It’s fair to say that 2009 was a year to forget from an M&A perspective. At Equiteq we spent most of the year helping consulting firms to survive the recession and M&A transactions were very thin on the ground. The chart below show the sorry state of the market last year as compared with 2007 and 2008 but even these numbers (131 deals closed in 2009 as compared with 197 in 2008) don’t tell the full story. Many of those deals in the first part of the year were those that started in 2008 and many were ‘distressed sales’ at prices that most sellers wouldn’t want to advertise!

2010 feels completely different. All the big 4 consulting firms have put aside large budgets to acquire this year. PWC started the rush last August by stating that they were going to triple their consulting fees. The rest have followed and it looks like 2010 is going to be a year of consolidation. This month KPMG announced similar plans to triple the size of their consulting practice. We completed our first deal this year in January with a sale to Deloitte and 3 more sales are due to close in the near-term horizon. Each week at the moment we are talking to buyers from all over the world who are looking to acquire in the UK. Exchange rate movements and publicly-quoted value multiples in the UK have made this part of the world an attractive place to acquire. Expect to see many firms change hands in the next 12 months and beyond into 2011.

Our expectation is that price multiples will follow the increase in demand shown by the interest from all of the big 4. At the peak of the last economic cycle in late 2006 firms were selling for a 40% premium on a 5 yr rolling average price. This premium dropped to a 10% discount at the start of 2009 – a much smaller discount than one might have expected given the press of recent times – and now prices are back to the average of the last 5 years. We expect premium prices to start to appear in the second half of 2010 and increase through 2011 and 2012. Whether they will ever reach the peak of the 40% premium achieved in 2006 is debatable but there is no doubt that later this year and 2011/12 will be good timing to sell your firm.

So if you have a growing consulting firm that has weathered the recession well ie you haven’t shrunk! and you have sales in excess of £5m with profits of greater than £1m, do give us a call. There are many buyers out there who will be interested in your firm!