Episode 111 Transcript

Brent Trimble: Welcome to the Professional Services Pursuit, a podcast featuring expert advice and insights on the professional services industry. I'm Brent and today I'm joined once again by Ramone Param from Kennedy M&A. This is more Ramone’s third time on the podcast, so I'm sure you are very well familiar with him by now and appreciate his insights in the consulting industry as much as I do. And I know several listeners have let us know they do as well.

Today, as we kick off 2026, we're starting a new series with Kennedy M&A, focus specifically on M&A, how to optimize valuation and streamline the deal process when acquiring a services firm or being acquired. To start things off, we're taking a look back at the 2025 M & A landscape and then exploring what's ahead for 2026, including the key trends Ramone and his team are seeing among consulting clients.

I just want to remind listeners we will have ways you can access some of the research and newsletters from Kennedy as well.So, Ramone, welcome back and happy 2026.

Ramone Para: Thank you, Brent. Happy 2026 to you as well.

Brent Trimble: We're going to kick off this series with a little bit of a look back. So again, it seems like there's this repeatable cyclical refrain, but the economy has been in a strange spot this year. There's some optimism; GDP is up. There's volatility, geopolitical inflation, deflation. But lots of activity or at least someone who maybe has nominal observation of the M&A space, seems like there's an uptick. Is that anecdotal? Is that realistic? How do those dynamics shape the M&A landscape for consulting firms?

Ramone Para: It's not anecdotal, we’re seeing it first hand at Kennedy M&A with the buyers and investors that we're speaking with and the general optimism around undertaking deals in 2026. A bit of context, Brent, just in terms of what we saw over the last year and where we are today. Last year was pretty much a year of two halves, started off cautiously optimistic. And the changes that occurred with the new administration in the US probably halted some of the deal activity that we thought we were going to see in the first half of the year.

Second half of the year, we saw a notable rebound in interest.So, there was strategic buyers, there were private equity investors that were looking to do new deals in professional services in the second half of the year.They were coming back to the table.There was renewed optimism in the industry.Lower interest rates helped and more realistic views on valuations from both buyers and sellers were getting deals done.So, that's continued into January 2026 where we started the year where strategic buyers are looking to reboot their strategies.

I see this new AI era that we're in, rapid advancements in artificial intelligence and its impact on professional services. This shifting global trade landscape that we have, and ultimately, this need to reboot strategy and drive growth beyond what you can get organically is turning strategics towards M&A. And then on the other side, we've got private equity investors this year that continue to have record levels of capital available to do deals on the sideline.So, both of those forces together are contributing towards a very optimistic start to the year where we're expecting a lot of deal activity in 2026.

Brent Trimble: The, one follow up question is, you think about our listenership and of course our focus on professional services firms, that's why we're talking; have you seen any breakdown in the type of firm, IT services, boutique management consultancy, transformation consultancies, more advisory verticals, and have you seen a lack of interest in a type of firm or has it been a broad brush across the whole industry?

Ramone Para: I'd say that there was a broad uptick in the second half of the year. But there were definitely segments of the industry which are seeing more of an uptick than others. So, yes, IT services, digital transformation, niche focus advisory firms are receiving interest, particularly where that digital transformation capability has an emphasis around AI-enabled transformations and so it’s unsurprising that's receiving a lot of interest. And then where capabilities are focused on hot button items for clients. So, with all the issues that we're having with global trade areas like manufacturing, supply chain consulting, that was a hot topic.

Brent Trimble: Makes sense.

Ramone Param: Yeah, we saw a lot of demand for consulting around that. And then vertically, there were specific verticals that were receiving interest. We saw interest in banking, industrials, energy. Contrast that with other areas of the market where the uptick was slower, and you can think of generic advisory shops, staff augmentation plays. That's not as of interest in this AI era. People are looking for, and it goes back to our discussion on the last podcast series, focused differentiation. Differentiated value propositions are what buyers and investors are looking for. There was definitely a tale of two ends of the market where the uptick was more prominent.

Brent Trimble: Would it be fair to say, as you're looking ahead and there's optimism, there's activity, there's capital available, that we’re entering a smarter M&A cycle, more refined, more precise, and where the deals are less about mammoth, big monoliths and more about getting better, sharper, specific?

Ramone Para: Yeah. So, we think that trend is going to continue in ‘26. And it's, I'd say that the idea of more smart M&A cycles have already been occurring for the last few years since the pandemic. You know that the higher cost of capital, the industry disruption that many of the bigger players have faced from AI, all of that has got them focused in on thinking more carefully about doing deals, and looking for, really, what is that specialized data-led offering that's going to make a difference for the organization, not just broad brush, transferrable capability.

Brent Trimble: To follow on that, the pressure AI has brought to the broad consulting firm in this, both existential threat but also great opportunity to really reinvent and form new types of firms, is creating very specific intellectual property, may be methodologies, frameworks that are repeatable, good revenue streams, so we're not just selling fungible billable hours, but we've got a real point of view and maybe, maybe not ARR like a software, but something that's repeatable.

