Get in Touch

Consulting Firm EBITDA & Valuation Multiples: 2023 Report

Business
Consulting Ebitda Tn

This report compiles data on private consulting firm transactions that took place in the period spanning Q2 2022 – Q3 2023, highlighting average EBITDA and revenue multiples. Our analysts sourced the data from a combination of publicly-available and subscription private equity databases; middle market investment bank M&A reports; and first-party data from investor networks. 

The table below contains the results of our analysis, organized in the following ways: 

  • Separate tables depicting EBITDA vs revenue multiples
  • Multiples broken out by consulting specialty 
  • Multiples broken out by EBITDA / revenue range

EBITDA Multiples for Consulting Firms – 2023

Consulting Sector EBITDA Range
$1-3M $3-5M $5-10M
Advertising 9.3x 11x 12.8x
Engineering  9.5x 10.9x 12.9x
Financial  10.1x 12x 14.2x
Human Resources 8.9x 10.8x 12.6x
IT & Cybersecurity 9.7x 11.5x 13.3x
Legal 10.3x 12x 13.7x
Management 9.9x 11.8x 13.4x
Manufacturing 9.5x 11.1x 12.8x
Marketing 10.1x 11.9x 13.6x

Revenue Multiples for Consulting Firms – 2023

Consulting Sector Revenue Range
$1-5M $6-10M $10-50M
Advertising 2.5x 3.4x 3.9x
Engineering  2.8x 3.7x 4.2x
Financial  2.9x 3.8x 4.4x
Human Resources 2.2x 3x 3.3x
IT & Cybersecurity 2.4x 3.3x 3.7x
Legal 2.3x 3.1x 3.5x
Management 2.2x 2.9x 3.2x
Manufacturing 2.5x 3.4x 3.8x
Marketing 2.4x 3.2x 3.5x

The sections below describe the 2023 M&A market for consulting companies, providing context for the above data and insight into what the coming year is likely to bring for consulting firm owners undergoing an M&A process.

M&A for Consulting Firms in 2023: The State of the Market

Between 2020 and 2023, the consulting company M&A market was erratic, with average EBITDA multiples fluctuating between 9.7x and 15.2x depending on the industry. Certain specialties, such as management consulting, showed a higher degree of stability and have managed to sustain their growth trend into the sparser economic environment of 2022-2023.

Consulting Ebitda 2 1024x633

Midsize financial consulting firms saw the highest growth in EBITDA multiples, fluctuating between 13x-15x, marking an approximately 14% growth in valuation since their recorded amounts at this same time last year. By contrast, more volatile industries like marketing and advertising saw greater fluctuation over the last several years due to the Covid-19 pandemic and the economic downturn starting in Q2 2022, with EBITDA multiples dropping from a high of 12.8x to a low of 9.2x before leveling out.

From our research, we also came across the following trends in today’s consulting firm M&A market:

  • Greater specialization equals higher multiples. Consulting firms with niche specializations saw a high multiple on earnings in their M&A process. By contrast, more general “management consulting” trended lower on both EBITDA and revenue multiples. 
  • Deals involved a higher-than-usual percentage of stock vs cash. Until the economy regains full momentum, buyers are likely to prefer deals with a greater proportion of stock compensation, which reduces the acquirer’s risk and keeps owners and key employees in their positions. The average stock portion of consulting firm deals in 2023 was 32%, according to one study.
  • Representation matters: All sources indicated that higher multiples and greater cash payouts occurred when the businesses were represented by M&A advisors or investment bank. Unrepresented companies saw 18% lower multiples than the average. 
Related: See our report on The Top M&A Advisory Firms of 2023

Special Considerations for Consulting Firms

One of the most significant factors buyers consider when purchasing consulting firms is owner dependence. Because many consulting firms are typically smaller operations that capitalize on the network and contacts of the firm’s owners. Consider the example below, from an M&A message board:

If someone signs a contract to work with Holmes & Watson Consulting LLC, they do so with the expectation that Holmes and Watson will personally handle their case. Buyers see this as a liability; what good is buying Holmes & Watson Consulting LLC if I don’t have Holmes & Watson themselves? 

Thus, owners of consulting firms interested in selling in the near future would benefit from limiting owner dependence. Our research indicates that firms have done so in the following two ways: 

  • Hiring, Staffing & Delegation: The most obvious route to reducing owner dependence, and arguably the most important, is bringing on talent to take on responsibilities for the owner(s). While doing so tends to lower client satisfaction at the start, it tends to even out 1-2 years after the employee’s assumption of their new role, and sometimes even increases it. 
  • Naming/Branding: Many consulting firms are named after the owners. That branding can become a liability as you enter the M&A process. Taking action to ensure that the firm’s brand carries as much significance as the owners’ names will result in a better reception by prospective buyers. 

Selling Your Consulting Firm

Selling your company consumes a great deal of time, energy, and resources. Even for entrepreneurs with a great deal of experience negotiating deals, it’s hard to prepare for the complexity – both logistically and emotionally – of an M&A process. As someone who’s sold several businesses to private equity and strategic buyers, I am happy to make time to offer advice to entrepreneurs exploring the M&A process. You can reach me via the link below or the contact page of this site.

Evan Bailyn

Evan Bailyn is a best-selling author and award-winning speaker on the subjects of SEO and thought leadership. Contact Evan here.