Ep. 126 - Insights From 150+ Accenture Acquisitions: What Drives Premium Valuations in Consulting Firms - with Daniel Schwartmann

Now, clearly define your equity story. What do you stand for? What do you want to stand for in 5 years or what do you stand for now? And what should also be an operating model that is added here to it? Welcome to the Leaders in Consulting Podcasts. I'm Sammy, your host and founder of the community. This show is for consulting users who know the higher you climb, the more value-bid two peer exchange becomes. In each episode you will hear what's really working for partners in MDs, in growth, leadership and client impact. No fluff, just clear insights from both in the arena. And if you want to go beyond listening and join the conversation, check out leadersinconcilting.com for info on our monthly confidential forums, in London, Munich, Frankfurt, Cologne and Düsseldorf. And now, let's get started with the show. Today I'm very happy to welcome Daniel Schwarzmann, managing director at SurfTik, capital advisors. Daniel, welcome to our show. Yeah, thanks, Sunny. Very, very glad to be here and thanks for having me. So today our main topic will be around how to improve the value of your consulting company and also how to sell it successfully. And what to do in the years before you want to sell your consulting company. Before we jump in, tell me a little bit about what you're doing right now. I work as advisor to three constituencies. One is private equity investors, such as Brighale or Bridgepoint or others. When they are investing into new professional service companies, maybe consulting tech services, digital services. Second is I work on the sell side together with Lincoln as advisor. When it comes to shaping equity stories, operating models in advance of a go to market and a sale to optimize the position of a company. We've done that successfully a couple of times. And then the last one which I like a lot and creates a lot of joy for myself is being invested and on the board of young service companies as an example, wonderful digital service company in Austria or in data and AI service company in Amsterdam that are below private equity or investment level and I'd like to help them grow. Yeah and flow from Tobar connected us that's why we are talking. Exactly. That's the Austrian company. I assume that you're an Austrian company. Very good. What kind of M&A experience do you have and why is it relevant what you can bring to the podcast here? Yeah, I have more than 32 years of experience in consulting and IT services and coming out of these services myself, I spent 28 years at Accenture and at some stage moved to the investment side of Accenture first of Anjakapital and then when Accenture in the early 2000s became a public listed company was interested in becoming a serial acquirer and at the time the company had done nothing in M&A. So I joined that journey and for many many years was responsible for all M&A activities of Accenture in the region of Europe, Africa, Latin America and worked also globally with a couple of service lines on their inorganic stories. For example, their strategy and consulting business and so as you may have seen Accenture turn from a complete novice in 2004 in terms of M&A to still the most active acquirer on the planet in that field with 40-50 acquisitions investing maybe a 4 billion baranum into new services, consulting, tech services and others. And so over the time my team and I oversaw did throw certainly more than 150 acquisitions and so that probably gives me the right to look a bit at the M&A lands mainly from a buyer perspective. So what is the strategic buyer look for which is then something I can also of course convey to tankers to private equity funds to owners. So our main topic is how to maximize the value of your concidancy from a buyer perspective because that's basically the best case then for a seller if the buyer sees the value and wants to pay for that value. Before we jump in anything you want to add as a precursor so to say. Yeah, I mean when you're a strategic company and you buy a company obviously there are financial parameters that you're looking for but typically that may not be the primary aspect of what you're looking for. Typically you're trying to solve a strategic issue and that is typically also in you can be enumerated by certain dimensions. So you look for an answer to a question that your business has in terms of I have a geographic gap, I have a capability gap, I want to become stronger in industry, I want to expand my service portfolio, I want to develop new technologies, whatever it is. And the larger the companies the buyers are the more of these questions are there but they usually quite specific and which in turn means that strategic buyers value companies that are specific to any of those dimensions. Although it's the same, can be a combination of those dimensions but anything that's then outside of that answer is probably seen more as a distraction even if it's a wonderfully profitable business. And that's definitely also from a potential seller side something to consider even from a private equity investor side we want to sell on a couple of years later. How can I shape companies that are well positioned, have a clear direction and I think it's not only important from the dimension of I want to sell my business. It's also important from I want to develop my business and have a differentiated business and have a great competitive stance against these big monsters like Accenture or the MBBs or the big force. And so it's I think an important consideration in any case. And that reminds me of for example one podcast guest I had, Jürgen Bauer, one of the founders of CENTP in its a consulting company with the headquarters in Zurich and they solely focus on SAP and Farmer. So the intersection of SAP and Farmer, full stop, they do nothing else. I mean they develop all kinds of solutions now but always the focus of SAP and Farmer. And they are growing tremendously fast. And he admitted that they had one or two tests left or right of that but they noticed very fast, doesn't work. And so they kept on focusing and they I think they even, they grew 50% in the last one and a half years or so. So at a rate where then our 600 employees so it's not a small boutique. So I can relate to what you just said. And also on the other hand when I was a consultant working for a