Consultancies need right technology, people and process for M&A success

Consulting firms are looking to bolt-on activity to build capacity in a tight talent market – but doing so comes with people, process and technology challenges. Bryce Wolf, Senior Manager Industry Solutions at Unit4, explains what professional services organisations need to prioritise to successfully acquire and integrate capabilities.

Recruiting digitally-savvy talent in the UK has become difficult in recent years, with competition high. Due to this, mergers and acquisitions remain important aspects of the growth strategy of consultancies and it’s proven that the right combination of people, processes and technology is critical for success.

Of these, don’t forget the last element or you risk jeopardising the integration process and operational efficiencies that are key criteria for successfully combining companies.

PitchBook research suggests solid growth for professional services M&A over the past decade. Even amid the pandemic of 2020, there were 3,499 professional services deals worldwide with a median value of over $28 million. In 2021, M&A surged again to 5,075 deals, with a $45 million median and, in 2022, BDO described professional services M&A as being at “fever pitch”.

At one point, the cynical view was that deal making was an unpalatable reflection of corporate culture. This is now an out-of-date perception since the complexity of M&A has become a respected craft with its own unique formulas that are proven to work. Deals done today focus on creating growth and moving into adjacent markets of course, but also demonstrate a desire to digitise and show improved ESG (Environmental, Social, and Corporate Governance) values.

These transactions are being aided by the rise of private-equity stakes, favourable market conditions, the lure of R&D tax breaks and a turbulent labour market in the wake of the Great Resignation.

McKinsey & Company research points to one specific aspect of deal making that tends to work well: so-called programmatic M&A. In this area, regular deals (usually at least two a year and focused on small or mid-sized targets) have a specific logic and a model behind them that is figured out in advance.

The research found that such deals offer two per cent more in terms of total returns on investment versus organic growth approaches, selective deal making or going for ‘big bang’ wins. That logic holds true across verticals and programmatic M&A is stretching its lead over alternative competitive strategies.

McKinsey adds that this formula helps to explain why M&A continues to prosper, especially for companies that possess what it calls the ‘three Cs’: competitive advantage (seeing where deals add value), conviction (confidence based on continual assessment of value) and capacity (where acquirers have the people, money and structure to win).

Keeping the deal sweet

But what happens when consultancies combine? Avoiding the oil-and-water chemistry of deals gone wrong isn’t straightforward, as industry veterans will tell you. To make those deals work, firms need to automate core processes via technology-enabled change.

But even the best tech can’t achieve magic on its own. Instead, the old dictum of people, process and technology being key remains valid… and usually in that order.

People
Sometimes in combinations, culture is aligned, and people see eye to eye from the off. But where there is a culture clash, it’s tougher: there is staff attrition, lost time to impact and business value is squandered. So, companies coming together need to be methodical about combining cultures, communicating effectively, making appropriate compensation offers and being clear about integration strategy.

Process
During an integration, you might think that the obvious thing to do is to take individual subject matter experts from the two businesses and have them work together to redefine business processes… but in reality, that never happens. Often, the acquirer makes the ultimate decision and effectively turns the smaller company into a mini version of the larger. It’s better to get people together to collaborate than to reset processes for the larger (and necessarily different) new business, starting with a ‘straw man’ process for pulling apart.

Frequently, what works is a standard business process re-engineering approach. That is, examining the current and future states and performing a gap analysis. Applying a layer of Scrum/Agile methodology to gain expert insights is also useful. Simply start with your most important processes then work your way through incrementally, whilst being willing to sacrifice your process definitions and naming conventions.

Technology
In professional services M&A, technology is more than just infrastructure - it can help to enforce fixes on inefficient processes and even a simple ERP feature, such as a smart timesheet entry module, can make people that little bit more efficient. Technology is no silver bullet in M&A, but it can help to address cultural challenges by simplifying collaborative multi-person processes and enforcing process change.

IT decisions can make or break mergers, especially if the decision on enterprise applications is botched. It may be tempting to use a new tool, but organisations shouldn’t be quick to dismiss what they may see as a legacy ERP. If one app is a fit, then great… and that needn’t be the incumbent ERP of the acquirer.

Integrations and extensions can certainly help to plug gaps but sometimes it’s necessary to introduce a new, single platform across the combined enterprise. Serial (and hopefully programmatic) acquirers need to ensure they look at both the present and the future and, in doing so, don’t just make their processes adapt to the foibles of the incumbent ERP.

Cloud ERPs can help by providing a great user experience, fast deployment, and simpler integration in some cases. Usually, companies have a lead ERP, and a one-stop-shop has clear attractions in the form of simpler SLAs, security and reduced integration concerns. But best-of-breed spokes to those hubs can add value, so it’s important for organisations to look for strong all-round suites that are extensible and adaptive.

In summary

There is no sign of professional services M&A slowing down so making sure acquiring companies have a solid formula for people, process and, yes, technology in place means they have the best chance of making their next deal a success.

Bryce Wolf is a Senior Manager of Industry Solutions at Unit4 and is responsible for the delivery of Unit4’s product strategy for strategic verticals.