh hour fall-outs. Months of meetings, due diligence, planning and drafting sessions can quickly evaporate due to nasty surprises, unclear expectations, or just plain bad luck. For every M&A deal announced there are many, many more that fail or never get past the courtship stage for a wide variety of reasons. Based on our experience over the last few years of watching buyers and sellers walk away from the table, or seeing sellers reluctantly settle for tougher terms than they deserve, here are ten of the most common deal breakers with some tips on how to tighten the nuts and stop the wheels from falling off on your journey to the bank!

1. Don’t take too long to complete the deal

The risk of the deal failing over time follows the Pareto Principle; there’s a 20% risk of failure at the thin end of the time curve and 80% at the thick end. The longer time goes on, the more opportunity there is for something nasty to be found by the buyer and a greater chance of you falling out of favour with lady luck. Any one of the remaining nine deal breakers below could rear its ugly head as time drags on and a vicious circle will develop. Consultants are meant to be good at project management and this is the way to mitigate the risk! Before you take your firm to market, make sure you have all the bases covered in the sale preparation and get the right resources ring-fenced so that all eyes are on the important balls.

2. Don’t enter the process with conflicting interests among the shareholders

If you have a complex share ownership structure you don’t want things getting messy when the buyer comes to the table. While you as the main shareholder may be highly motivated to sell, or settle for a certain deal structure, perhaps a junior director who hasn’t yet earned all his/her shares will be on a completely different page. If this comes out when the buyer interviews key staff things will get complex and it will be difficult to strike a deal. The only way to ensure this doesn’t happen is to resolve these issues with each and every shareholder in the process leading up to the decision to enter the sale process.

3. Don’t miss your financial forecast during due diligence

Missing your financial forecast during the sale process is very bad news, the buyer will worry about your financial management and may want to dig deeper and deeper into the cause, which in turn may uncover additional issues as they drill down layer by layer into your financials. There are some things out of your control, but it’s within your power to make sure that you’ve a robust financial management and forecasting process and to choose the time to take your firm to market when you’re confident in the stability of your numbers.

4. Don’t suffer sales famine while buyers are looking

This is crucial because the profit multiple the buyer is prepared to offer is significantly dependant on their confidence that your profits will continue into the future. Clearly, if your pipeline reduces unexpectedly during the sale process then a fuse is going to trip in the buyer’s mind to trigger a deeper examination of your sales and marketing process and a possible reduction in their bid. Depending on your sales cycle time, you need to put a concerted effort into sales and marketing in advance to make sure that the engine is tuned and everything stays on track during the sale process and beyond. Getting this right will also reduce the risk of missing future financial forecasts in earn-out circumstances or when your deal structure relies on future targets being met.

5. Don’t risk important people defections part way through

Losing a senior or key member of your staff during the process will do two things for the buyer; they will question the quality of your HR management and want to re-assess the value of their prospective acquisition. This issue is linked to item 2 above but mostly it comes back to the measures you’ve taken to lock-in key staff well in advance of sale. If you’ve introduced motivational reward and recognition programmes along with an equity share ownership scheme, then you’ve probably done the best you can to reduce this risk. Don’t forget that 70% of something is worth more to you than 100% of nothing!

6. Don’t get cold feet

Deals can fall apart simply because owners have reservations or anxieties with selling the firm and the professional and personal stress that comes along with that. Not being crystal clear about the motivation for the sale part way through the sale process is bound to cause personal strife among the shareholders and irritate buyers. You don’t want to change your mind half way through, so don’t enter the process half-cocked, have clear objectives in mind and for each individual, pin down who wants to stay and who wants to leave and in what period of time. Do this and everything will be on the table up front and there will be much less scope for prevarication and indecision.

7. Don’t leave room for nasty surprises in the finances

The last thing you want during the pressure of due diligence is for the buyer to discover an ignorance or lack of understanding about the financials in your business, or even uncover something nasty that you should have spotted and dealt with in advance. This could be a simple accounting mistake, or a hidden bombshell like a fraudulent entry. If you have a finance director with an eye for detail and with whom you would trust your life, you’re probably covered. If you’re not in this enviable position, then take measures to get your accounts professionally audited and don’t enter the sale process until you’ve tested and retested your complete command of the numbers that govern the shape of your costs, revenues and profits in the business.