consulting company that did it totally different where the founder had a lot of connections and they bought all kinds of projects. And I think even the employees didn't know what the company stands for. Yes, for me it's still unimaginable that's still happening but apparently it does that you don't focus. And we will focus on that topic a little bit later but it's good that you put it up front. Yeah. Yeah, it's really, I think it's also the essence of developing a competitive business. What you described, you see very often it's usually very bright people who are not good and often quite versatile in advisory and lateral thinkers and so they can advise companies in many ways and then they live from the network, expand the network and do broad consulting. In terms of the value creation during that operation it may be wonderful because if you run a profitable business we have happy customers, it's great. But largely if you want to monetize your business at the end of a journey then it becomes more challenging because most most. strategic buyers don't like to buy generalists or just volume of business. They like to have something they don't have. And that's what's really specific. So let's jump in. And the first topic we cover is working backwards from the values. So former founder, see what must already be true before valuation even becomes relevant at all. So I mean, I think any founder should ask himself herself, what do I want to do with a business in the long run? Right. Many founders start a business. It's exciting. It's growing. They have customers. They go and grow if it's going well. But then in the end. There's in the end, not only two or three terminal things you can do with your company. Right. One is you can give it to your kids and hairs. If you're going out of business, everyone will be going out of business at some stage. And now in service businesses, there are some, there are some few examples of businesses that have been passed on to, to the hairs. But it's not very common. And I think there is more than in any other industry, a connection between active management and people who are in the services and ownership. That's much more direct than if you own machinery firm. And and therefore the other terminal options are you're going to sell your company to a strategic, for example, at some stage. Or you're going public, which means you need to be have a certain size and also have a certain window of opportunity. Or you run or you create a perpetual partnership like the big four have done. Right. And several others. They exist since many, many years. And and each of those models have their pros and cons. So when you come when it comes to value, being a partner in a perpetual partnership is quite lucrative. Right. If you're a partner in an MVP, you get equity typically at, let me say, your family value, yeah, an internal formula. You get good cashouts during the time you hold the equity. But when you exit the equity, which is typically when you leave the firm, you're also only getting a family internal value back. So you're not really having a capital return that is comparable to an IPO or a tracer. The multiples are just very different. And. But then it's it's a it's something where you don't have to think about an exit. It's it's it's it's kind of. And a model that recreates itself, but it's moderate on on as I said on capital value. If you sell to a strategic. Typically your company is integrated. You see the ownership, but you have the capital value in services, though, it is not possible or hardly possible to sell your company and then walk away immediately. It typically bias expect you to stay on. Two, three, four, five years, whatever. That means when you think of retirement, right. Already there, think back that, oh, you may have to spend some more time after your sale to add at the place or buy you. IPO, the same thing, smart, more difficult. You need to become much bigger. And then you may ask me why have you not mentioned private equity as an exit. Because it's so popular. Because in the end, it's not a terminal exit. It's a it's a booster in between. Right. It it. They typically think in four, five years of holding periods, they invest in order to exit after a period of hopefully value creation. And so you can have several capital events over time. You can get some money behind a firewall. If you want to buy by entering a private equity. Several years later, there may be another capital event and some are doing this like two or three of more rounds. Typically it's not more than two or three, but each of those rounds is four to five years. And it can give a huge booster to the value you get out in comparison to any of these single events. And therefore, if you are interested in that, obviously then you need to work backwards. And say, okay, with what kind of age do you want to retire? Do something else? Do something for society or retire or whatever? And then calculate a little bit backwards and say, let me not start the thinking too late. You may still not decide to do it, but you should consider it early enough. So what would be an appropriate time that a founder should have in mind of a consulting company, a few she thinks, I want to get out of the business and not work in the business anymore. I think the, it's difficult to say, yeah, right? I mean, some songs I leave me alone with capital investors. I want to run my company. I want to give it to my partners. But then you may have to still start five or 10 years before you actually do that with a preparation of partner models of career models so that you have a platform where you could pass on your company. If you just want to sell to a strategic buyer and you say, have a nice company, I just want to sell, well, obviously more than five years before, at least in the direction. And then if you if you are interested in the private equity route, well, once you have a critical mass and the critical of the quality, let me say, I've got a business. I know my swim lanes very differentiated. I can build a leader in something. SAP in farmer in in your case, but then please don't leave farmer or whatever it is, right? There are so many so many of these swim lanes. Then you should start thinking early about it because the journey can be quite extended and exciting. So what is a size where you say this is then really interesting for private equity? Obviously, I mean, this private