Tell us a little bit about this idea you had shared prior to the show in the recording here about strategic value drivers, like that triumvirate or a handful of real value drivers that are part of that key criteria for firms doing evaluation and due diligence.

Ramone Para: Yeah, absolutely. Some of the areas that are really standing out, firstly, I'd say differentiated intellectual property, that's key. And when I'm thinking about intellectual property, we consider methodologies, software tools, proprietary data. When it comes to proprietary data and intelligence, that's ultimately the lifeblood of AI, it’s what's driving the insights, the productized intelligence, the diagnostics that can come out of artificial intelligence capabilities that buyers have.

So that's really become an important strategic value driver for many strategics that are out there. They've invested in their AI capabilities.But what makes a difference to the other competitor is that proprietary data and intelligence, and focused expertise that goes into their AI tools, that's become a really important value driver for strategics to drive synergies from a transaction.

So, focusing in on the quality of differentiation of that IP that they're going to be purchasing, that's probably one of the most important ones.And then the other bit that we've talked about on the last podcast series, strategic positioning, and it goes to this idea that last year, if you struggle to grow, if you struggle to drive your profitability margins, if you struggle to garner interest from buyers, if you were looking to sell your business, in many cases it's because you had a very generic, fluffy value proposition that wasn't focused, that wasn't differentiated, and that ultimately hurt your business and hurt your prospects, if you were looking to exit.

Brent Trimble: This criteria, this framework where either private equity or an acquiring firm is taking a look at a firm’s offering, if they're strategically positioned, certainly that's gaining some attention. But how is AI changing the logic or the template of evaluation behind these consulting firm acquisitions?

Ramone Para: We talked about the IP element and that's the assessment of IP, and then what we can do for the for the AI capability to drive synergies, that's definitely an important lens that consulting acquisitions are being looked through in this era. I'd say, probably secondly, and a very important lens is, I go back to my 20 years of doing deals in professional services and a lot of the view of acquisitions in the consulting industry was really around the people component only: you're purchasing people, you're purchasing capability, you're buying consultants for many firms, as they were looking to grow and scale. In today's era, that's changed. It's not about buying people and consultants and capability. It's more around the systems to deliver effective outcomes. It has been a transition now in the way strategics of thinking about acquisitions. Buyers are now focused on the AI-enabled consultant. It's the consultant that can do a lot more with the latest AI tools to drive value and deliver outcomes. Less of a focus now, and the logic behind the consulting firm acquisition, is around just buying people and headcount.

Brent Trimble: And that's really turned things on its head. Because for years, I certainly have been in firms that have been acquired and then firms that were acquired, and that basic logic was simply, we're buying capability that's contained in these, either dozens or hundreds of capable, consultants who are now going to be our peers and our colleagues, and therefore, we're going to grow.

To follow up on that, do you find, you help counsel pre-, post -, during M & A; do you find AI - tooling methodology framework helps speed up due diligence ? Is it reshaping, I mean obviously it can reshape what makes a firm valuable; but the process itself of evaluation, going through due diligence, I think of I haven't done it as many times as you have. If you were in corporate dev, that was your job. But the two or three times, it was a murderous process, right? Paper and data and the data room. So, maybe on the practical side, have you seen, AI help influence that?

Ramone Para: Yeah, absolutely. And, Brent, you take me back to my nightmare times of deal rooms. Years ago, when I just had the papers all over the place and we were reading through 100-page documents late at night. I mean, that really has made a difference in the last few years, AI tools, where you can now go through huge amounts of data, documentation.

And we're seeing that amongst lawyers, accountants, other DD providers where they're getting through huge amounts of information more quickly with the latest AI tools.And I'd say that really goes both ways. It's also, one, that's helping the due diligence providers get through due diligence more quickly and get through swaths of data and documentation more quickly.

But also, it can be very useful for sellers as well.If you're a firm that's responding back to huge requests lists and trying to collate information and responses to buyers, and the DD providers using AI tools to get for information quickly and provide responses back to information requests lists, you can get that done a lot more quickly in this era.If I look just in the last few years, I have seen many instances where AI tools are making the DD process smoother and less painful.

Brent Trimble: So, on the valuation side of that equation, you're helping a firm evaluate, go do the due diligence and you're applying evaluation, so it sounds like a lot of the metrics that were really the standard for many years, 20, 30 years, valuation per consultant, valuation per EBIT multiple, sounds like AI is really changing those as well.

Ramone Param: It is, it is. I mean, valuation per consultant now is less of a metric that has an importance in this era. And we think that's going to be of less importance over the next, in the coming years. It's really around the qualitative aspects of a business, the synergistic potential of bringing those capabilities within a buyer’s organization and then focusing in on what makes this business special, and is it reflected in the financial metrics of a firm.

And I'm going back to all of our sessions that we had in the last series where we talked about what makes an attractive consulting firm, and we talked about a lot of the qualitative aspects of it. And we've spoken about focus and differentiation here.And also, the quantitative numbers that go into it, the idea of a high performance consulting firm that's ready to receive investment from a private equity or receive an optimal outcome from an acquisition process, they're achieving 20 % + EBITDA margins, over 50 % gross margins.They have a considerable amount of revenue, which is recurring in nature.That's become even more important in this era. And we think those thresholds will probably increase.

