Professional services firms are in incredibly high demand by clients. Catering to this successfully requires scale, and that can be achieved organically, acquisitively or through partnering – with each strategy requiring a careful eye on maintaining corporate culture. Keryn James draws on her three decades in the industry and work with six private equity firms to share her thoughts on successful scaling.

The demand for professional services is high and growing as firms increasingly seek specialist expertise. Scaling to meet this demand is both an opportunity and a challenge, with a mix of both organic and M&A growth typically employed.

“Each business needs a strategy that is fit for purpose,” stresses Keryn, whose impressive CV includes 30 years at global sustainability and EHS consulting firm ERM, five as CEO. “Whether you grow organically, through M&A or partnering, you need a very conscious strategy of how you scale,” she continues.

Each method for growth brings with it considerations, and she admits a bias towards ensuring a business grows organically. “An organic focus helps to ensure the core of what you do is strong, highly differentiated, and helps maintain competitive advantage,” she says. This is the case in a growth market and particularly so in a challenging one, with the need for clarity on how you add value, how you meet clients’ needs, and how you’re differentiated to competitors of paramount importance. Communicated correctly, this clarity supports the ongoing client relationships and pricing.

Opportunities and risks of M&A

Organic growth can be very beneficial, though time-consuming.

M&A can offer quicker results for growth, but integration and the people side are key. With an acquisition you need to be crystal clear on the strategic purpose and fit, and you need to ensure that you can retain talent, or you can lose value very quickly.

Keryn James, former CEO, ERM 

In the professional services market more broadly and especially in the sustainability and environmental subsectors where Keryn has spent most of her career, a fragmented market means M&A represents a significant part of the opportunity – and often a way to enter new verticals and geographies more quickly than with organic growth.

But acquisitions can bring challenges for people-reliant professional services businesses, with agreeing the deal just the beginning of an acquisition. “Ensuring that you have a clear and agreed integration plan is fundamental to success, particularly for people businesses. Talent can walk out the door if you get it wrong, and take their client relationships with them.”

Another risk with M&A is the diversion from a concentration on your core strategy. “Without dedicated resourcing, a focus on acquisitions could distract from the constant innovation in the core business – it is critical that you don’t allow this to happen because acquisitions are uncertain and may not eventuate at the pace and/or scale that you need,” Keryn warns.

Partnering is where she sees a lot of potential for the coming years as professional services firms look to scale.  The demands of clients are evolving quickly, and they are often looking for multi-disciplinary and multi-sector solutions. “It’s highly relevant and potentially very powerful, especially for smaller businesses, though it’s currently not considered as often as it should be,” she observes.

Joining forces with another company (or companies) can be symbiotic if businesses lack certain skillsets or tech within their own firms. “While M&A brings risks, partnering can be a two-step adjacency to your core business, providing access to different skillsets and platforms and boosting resilience in a lot of businesses. It can create something that no one else has, achieving differentiation without the time needed for organic growth or risks inherent in M&A,” she enthuses.

Importance of people

In her three decades within the professional services space, people have been crucial throughout – and so a culture capable of attracting and retaining them is equally important. “If you don’t have a strong culture that allows people to attach to the business and create loyalty beyond reason, why will they stay?” she muses, citing Saatchi & Saatchi.

She also references author Peter Drucker, feeling firmly that his line on “culture eats strategy for breakfast” has been very apt throughout her career. “As CEO I was effectively the Chief Culture Carrier and there are key dimensions to that for building and maintaining teams,” she says. She outlines the first as around purpose and values, stressing the need for clarity as well as authenticity – warning people are intolerant of what they deem as inauthentic leadership around purpose and values.

The need for camaraderie is also important, with creating teams at various levels across offices, pods and even projects key to success. She also stresses the importance of aligned incentives, suggesting the need for fair and appropriate rewards, as well as a positive workplace – possibly the trickiest of all in a post-pandemic hybrid working environment. “It’s incredibly important to ensure people don’t disconnect from the business.”

While the CEO is an important part of the culture, a collaborative effort is needed to succeed. “You don’t build culture by yourself – it needs to be owned by everyone. You lead it but you need to be humble enough to say you don’t have all the answers, and be brave enough to ask when you’re unsure and listen when you’re given input”, she says.

Private equity as a support for growth

Professional services is a huge market with lots of avenues for those who wish to be part of consolidation. Private equity can help with many according to Keryn, whose three decades with ERM included five iterations of private equity stewardship. “It can be a strong platform for scaling professional services businesses, whether for M&A, organic growth or partnering. For example they understand M&A very well and can provide the capital to support it as well as support for the process itself. Organically private equity can help with transformation, particularly for topics such as digital (which is particularly important nowadays), pricing, key account management and talent. 

The relationship-building aspect of any private equity journey is key, according to Keryn. “Engaging to understand the values, focus, style, strengths and ways they can help firms is important.” She advises a strong relationship prior to any transaction, with clear alignment around the strategy, the VC plan, and how to deliver on it. “Private equity changes the board, so you need to be clear-eyed about what you’re doing. The right partner can bring access to different markets, relevant experience and valuable connections to other organisations and people. Of course they also provide the capital to allow you to do M&A and continue to evolve the business. For those who want to scale quickly it can be a great platform,” she concludes.

“To remain competitive, professional services firms need to offer a truly differentiated service which adds meaningful value. This involves a refined value proposition, as well as attracting and retaining the best talent through a strong culture – since the people are truly the IP of services firms,

Isabelle Pagnotta, Partner and Head of Services, Inflexion

Inflexion has significant experience of working with a number of businesses in the professional services sector to help them achieve their ambitious growth plans, including, CMSPI, LCP and Wood Thilsted.  Most recently, Inflexion announced an investment in operations management consultancy dss+ in February 2023 and is working with management to enhance its offering both organically and through M&A in a fragmented market.