equity is not private equity. There's tons of funds numerous funds in the market from very small to very large and and and some are at the verge of being private investors to institutional investors, but let me focus on institutional investors. And the size is determined usually by the fund size, which the further you grow correlates with the size of the tickets they do, the size of investments they are related. Also, it's not true that big funds are automatically high value funds and small funds aren't, but in general quality of a fund in terms of more than money, and vice networks, teams that help you grow M&A or support M&A. There's a correlation between size and and and and quality. And you know the currency of private equity is called EBITDA, actually adjusted EBITDA and and there's probably not a precise level, but having seen it from the other side, from the seller side, talking to several market participants, my current view and that's what I tell my companies or the one side, vice is probably somewhere between two and three million EBITDA is the threshold where you can get a high quality institutional investor. And then it depends a little bit on the field you're working in, right? If it's more like a solid, solid area, better be a bit larger, but if you're in whatever data and AI is something security, one of those areas with scarcity, you'll get a good demand from good investors. Do you see a lot of founders misjudge when to start preparing for basically exiting or do you know what? most of the founders know, yeah, absolutely, I have to take X years before I basically want to get out of the business and I start now, I don't know, five to eight years before of that time. Yes. So I think that it depends. There's two, two types of founders. A couple of years back, it was much easier, much more difficult to get private equity invested because 10, 15 years ago, private equity, soul services, more as businesses where people can walk away, etc. So if you found it your business during that time, you may not have thought about private equity too much when you founded it. And therefore, what I see in that generation of founders quite often, and it's quite natural. Everyone is busy, everyone is growing his or her business and going from year to year, then sometimes they're difficult years. They may think about it too late, right? You rush into, you get in your 40s and then the 50s and you say lots of time, I can still develop. And then there may be a realization, oh, it's getting tough. I want to exit. Competitors left and right, are finding these private equity buyers and they invest in things and I'm left behind. And so sometimes people start to think about it just shortly before they reach an age when it's time to think about a handover or an exit. And that's too late. I would say the younger generation of founders is much more conscious about what you can create with financial investors. And therefore, you see a lot of the founders to plan for these steps quite proactively and get in time to it. So it depends a little bit on attitude and probably also a little bit generation. But there's definitely a tendency of some founders just waiting to know. For good reason. Now switching sides from because you were on the acquiring side on so many days when you also were on your central journey. And you saw many things I assume especially also. You got a really good radar for when a founder already basically basically says, yeah, I will stay the two to five years when you acquire me, but you know that will probably not be the case. And that may impact either the price or you even don't want to do the deal. What are, did that happen? Is the first question. Second one, what if there's a yes, what are those signals that you see and they say, oh, now I have to be conscious and careful as a buyer. And that impacts value negatively. Yeah, so it's a very good, very good question. And it's a lot about judgment. Right. If someone is selling the company, particular if advised by a banker, there's always oh, I want to be staying three years, five years, forever, whatever. Right. And and of course, usually the deal shapes also support that people aren't leaving prematurely. At the same time, there are some indicators, right. That's why you talk to people. It's a people business, right. People develop very expensive hobbies, right. If they create other ventures, what is the craziest hobby that you can remember that someone started? That's a good question, but it's typically related to flying, planes, those kind of things, right. And or creating new ventures, right. Doing something or buying expensive houses, somewhere distant, right. Yeah. But good indicator. But sometimes you get it wrong, right. Sometimes you read in, in you try to read people, I recall an Australian company that we acquired. Wonderful, wonderful company. And they had a back to the question of a 60 year old owner. And I would say co owner, who probably was in the 40s. So we were all betting that the 60 year old owners owner would probably not last very long in the company. It was not a large firm as a deep firm. And if you join a company like Accenture, we're typically the final ages like 60. You say not a long, not a long future, right. How big was the company? Well, it was like 20 people probably. They had an asset measure. The well-being of projects was the rural networks. So it was quite fancy. And the 40 year old co-founders seemed very compatible. He said, okay, would thrive very well in a company like Accenture. Guess what? Half a year later, the 40 year old told us he couldn't stand our place. And even with handcuffs and so on, he would leave while the 60 year old founder spent like five more years traveling the world in the company, evangelizing the methodology, what he has been building, two customers and was really happy. So you can get it wrong. Having said that, we probably got it more right than wrong in our judgments. But it's always human. Very cool. So one Tote sign was expensive hobbies. Were there other ones? Yeah, I mean, it's those things. People go to chair positions, hand over the work to the next generation. It could be good, right? It could also be wanted. But there's not much more than than those things. So now let's switch to what you basically highlighted already in the beginning, why at the beginning of all conversation, the swim lane, how you call it. How can you tell