8. Do find buyers with the right culture

Too many deals never get off the ground because of a culture mismatch between the seller and buyer. The buyer is going to walk away if they think integration is going to be difficult, and you’ll walk away if you’re worried about how your staff and clients will be able to work with the new entity. It’s there for more than one reason, but our rule ‘one buyer, no buyer’ applies here, the chances of cultural alignment are improved if you’re talking to a range of buyers that have been carefully researched and selected by your M&A partner because of their ‘best fit’ characteristics with your firm. This is particularly important as the deal progresses through the due diligence phase when it’s likely that your team will have to meet at close quarters with the buyer’s management team to work on integration details. If your teams don’t get on together the deal could be in jeopardy. By this late stage you will probably be in exclusive discussions and re-connecting with previous bidders, who you have already told came second, is extremely difficult. It probably means starting the whole process from scratch at a later time and dealing with de-motivated shareholders rueing missed opportunities!

9. Do walk in the buyer’s shoes

When all the pleasantries are over, it always comes down to price. We’ve never met a seller who didn't think their consulting firm was worth more to them than it was to the buyer! Many owners are just unaware of the realistic sale multiples in the consulting industry, have never had their firm properly appraised, and they start with a view of the value of the firm, without being able to sell that value to the buyer. If you’re going to drag the buyer over the bridge between their price and yours, you need to be able to justify it and not come across as plain greedy. The best way to do this is have a sound understanding of deal values in the current consulting M&A market and a detailed understanding of the synergy value of your firm to the specific buyer, something for which they will be willing to pay a premium. In short, it’s all about knowing the market, salesmanship, and seeking out a range of buyers with synergy who want to compete to buy your firm.

Finally and in conclusion…

10. Don’t let bad luck strike!

It’s difficult to mitigate bad luck! Something out of your control could change the game. With all the best planning in the world, something unforeseen and unimaginable inside or outside your firm could happen. The best you can do is to plan for the expected and unexpected just like you would with any other event in your organisation. However if there’s one thing on this scale that’s most likely to thwart your progress to sale it’s your client market collapsing for some reason during the deal process. If all your eggs are in one basket then the risk goes up, so diversity in your clients and markets is the ideal way to be as safe as you can be from external issues. Back to our first point, the longer the deal takes the more likely you expose yourself to bad luck, so aim to complete a deal as fast as possible.

You can of course make your luck by taking note of these deal breakers and manage the risk…..then keep your fingers crossed!

The most common reason for one consulting firm to acquire another is to strategically enhance their business e.g. to help reach a new market place or geographic area. However, the growing number of private investors and private equity firms active in the consulting market mean that people are now also acquiring purely for financial and investment reasons. If you go to our most recent report on merger and acquisition activity in the consulting sector we have some statistics on this.

See below to find out what’s motivating consulting company acquisitions and how the private equity firms are making their money…

Reasons to acquire for ‘strategic fit’

1. Company Scale. Your firm struggles to win lucrative contracts with key clients because your scale does not compare with larger competitors and you pose a greater risk. You need to acquire to achieve the scale necessary to attract the kind of clients that sign the bigger deals.
   
   
2. Shareholder Pressure. You may be a plc with pressure from investors to grow shareholder value, but your organic growth options cannot deliver. Acquiring a private firm on a profit multiple less than your own traded multiple will achieve growth faster and add instant value for your shareholders.
   
   
3. Global Extension. Your target clients are increasingly global and you don’t have the international profile necessary to compete. Acquiring a company to build a global presence, or achieve a local culture fit, will expand your firm’s capabilities to attract and service clients in your chosen markets.
   
   
4. Sector Extension. You have a strong track record in one industry sector, your service is transferable into other sectors, but you know that cost of entry is going to be high. Acquiring a similar firm with an existing track record and a client list in other sectors will accelerate your entry into new industries. .
   
   
5. Service Extension. You have excellent skills in your domain, but there is a demand for services adjacent to yours and you don’t have the skills to service it. By acquiring another consulting firm with the competencies you require, you are able to increase your footprint in the combined client list and develop new business elsewhere. .

Financial motivators for private equity firms and investors

1. Pure Investment Potential. You are a wealthy investor who needs to achieve a better return on capital and you’re looking for a cash generative business with healthy profits. Service businesses like consulting firms, if well run, have a reputation for delivering high margins and good cash flow. This presents an opportunity to spread the risk and improve the return from your portfolio.
   
