One on One with OMNI's Frank Bernhard

Frank Bernhard The merger and acquisition market is way down from its peak a few years ago, but there are still significant consulting opportunities for well-positioned firms. To better understand the upside to the down M&A market, Consulting ’s One-on-One sat down with Frank Bernhard, OMNI Consulting Group’s managing principal for its telecommunications, media and technology practice. His 20 year-old M&A firm grew by 7.8 percent in 2009, far outpacing the sluggish market.

Consulting: The M&A advisory marketplace is dominated by very large, global consultancies, where does your 100-person firm fit?

Bernhard: We’re technology economics. Our niche is helping potential buyers quantify the value of the technology of another company. It’s not uncommon for a buyer to want the technology and discard the rest of the company. We are hired to determine the economic lifecycle of a company’s technology. Is their technology maturing or could it be just at the cusp of taking off? Our job is to unravel the equation to understand where a possible acquisition target’s technology is in the curve. And it’s not just about the one company’s individual parts. We also look at how they might integrate into the buyer’s existing products. We’ve seen a lot of acquisitions of middleware companies in the last two decades, where a product company buys a very small piece to make their bigger machine more valuable.

Consulting: When are you brought in on the client’s decision-making process?

Bernhard: Before a deal is done, we are hired to figure out what subset of technology would be worth the investment and what’s the value of that technology. And sometimes we come in after a deal is done and we’re asked to figure out ‘What do I do with the pieces that are most valuable?’

Consulting: Where are you seeing the biggest consulting opportunities?

Bernhard: The bright spot, for us, is that companies are now more apt to spend time doing their homework. They are hesitant to act and are taking more time before pulling the trigger. As a result, they are more willing to hire firms to help with that process.

Consulting: How is your firm differentiated from the larger M&A advisors?

Bernhard: Our smaller size is an advantage. We don’t have hundreds and hundreds of people we have to feed work to. So, the work we get keeps everyone billable and allows us to bill at rates relative to the high end of the strategy consulting market. We don’t have to worry about the scales that are common on projects done by firms like Accenture or Deloitte. And in our specific technology niche, we have very limited competition. Our consultants also tend to be a bit more senior. Our most junior consultants have a minimum of five to seven years of experience, as opposed to entry-level analysts at other firms that may be fresh out of business school.

Consulting: How do you see the M&A market shaping up in 2010?

Bernhard: In terms of the total number of deals, volume is way down. Buyers are more judicious and cautious. Average deal size is also down, which is an indication of a lack of willingness to invest one’s limited capital. From what we’re seeing in our client’s pipelines, I’d suspect the M&A market will likely be somewhat flat in 2010 . There’s little reason to anticipate a significant increase in the number of deals or the average deal size.

Consulting: Does that mean that the M&A advisory market will also be flat?

Not necessarily. Companies are spending upwards of 2.5 percent upfront, between initial acquisition targeting and due diligence. And in the last few years, the percentage spent on upfront advisory work has gone up from about 1.8 percent to 1.9 percent to 2.5 percent. There’s more exclusion variables, more reasons to exclude a deal from happening. There are more things to look at and consider.

Consulting: Will this rise in due diligence remain, even after the M&A market picks up again?

Bernhard: I don’t think so. Looking ahead, I think you’ll see less spent on due diligence and more spent on post-merger integration. This willingness to elongate the due diligence phase is likely just a short-term phenomena. There are far more sellers than buyers in this market. When that ratio shifts, sales decisions will have to be made more quickly.