as a buyer if a company is positioned well, like what do you ask or what do you look at to say? Well, obviously, perfect. This is what I need. It's a VF problem in A. I want to buy A. This is A. Give it to me. Or they have A, but they have BCDG. Everything else on top. Yeah. And I must say, this is still why I'm in this business because looking at service companies, consultancies, tech firms and so on and thinking, are they differentiated? What do they stand for? How do they work? It's just a lot of fun. You see patterns, repeating patterns, but no firm is like the other. And you mentioned those swim lanes. This, some that are quite obvious, right? And you know, there's this word and strategy where to play and how to win, right? So the where to play, that means the definition of where in the market some companies play as their swim lane, that's the easier one. So to your example, I do SAP for life signs, right? You're fixed in industry. You get typically deeper in this as the GSIs, the big four and the generalists, but your focus, that means you develop your credentials. You develop typically further IP that helps you add differentiation. So you see a lot of those. It could be services firms related to thriving technology vendors. SAP was in the old days, right? Today, it's not that there are these firms, but it's not that common. Microsoft related to specialists. We used to call them Mona Niner's because they are just wedded faithful to one vendor. Service now sales force at last, see and right? And currently, Databricks, Snowflake, those kind of vendors where you say, typically, or salon is yeah, a vendor, a software vendor that is on a hype, but isn't yet fully penetrated by the GSIs and you often see specialist business around that. And that is something that obviously strategic buyers later on want to buy, right? For the ones who don't know it, what does GSIs then for? Oh, that's a that's a term. I actually, I don't like the term because it says global system integrators, right? And it correct rises the firms such as Accenture, Capgemini, the Indian pure plays like Tata, Infosys, etc. and some more. It's firms that come from a consultant. system integration background, but most of those firms have expanded to many more services, but still term used as the global system integrators. And cognizant, those big names, several hundred thousand people, multi-dimensional. They typically serve all industries, and many technologies and have many services from management consulting, tech services, manage services, whatever. So yeah, maybe just so somebody find by where where you are playing. Are you specialists in an industry or you mentioned Tova, it's a digital B2B sales advisor to the Dachmitterstatt, right? Quite a quite a specialized swim line, but it means you grow instead of the non-differentiating ones. There are some others where the specialty is less obvious. So you have to look a little bit deeper. It's more like how they do it. And I've started to work with a Dutch cloud service provider who I met as part of a private equity engagement last year. It's a company called Truberg Phyllis. And when you look at their webpage, it looks like 20 other countries, companies in the market. They do cloud services, they do software engineering, they do a bit of data in the eye, they talk about critical infrastructure and so on and so on. And you say, I can name 20 further companies, but when you look at how they work and how they differentiate from all these other 20 companies, you come to the conclusion they're actually quite unique. It's probably like 5% of the market that works like them. And these are more difficult to find and a bit more difficult to communicate because you can't just say I'm playing in these areas, right? I'm in the Netherlands, Germany. I do these kind of services for these kind of industries. But you need to get to the bottom of how they work and why it makes it different in terms of this level of quality, the customer satisfaction, the economics, the automation, IP that comes out of it. And that's a really nice group of examples, I think, which is worth looking for. Can you give us a couple of examples where you say this was really a best practice on how you define and stay in your swim lane in terms of consulting companies that you either on the cell or by side worked with over time? A very straightforward one, Homburgenpartner. Of course Simon Kuchen. And Simon Kuchen is Homburgenpartner-Wolus because they were acquired traditional management consulting firms. So at the upper end of management consulting and focused on advisory in a special functional domain. Rising sales distribution, nothing on manufacturing, nothing on general enterprise strategy, but very focused, very deep. So if you're a business leader in a corporate and you have specific questions, you know you go to one of those advisories. And I think this is just two great examples of companies. And there are more spaces than those domains because by customers, no way to call them. It's not because there is a good person, I know the guy, but it's a consulting firm. Not very clear what they do. You know why you call them, you get deep quality, they're differentiated. And those are, I think, very good examples of companies to develop. So you explained it nicely and I can absolutely relate because even in my own company we have the tendency to imagine all kinds of cool things we can do left and right. So what are the most common adjacency traps? So something that is not too far away seems logical, makes money. Maybe you have an imbound request because someone said, "Ah, could you do that for us?" So what do you see that happens often but where there should be a warning flag coming up? Yeah, it's everything where you cross a dimension, where you lose that swim line. It doesn't mean you should never leave your swim line or broaden it or expand it carefully but thoughtfully. So I think two classical pitfalls are, you are a tech customer, they trust you. You develop a good trusted relationship and you have helped them in, let's take the example, pricing, pricing strategy. And as you're a brilliant guy and you can do so many other things, they may ask you, "Can you also look into my manufacturing strategy?" or something else, right? And of course you can and it's good business because you can sell another project. But if you do that systematically, you lose your