   
2. Leveraged buy-out. You are a private equity firm with an obligation to provide an outstanding investment return to your fund providers. A private consulting firm, with founders that are ready to retire and a good management team who are ready for the next stage of growth, presents a good investment opportunity. Buy out the owners for cash, but provide most of that cash through loans against the business. The founders are happy, the firm grows, pays off its debt and both the private equity firm and management team will benefit.
   
   
3. Distress Sale or Turn Around. You make your living by finding firms that are under performing but have the potential to do much better. You find a mature consulting company with a poor order book and a worn out management team, ready to sell at a significant discount to the potential market value of the firm. You acquire the firm, turn it around, and sell it on a year or two later for a significant capital gain.

We get involved in valuations of consulting companies for several reasons. Often the stimulus for a company sale starts with an understanding of the value of your firm in the current market. As market conditions change from year to year, timing of a disposal can make a dramatic difference to the price achieved for any firm. Some firms however are just interested in the current value in order to create the benchmark for value improvement over the coming years. Equiteq not only works on sale and acquisition transactions. We help firms grow equity value over the long term ensuring that they achieve their target value for disposal as fast and as painlessly as possible. Our valuation methodology not only calculates a current value but it also makes the link between cause and effect on company value. As you will see this goes well beyond just an understanding of the financials.

Calculating your equity value as an EBIT multiple

Our valuation method is a 4-step process that starts by assuming that your firm is the average firm in our sector that was sold in average market conditions over the past 5 years to the average buyer. Of course your company isn’t the average firm, so we then adjust that value up or down depending upon your financial profile, your investment risk profile, current average market conditions and our view of the buyers’ appetite for your firm if it was on the market today.

Our consulting industry M&A database rovides us with a lot of the base data used in the valuation process. The data is 50% historical information on previous M&A deals in the industry and 50% company information, inclucing financials, sector and service expertise profile of all firms in the UK and other places across the world.

These 4 steps are as follows:

1. Financial Analysis

We look in detail at your historical and projected financials. We make adjustments for any one-off expenses that could be argued as not part of normal trading costs. We also adjust for abnormally high or low compensation levels. We calculate the year on year growth in this ‘adjusted’ EBIT and assess your ability to generate free cash flow from profits in a sustainable way. We then apply a multiple to this adjusted EBIT to generate an investment return commensurate with the risk profile for the average consulting firm.

2. Equity Risk Assessment

We use our ‘8 levers of Equity Value' model to determine if there are any risk factors associated with your firm that would make it a worse or better than average investment opportunity as compared with the average for the industry. For example, under the section ‘Quality of fee income’; if you could demonstrate long-term contracts with clients then you would have a lower risk profile than most consulting firms; alternatively if more than 25% of your fee income was with one client and with no long-term contract then we would judge you to be higher risk than average. This would affect your score in this segment of our equity value wheel and may increase or decrease the multiple applied to your EBIT in calculating value. The 8 segments of the wheel are based on extensive experience and research into those factors that buyers assess when looking to value a consulting firm. We review them regularly to make sure they represent the current reality of buyer sentiment re acquisitions. This latter point is important because buyer sentiment does change over time. For example, even 5 years ago, it would have been difficult to get a good price for a consulting firm where 50% or more of its consultants were freelancers or ‘associates’. Today this resource profile is seen by many buyers as attractive because it infers an ability to reduce costs fast – and thus protect earnings - if the market takes a downturn.

3. Market Premium

The EBIT multiple used in step 1 assumes average market conditions. We hold data on multiples in our sector going back to the year 2000. We have also correlated this data with general market data going back 75 years. At any point in time we are able to calculate a discount or a premium to the market average. Currently we are experiencing a premium of 40% and it is fair to say that it is a seller’s market for consulting firm owners in the UK at present.

4. Buyer Synergy Premium

So far all of our calculations are independent of the type or specific buyer. However the price premium associated with finding the right synergistic buyer can swamp any premium associated with your growth, profit levels or even market premium. We have seen synergy premiums of 400% and so it really does pay to research the right buyer for your firm. Buyer synergy means that you have persuaded the buyer that your firm can grow their firm faster than it could grow without you. In these circumstances the investment return calculation becomes more than just based on your financial forecast. You are selling the story that together ‘2+2=5’ so that the buyer can justify paying a higher multiple of your profits to get this joint growth. It is in this area that Equiteq excels at both the valuation stage and of course when we manage the sale transaction due to the comprehensive nature of our database described above. At the valuation stage we are able to assess the likely population of buyers for the combination of your client/market sector experience and your service line skills. We calculate a ‘buyer synergy premium’ based on this data which indicates the relative attractiveness of your firm to the potential universe of buyers.