Brent Trimble: With all that being said, it's still the people expertise, capability, strategic business that's powered by ingenuity, desire to really create breakthrough work and problem solving for clients and deliver to their expertise and solutions, so very much still a human business. How are talent strategies being impacted and factored into the M&A process?

Ramone Para: Talent strategies remain key. And it's the critical component still, for any consulting deal, is the people. That's the asset that you're purchasing. And we have spoken about systems and IP, and that's becoming increasingly important. But talent strategies will continue to be of emphasis during an evaluation of a consulting deal.

We talked about AI - enabled consultants.Buyers looking at how consultants in 2026 have been trained to use the latest AI tools to drive outcomes and deliver value for clients.That's critical. I'd say it’s becoming an increasingly important component of reviewing talent strategies within a consulting firm.And that's alongside the other aspects of talent strategies that continue to be looked at.

So, retention continues to be key.And incentivization.I spent the last year working with consulting firms that saw themselves as being one year 18 months, even two years away from wanting to do an acquisition analytics business.And we picked up on, hey, actually, the next tier of leadership below the founders, are they incentivized to drive growth ? Are they retained within the business ? Because it's going to be critical to have them retained and incentivized when you do look to go to market in the next year or two. So, let's think very carefully about how to create a thoughtful strategy to incentivize and retain those people.And that can include granting equity, shadow equity options, bonus schemes.

But that is definitely going to be scrutinized by a buyer to consider whether that next tier of leadership are retained and incentivized post - sale alongside the other elements that you would see in a talent strategy: the training programs, the onboarding processes, performance management, all of that is key for any consulting deal.

And I've also mentioned, the final bit. If I look back at the 20 years of doing deals in professional services, I've seen many deals have gone wrong post transaction.They didn't meet the expectations that the buyer or the investor had when they set out to do that deal. Cultural mismatch is usually an important component of why a deal can go wrong for those. So, the focus and emphasis that a target firm has on creating a very unique culture that holds the team together and then the buyer assessing how they can retain that and keep that magic going post-close is another important piece of any deal that continues to be in 2026.

Brent Trimble: And probably the most overlooked.

Ramone Param: Yes, absolutely right.

Brent Trimble: I mean, the metrics, the data, the capability, the numbers might all make sense. But if culturally, there's it's oil and water, that can really torpedo. Still a business is powered by people, right?

Ramone Param: Mm-hmm.

Brent Trimble: As we wrap this first episode in a series, I want you to think about the year ahead and probably synthesize a little bit about what's come before, last year. If you had to make one bold prediction for consulting M&A for ‘26, what would it be?

Ramone Param: Yeah, we're doing a lot of scenario planning and what the market's going to look like over the next year. And maybe even over the next few years. But we believe that there is good potential there over the next year. There will be a transformational cross functional deal that occurs in the market that changes the landscape for professional services.

We saw that last year and the year before in accounting, there’s Grant Thornton's acquisition of Stax, the significant amount of private equity that went into the accounting sector, and has really changed that landscape completely. We think there is good potential for a deal to occur in the next year that blurs the lines between, not only strategy and execution, but also of technology. It could involve a significant platform component as well.

What we're monitoring could happen next year, it might be 2027. But we do see the potential for a cross-functional play to occur that blends strategy for execution with technology, ultimately all about driving the need for clients to have a better end-to-end solution in this disruptive market space, really trying to meet that demand for clients.

Private equity was a key component of those transformational deals that have occurred over the last few years.And from all the conversations that we're having with private equity and financial investors, it's looking like it's going to be the same this year. There's a lot of capital on the sidelines to do deals, private equity that we've spoken to at the beginning of this year are active. They want to go out there and really put that capital to work in new transformational acquisitions, and that's segments of the market that they're focusing on. And we think they'll play a central role in any transformational deal that occurs this year.

Brent Trimble: When that deal occurs, we'll come back to this episode. And you can append into it, do a follow up and maybe do some analysis. But that's a great insight.

So, Ramone, thanks so much.These are always great. And whenever I or some of our listeners will be going through our LinkedIn feeds, our business press feeds, and we see those bubbles of activity, I always think of the insights you bring us in these podcasts.

I know you're busy on some deals right now and you've got some research pending.For stuff that's coming up, listeners can go to kennedymanda.com or find a link to Ramone's newsletter, Ramone Param kennedymanda.com off of the LinkedIn derivative.And we'll put those in the show notes.

But, thank you again for joining. We look forward to our follow ups to this.

Ramone Param: Thank you, Brent.

Brent Trimble: And for all those listening, thank you so much. We'd like to hear from you. If you have any feedback on guests, question for Ramone, or just an idea on episodes or feedback, you can always reach out to us at podcast@kantata.com.

If you enjoyed this podcast, let us know by giving the show a five star review on your favorite podcast platform and leaving a comment. If you haven't already subscribed to the show, you could do so anywhere you get podcasts on any podcast app. And to learn more about the power of Kantata’s purpose-built technology, go to kantata.com. Thanks again for listening.