differentiation. Part of your business does something here, part of business something there and more and more you lose your your differentiation. The other one is when you're a high-end advisory firm, maybe more on the business side. And then you see all these wonderful tech projects following after your advisory typically, right? You say, "I do some strategy, I do some functional strategy, oh you should digitize." And then there's this wonderful big tech project that you're never getting because you're not having those skills. And I think the typical question, each advisory business ask itself, and the kids, they have that issue sometimes, right? They need to advise on data and AI, data technologies and so on and you need deep tech skills. Should they not buy a tech shop or an implementation, right? Or get into this because it's so big. And that's definitely one of the pitfalls to be avoided because typically that it gets you into completely new territory with new competitors, well usually bigger than you. It may change your economics. You may not get the same day rates, you may have other profits, you may need offshore, you mean, knee shore and so on. And therefore, it's a dangerous, there's a third one which I just think about what you see often with consulting firms developing assets. I say, "I want to develop my assets." And you need to develop more than people, you need to develop assets. And they say, "Well, it wouldn't be great if I developed my software." And commercialize the software and become a software company. And you see that that is one of the worst pitfalls if you do it wrong. Why? What happens then usually? It's so developing assets is great, right? Commercializing depends on whether it's great or not. But if you go into a real software business, your ecosystem, how to become successful completely changes. Typically, service and software are symbiotic, right? So software and need service businesses to give them scale, to give them multiple to be service partners and software sales scale rapidly, services don't. So typically, there's a one-to-many relationship between a software vendor and a service partner. And if you're coming out of services developing your software, many companies then don't let go soon enough, which leads to, "Oh, you don't have the sales engine or your service partner landscape because none of your service competitors like to sell your software because they say you want also services." And the economics are different capital intensity is different. And I've seen companies going bankrupt over that failure. They reinvest into assets. Don't get the scale. I've challenged this in the service business. And all the capital is how buried in that software thing which is still a bleeding money, right? And that's a really dangerous trap. I have one question here because what I see now is that senior partners or senior owners of consulting companies. So one case was in the handless blood, so big economic newspaper in Germany and he basically had 30 employees before the pandemic had to get downsized basically to five and then didn't want to build up again the manpower because now AI came around the corner said well I always do exactly the same 100 slice strategy project with my clients. I can talk about it in my sleep it's boring for me but it's valuable for my clients and he built a workflow AI powered software that is not fully but in big parts safe surf and he's super successfully growing that business where he had like roughly a million revenue in 24 then five million in 25 and 30 million plus likely in 26. And it's not a singular case I also tell it with a former senior vice president at MHP who went out of the company and basically did the same play. I have the subject matter expertise he's building digital twins now so he's building it's still a project he's basically creating a digital twin but instead of two weeks it's like or months it's like two two days or so he just needs a data and he builds an AI digital twin hands it over and says this is your client now talk to him and do whatever you want and he's selling it as a subscription business and last partner then I'm curious what you say is that that is one of the biggest fears that for Durranathon achieve AI growth of a self-cup Gemini and meant told me that his brightest partners leave the company and do exactly that because then they can bid value for themselves and sell it. Yes yes and I think that's the that's now the advent of Genie Eye right with all the new possibilities and I use it myself right I mean you use it yourself probably right if you do it if you do it well first of all it elevates and accelerates you in your in your manpower basically what you would have done manually if you do it very well you develop a repeatable platform right something that can be monetized because it it starts to encapsulate your IP that you had in the head in in a workflow in in a in a nest that you can put on one of the frontier models and and maybe even monetize right if you put it on a marketplace all these marketplaces of the hyperscalers other firms as well where you can reasonably in an uncomplicated way bring assets to those marketplaces and monetize them irrespective of geographic boundaries if you're in an Azure marketplace well typically your global's immediately even if you say the Germany right and and I think that's that's definitely a route can you sell it in the end or is it an add-on that's the that's the deciding question in the end because it's something that becomes an asset business in its own right or is it mentioning another highly successful company Gluckangier here in in Germany they've developed such a business as an add-on to their to their people business and the managed service business it's a big money maker it's a big profit booster is it a standalone business in its own right probably not but it's very valuable yeah I can fully relate that it takes away found a focus in a sense that is also costly for a company yes because I mean I had some founder owners on the podcast who then started to develop something like this and it's you see it in their eyes it suddenly starts to spark and they invest their money but besides the two examples that I just mentioned you were AI changed the game I didn't talk to one yet who successfully scaled a software business on the side there's very few examples very very very few examples I would say 10 not more