The resultant valuation from the above 4-step process gets as close as you can get to a target price based on actual deals done in our sector, comprehensive sector market data and the experience of hundreds of buyers of consulting firms.

A shepherd was herding his flock in a remote pasture when suddenly a brand-new BMW advanced out of the dust cloud towards him. The driver, a young man in a Brioni suit, Gucci shoes, Ray Ban sunglasses and YSL tie, leaned out the window and asked the shepherd... "If I tell you exactly how many sheep you have in your flock, will you give me one?" The shepherd looked at the man, obviously a yuppie, then looked at his peacefully grazing flock and calmly answered "sure". The yuppie parked his car, whipped out his IBM ThinkPad and connected it to a cell phone, then he surfed to a NASA page on the internet where he called up a GPS satellite navigation system, scanned the area, and then opened up a database and an Excel spreadsheet with complex formulas. He sent an email on his Blackberry and, after a few minutes, received a response. Finally, he prints out a 130-page report on his miniaturised printer then turns to the shepherd and says, "You have exactly 1586 sheep. "That is correct; take one of the sheep." said the shepherd. He watches the young man select one of the animals and bundle it into his car. Then the shepherd says: "If I can tell you exactly what your business is, will you give me back my animal?", "OK, why not." answered the young man. "Clearly, you're a consultant." said the shepherd. "That's correct." says the yuppie, "but how did you guess that?" "No guessing required." answers the shepherd. "You turned up here although nobody called you. You want to get paid for an answer I already knew, to a question I never asked, and you don't know crap about my business...... Now give me back my dog!"

A physician, a civil engineer, and a consultant were arguing about what was the oldest profession in the world.

The physician remarked...

"Well, in the Bible, it says that God created Eve from a rib taken out of Adam. This clearly required surgery, and so I can rightly claim that mine is the oldest profession in the world."

The civil engineer interrupted, and said...

"But even earlier in the book of Genesis, it states that God created the order of the heavens and the earth from out of the chaos. This was the first and certainly the most spectacular application of civil engineering. Therefore doctor, you are wrong: mine is the oldest profession in the world."

The consultant smugly leaned back in her chair, smiled, and then said confidently...

"Ah, but who do you think created the chaos?"

A consultant booked himself on a Caribbean cruise and proceeded to have the time of his life. ...at least for a while until a hurricane came unexpectedly. The ship went down and the man found himself swept up on the shore of an island with no other people, no supplies, nothing. Only bananas and coconuts.

Used to 4-star hotels, he had no idea what to do. So for the next four months he ate bananas, drank coconut juice, longed for his old life, and fixed his gaze on the sea, hoping to spot a rescue ship.

One day, as he was lying on the beach, he spotted movement out of the corner of his eye, it was a rowboat, and in it was the most gorgeous woman he had ever seen. She rowed up to him. In disbelief, he asked her:

"Where did you come from? How did you get here?"

"I rowed from the other side of the island," she said, "I landed here when my cruise ship sank."

"Amazing," he said, "I didn't know anyone else had survived. How many of you are there? You were really lucky to have a rowboat wash up with you."

"It's only me," she said, "and the rowboat didn't wash up, nothing did."

He was confused, "Then how did you get the rowboat?"

"Oh, simple." replied the woman "I made the rowboat out of raw material that I found on the island. The oars were whittled from Gum tree branches, I wove the bottom from Palm branches, and the sides and stern came from a Eucalyptus tree."

"But...but, that's impossible," stuttered the man, "you had no tools or hardware, how did you manage?"

"Oh, that was no problem," replied the woman, "on the south side of the island there is a very unusual strata of alluvial rock exposed. I found that if I fired it to a certain temperature in my kiln, it melted into forgeable ductile iron. I used that for tools, and used the tools to make the hardware. But, enough of that," she said. "Where do you live?" Sheepishly he confessed that he had been sleeping on the beach the whole time. "Well, let's row over to my place, then," she said.

