Merger opportunity: Change management consultancy

Merger opportunity: Change management consultancy

We are currently working with a client who has a business transformation / change management consultancy, and who wishes to exit his business in order to retire.

The company has a highly desirable high profile customer base and generates good profits; however as with many small consultancy based businesses for sale, there are several issues that make it difficult to find a buyer who is prepared to acquire the business outright:

  1. The consultancy practice for sale has only 3 large scale long standing customers
  2. The customer relationships lie with the 3 principle employee consultants from the practice and the vendor himself.

Because of this, many potential buyers consider that there is a risk that the goodwill in the business will not transfer.

As experienced business brokers for B2B service sector businesses, we have found that the best deals are reached when each side takes an equitable share of the risk. This means that the buyer needs to be prepared to pay a significant proportion of the consideration on completion and the seller equally needs to be prepared to accept a proportion of the consideration as an “earn-out” dependant on the performance of the business post acquisition.

However, because of the particular nature of the customer base and relationships in this case, our client would be open to discussions with larger scale consultancy companies with a view to an earn-out arrangement on a majority of the deal value.

Clearly for this to work there has to be compatibility in the mind-sets of both buyer and seller and their attitudes to customer service and agreement on the handover process. The buyer must have the capabilities to manage the vendor’s business day to day, as well as be able to provide the resources to grow it.

Turnover averages c. £850k per annum and in the last two years gross margin has increased to 70% in CY 2012. Adjusted EBITDA for 2012 is £195,000 (25%) and is projected at £265,000 (30%) for 2013.

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