than 10 percent success rate in the sense of developing a software business in its own right out of a service company and it's several factors most go wrong rather than right so with so many deals that you accompanied and also right now you're still doing that right now on the buy and sales side can you pick maybe two or three hands on examples of companies that were sold successfully and just list the two three four reasons why in this case or that case it was successful because I think with stories and some names it everything is clear I think you you can grasp the theory of what you say but I would love to have some hands on examples it possible then yeah let me name some some some few out of out of the recent recent examples there's a company called Mid-Curve which ironically is now owned by Accenture but there was more coincidence it's generally a wonderful story about founders coming from outside of Germany and in the in the whole debate around migration and and God knows what one of the founders was an Indian who was I believe one of the first green card holders under the Otto Shibi program I don't know whether I was in the 90s or long time ago he came to Germany the other one was an Argentinian also came to Germany out of similar reasons right they created their company worked for other companies first then created they say we can do it better then they created a company build it up and it was very much about commerce two large corporations they combined it with cloud they got in when there were 250 people they got in private equity as discussed before when was it roughly time what time land wise they sold two years ago so seven years ago was then private equity and and their idea was they wanted to be an end-to-end digital provider for customer experience which doesn't sound very unique out but to B2V companies and that's seen then which at the top is is an advisory business means you have to adhere to certain technologies if you're B2V you can't take boiler plates then that's a software in most cases because you're special you have funny products that aren't like selling devices on a on a on a on a big marketplace but they are special they often parts machines and so on so the technology underneath needs to be flexible and and tailor made so they went for composable technology which is somewhere between bespoke development and standard package software things like commerce tool or spryker and and those kind of families and it runs on cloud because cloud is scalable flexible and and all that so and they got into data and AI in order to serve that swimling so they use they they had several components ready made when they started private equity and built then the other components by way of acquisitions and brought together in in in on the one umbrella and and that's I think a good example what in the sequencing you have an idea you go you define your initial swim lane it was successful you define a probably a little bit broader but still specific swimlane and then you sell it yeah with a certain operating model delivery model was very integrated big population Germany in India in Spain and loads of companies being interested in this company and in how big were they when they saw to Accenture seven other people and and they could have gone private equity they could have gone strategic they had the choice in the end because this swim lane was in that time attractive to so many interested parties which then brings us also to the question of in addition to all the financials and swim lane you better be in a in a in a scarce space right where there's more demands than supply but what is the hot space or what other hot space is now It's still security and will be probably for the next years because security is so ever involved evolving and important, right? So many attackers and vulnerabilities and in general not enough people who understand it deeply. And now with AI, new tools both on the attacker and the defender side. So thriving space, security is always good. Data and AI, right? At least the modern generation, don't be in the old stuff, be in the modern one, always always good. And probably also what you alluded to relative to consulting is probably a new generation of consulting. Less your slight painters, but more like AI enabled data driven way can probably generate some more modern swim lanes for yourself. Yeah, very good. So my curve is a good example. Do you have one or two others? We'll say this highlights another theme that you think is interesting to know for founders. Yeah, I mentioned another one. Also the tech space mobile app, clone based firm. I would also say from the outside you wouldn't necessarily say why are they so different from other companies in that space at least at the time in the meantime. Under private equity ownership this will have evolved. But one of their themes was they were a cloud engineering firm around Azure. But largely what made them successful was helping Microsoft to compete successfully against Palantir, which is still a great theme, isn't it? And so they were able to take the Azure cloud workloads which come as a like a bag of legal blocks and help companies with their own IP and assets and knowledge to bring it together so that they could create something on a generally available technology that would otherwise only be available from Palantir. But from Palantir you would get a monolith. You would be all bundled. There's a bit of a locking effect as is currently discussed. And that's I think a swim lane. Again, it's from the outside looks like yeah, it's cloud engineering, but the specialization was really a certain compete proposition which was highly successful. Very good. And do you have some numbers and maybe timelines for that case? What do you mean when it was when it was sold or? Yeah, for example, so whatever you know, it was sold to a private equity to Amira. I think about three years ago. And they were like a hundred people around about. So we already talked about the thresholds that you need in order to be able to be considered from serious private equity companies, which you said is two to three million. What? A different give a second. So other besides this two to three million, is there like a next threshold where you say, okay, then they might be even Trump's significantly for example, about five. It's different or is it less the sheer amount of a bit at some point in more other