After a few minutes of rowing, she docked the boat at a small wharf. As the man looked onto shore he nearly fell out of the boat. Before him was a stone walk leading to an exquisite bungalow painted in blue and white. While the woman tied up the rowboat with an expertly woven hemp rope, the man could only stare ahead, dumbstruck. As they walked into the house, she said casually...

"It's not much, but I call it home. Sit down please; would you like to have a drink?"

"No, no thank you" he said, still dazed, "can't take any more coconut juice."

"It's not coconut juice," the woman replied. "I have a still. How about Scotch-on-the-rocks?"

Trying to hide his continued amazement, the man accepted, and they sat down on her couch to talk. After they had exchanged their stories, the woman announced...

"I'm going to slip into something more comfortable. Would you like to take a shower and shave, there is a razor upstairs in the cabinet in the bathroom."

No longer questioning anything, the man went into the bathroom. There in the cabinet was a razor made from a bone handle. Two shells honed to a hollow ground edge were fastened on to its end inside of a swivel mechanism. "This woman is amazing," he mused, "what next?" When he returned, she greeted him wearing nothing but vines, strategically positioned and smelling faintly of gardenias. She beckoned for him to sit down next to her.

"Tell me," she began, suggestively, slithering closer to him, "we've been out here for a very long time. You've been lonely. There's something I'm sure you really feel like doing right now, something you've been longing for all these months? You know... " She stared into his eyes. He couldn't believe what he was hearing:

"You mean... ?", he replied, "...I can check my emails from here?"

Last week, we took some friends out to a new restaurant, and noticed that the waiter who took our order carried a spoon in his shirt pocket. It seemed a little strange. When the sommelier took our wine order, I noticed she also had a spoon in her pocket. Then I looked around saw that all the staff had spoons in their pockets.

When the waiter came back to serve our soup I asked, "Why the spoon?" Well," he explained, "the restaurant's owners hired a consulting company to revamp all our processes. After several months of analysis, they concluded that the spoon is the most frequently dropped utensil. It represents a drop frequency of approximately 3 spoons per table per hour. If our staff are better prepared, we can reduce the number of trips back to the kitchen and save 15 person-hours per shift."

As luck would have it, I dropped my spoon and he was able to replace it with his spare. "I'll get another spoon next time I go to the kitchen instead of making an extra trip to get it right now." I was impressed.

I also noticed that there was a string hanging out of the waiter's fly. Looking around, I noticed that all the waiters had the same string hanging from their flies. So before he walked off, I asked the waiter, "Excuse me, but can you tell me why you have that string right there?"

"Oh, certainly!" Then he lowered his voice. "Not everyone is so observant. That consulting firm I mentioned also found out that we can save time in the men's restroom. By tying this string to the tip of you know what, we can pull it out without touching it and eliminate the need to wash our hands, shortening the time spent in the restroom by 76.39%."

"That's great, but how do you put it back?"

Well," he whispered, "I don't know about the others, but I use the spoon."

1. How do you put a giraffe into a refrigerator?



Stop and think about it and decide on your answer before you scroll down.





























The correct answer is: Open the refrigerator, put in the giraffe, and close the door. This question tests whether you tend to do simple things in an overly complicated way.



2. How do you put an elephant into a refrigerator?







































Did you say, Open the refrigerator, put in the elephant, and close the refrigerator?







Wrong Answer.

Correct Answer: Open the refrigerator, take out the giraffe, put in the elephant and close the door. This tests your ability to think through the repercussions of your previous actions.



3. The Lion King is hosting an animal conference. All the animals attend.... except one. Which animal does not attend?











































Correct Answer: The Elephant. The elephant is in the refrigerator. You just put him in there. This tests your memory. Okay, even if you did not answer the first three questions correctly, you still have one more chance to show your true ability to be a consultant.



4. There is a river you must cross but it is used by crocodiles, and you do not have a boat. How do you manage it?










































Correct Answer: You jump into the river and swim across. Have you not been listening? All the crocodiles are attending the Animal Meeting. This tests whether you learn quickly from your mistakes.


According to Anderson Consulting Worldwide, around 90% of the consultants they tested got all questions wrong, but many pre-schoolers got several correct answers. Anderson Consulting says this conclusively disproves the theory that most consultants have the brains of a four-year-old.