factors that are more important? I think the multiple as such doesn't change with size necessarily. Because the multiple is largely growth and profitability, scarcity, differentiation, right? Those factors flowing to what are private equities willing to pay for you if you become their investor platform, right? And if you're like a three million EBITDA company on your three million, if you're differentiating the well-growing, et cetera, you get kind of relatively speaking the same multiple as if you're 30 million. Interesting. Same parameters. I don't think it's the case. If you're still at the smaller end, you don't have to worry too much what happens to you after the private equity round. Because you're a three million EBITDA business, you may double, triple your size, but you're still there will be given differentiation, lots of buyers, potential buyers, or the next round of investors with the bigger funds and then the bigger funds as well. Where it gets a little bit more sensitive is if you reach a certain size bracket where if you look at the professional services market, given also what I said initially, most acquisitions are typically specialists in some way. They need to be, or geographic, footprints, or themes, the mains, et cetera. And it's quite rare and often then also not successful if they say generalists by generalists. It's very difficult to integrate. You have all the dimensions, you need to break the integrity typically of the companies. That's often not a good idea. But there's a natural ceiling where service companies acquire other service companies. If you study the market, it typically is more in the tens or hundreds of million size of EBITDA. No, no, no, no, no, no, even you, rather than in the billions. Which means that if you are at the upper end in the higher spectrum in that and you go private equity, you need to ask yourself, I think, early on who's going to buy you. Otherwise, it's necessarily you have to go public or find yet another bigger private equity. But at least the strategic buyers, there may not be too many. We had an interesting two or three times podcast guest Tillman, or who, that could be something that listeners could jump to and listen to who founded Diva E with priority. So he basically amassed seven boutique consultancy owners, where he said, I want to build a consultancy that conserves bigger clients on digitization. And honestly, I don't know what else was the unique swim name, but he had a swim name. And Emma and partners, Emma and capital partners invested and five years later they exited at I think a hundred million revenue to a strategic who is owned by a family business, so family office who has like no willingness to exit. And we had recently the CEO of the choir and Tillman on our show, so it was interesting to hear the story and how the newer choir basically thinks about the business, but I think that's kind of unique because this new owner is not thinking about exiting. Yeah. It's a special case and then not too many of those, right? He was acquired by conclusion with is a Dutch firm with a quite specific operating model and approach. And they've gone to quite some size, I think what I've seen, I think it's public available in public, they've beyond half a billion of revenue. They have been keeping their companies, I would say, in a loosely integrated context. Yes. Yes. They themselves are owned by a family, a NPM family office or family investor and there are not too many of those models around, there are some. The question is definitely, if you're in such an environment, you have a longer horizon to bigger than the four, five years. I would dare saying that in terms of initial options, conclusion could not probably sell itself to a classical strategic. because it would be too unintegrated. Right? So their version is basically stay in that family office. And yeah, I'm now and I'm curious. It's a very successful firm. And I'm curious about the evolution of how they continue. Yeah, no, it's very interesting because they also basically pitch it to foreigners as the anti-accentral because at the accent you're fully integrated and desive then your company basically doesn't exist anymore. And so it's interesting that there's a different methodology that seems to work as well. And yeah, also curious on how that evolves and how Tim and Sisa from the inside then. Yes. So if you imagine the owner found of a company who wants to basically get out of the business in five to eight years. If you summarize it, what are the top things that she should do at what point of time? Now clearly define your equity story. What do you want to stand for in five years or what do you stand for now? And what should also be an operating model that that adheres to it? I think that's something. And then start basically a plan for the next five years. What makes sense to develop as part of this to add to that value and what you should do rather avoid? So on the letter, if you're the star in the deaf region for XYZ, you may not want to open a US office six months before a sale. Why not because they may not be a good bad idea to go to the US, but it will be a little drop in the ocean. It will be a distraction. It will not add to your story. It will dilute your story and create concern by a side. That's true for all these extensions, right? If you if you do something, please be strong and articulate in your swim lane. And then also improve your performance, your economic performance on the way to an exit because in the end, it's your positioning that counts, but it's also your financial start count. And prepare also good management teams. If you want to rather exit as a person, then after a deal shorter, then make sure there's a second level management that can carry forward where this buyer is not concerned that if you're not not around anymore, something may collapse. Those kind of things. Two or three questions that popped up while you were saying that. One, which I see sometimes in consulting companies, they are they don't they have one main swim lane, but they have two or three other side things where they have smart people working there. And it feels like they they I don't know if they believe in these other side lanes, but they believe in the people in these side lanes. Would you advise rather to stop all distractions? You lose some people. You are smaller suddenly. You have less. But you're focused over to what would you. No, no black and white answer, obviously, because it depends, right? If it's if it's something that's clearly on the fringes and doesn't add to your. Doesn't doesn't add to your differentiation and doesn't add to your financial posture. You may want to resolve it and spin it off or whatever you want. The the challenging if it if it's something that is should be could be developed and and instead of your current swim lane, you have a somewhat broader swim lane, but you can still articulate and make sense logically connected. Keep developing it right so that it's not just little nascent peace, but maybe already a leader in this. The difficult ones are those where basically you say, yeah, it's not really my core part, but it it creates wonderful EBITDA. Yeah, it is profitable. So what do you do then? And that's the challenging part because obviously it may dilute your your positioning, but it helps your economics and then it's. It depends. Yeah, very good. I think that's it for my main questions. Last one, what is a before you go into the verifier questions in the end, what what is a good EBITMarshan in your view for a professional service firm? I'd say 20% is a good mark. It depends of course what kind of service is it, right? If you're a value at a reseller, it's a different economics, but you talk about consultancies, you talk about high value service firms, I think 20% is a good benchmark. And can be higher. I've recently seen one that was much higher and and again, the conventional wisdom says, oh, if you want to get higher margins, you either need to develop into very high day rates like McKinsey. And have a high spread between series and day rates and and nice juicy projects or you have to go near shore of four to have a labor arbitrage. And and then again, you see perfectly crafted onshore models. They're just running the business very well, very thought through commercials, very disciplined in their delivery and they can also generate margins far and excess of 20% but 20% is good, good, good benchmark. Okay, very good. So now then we are at the end of our conversation and I have a couple of webbed fire questions for you. So what do you do to keep body in mind fit and sharp for I assume it's sometimes peak stress moments because you're advising either on the set or by side and sometimes it gets tense. Well, body is this very simple. After many, many years, some years ago, I rediscover squash, which I used to play when at university and we found some remain one of the remaining squash centers and play on a weekly basis. And that's for me, still my favorite sport because it's so it's body and mind, right? You have to be quick, play a bit of tennis, but not as good as my wife. And for for my mind, first of all, my work keeps me hopefully sharp or at least busy. And a year ago, I started playing piano, which is incredible for your mind because somehow it does something with your brain when you start playing from scratch at least. Very good. Do you have a favorite book that you can recommend? Yeah, I recommend everyone probably knows it, but the one is my absolute all time favorite is down your count of months thinking as you're thinking fast and slow, I think is English title. And I like it so much because it influenced the whole behavioral finance theory and why are people thinking of taking decisions in certain ways, sometimes what you would think maybe irrational and and. But beyond that, also in the whole discussion about what can Jenny I do and where the limits, what can it not do yet and what is a GI, I think without him kind of really thinking about that there's a lot of analogies, how humans think we say, oh, Jenny, I can do this type of thinking, but maybe not that type of thinking it's my all time. And for the ones we don't know what we put it into the show notes as a link. What do you see is the biggest challenge that's exciting, we just have that nobody's really talking about. I'd say succession, finding, finding someone who's good as you may be as a founder in your shoes and particularly in consulting it's also about personality, it's not just the knowledge is the personality. And often it's it's strong personalities and how do you how do you find and develop the caliber of people that can succeed. you and keep the company thriving, not just administrative or run it. I think that's the challenging one. And it's really good. Nobody likes to talk about it. That's true. I cannot be called anyone actively talking about it. Who should be our next podcast guest for the leaders in consulting community? I was talking about Minecraft and it's not a classical consulting. It does anything from consulting but tech services and borders. The boundaries are blurry anyway. I'd recommend invite Amjabli Akbar. He's the founder from India, from Kerala. He's now partner at Accenture. He sees the big company now. He can tell you about how it is from a founder or company to a large firm. I must say I love his journey and he's a very insightful person. You'll enjoy talking to him. That could be super interesting because Accenture is still a quiet and correct companies. And so if you said your company maybe Accenture is one of the potential buyers and then you get some inside view and out is after you acquired. So definitely try to get Amjab on the show. And last but not least, now we can directly address our audience partners in the event. These are consulting companies. Is there anything Daniel that we can help you with? I'm always curious in interesting companies. If you see anything and here's a company that is just so special and maybe needs help in discussing their way forward. I'm super interested just intellectually. So I think that's also those models. We say new parts of consulting which are alluded to great AI models that may emerge always interesting. Yeah, very good. And how can people reach you easiest? It's very simple. I'm on LinkedIn and I have a webpage with my contact details. Very good. We put both into the show notes. That's it. Thank you so much for sharing your insights, Daniel. It was a pleasure to have you on our show. Yeah, it was a pleasure likewise and thanks for having me, Sunny. Thanks for tuning into the leaders in consulting podcasts. If these insights hit home, check out leaders in consulting.com for ways to connect with other consulting leaders. There you will find info on our monthly confidential forums. See you soon.