Digital Agencies M&A and Industry Bulletin

By Ramone Param, Director, Equiteq

We have released a summary of our detailed review of digital agencies M&A and investment trends.

Equiteq is pleased to present the results of our review of M&A and equity market trends across the digital agency space. Digital agency M&A activity was strong in the first of half 2019 (H1 2019) as cash-rich buyers continued to acquire new capabilities in a tight talent market. Deal activity has been strong over the last five years as buyers continue to build new capabilities via M&A. In H1 2019, deal activity was broadly in line with H1 2018. M&A is concentrated on North America and Europe with a growing market emerging in the Asia Pacific.

M&A Deal Volumes FY 2010 to H1 2019

Note: Dotted line indicates deals in first half of the respective year.
Source: Equiteq Market Intelligence, S&P Capital IQ

There is considerable activity from non-traditional media agency buyers from the consulting and technology sector. This is putting pressure on the “Big Six” media networks – Dentsu, Havas, Interpublic Group (IPG), Omnicom, Publicis and WPP. These major marketing networks have also experienced declines in their share price over the past couple of years, driving reorganizations and new M&A.

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June 2019: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

Major deals profiled include Capgemini’s acquisition of Altran, Tieto’s acquisition of EVRY and CVC’s acquisition of Teneo.
The Equiteq Knowledge Economy Share Price Index rose over the month.

Capgemini and Altran create a global digital transformation leader with strong ER&D capabilities.

Target: Altran is a France-headquartered provider of engineering and R&D services.

Buyer: Capgemini is a France-headquartered global provider of consulting, IT services and digital transformation.

Deal value: €3.6bn (1.2x TTM Dec-2018 revenue)

Deal insight:
The purchase of Altran will enable Capgemini to take a leading position as a service provider focused on engineering, research and development (ER&D) as part of the digital transformation of industrial and tech companies. The acquisition is a milestone transaction for Capgemini that builds on previous deal flow in areas like digital media, cyber security and financial services consulting. This includes the purchase last year of digital consulting firm LiquidHub, which was acquired for €400m from ChrysCapital. The buyer followed this acquisition with the launch of Capgemini Invent, which combined Capgemini Consulting and expertise in technology and data science. The new brand comprised LiquidHub, innovation consulting firm Fahrenheit 212, as well as creative design agencies Idean, Adaptive Lab and Backelite. The acquisition of Altran, along with these recent acquisitions and restructurings, better positions Capgemini against growing digital transformation competitors like Accenture, Cognizant and the Indian IT services players.

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May 2019: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Major deals profiled include Orange’s acquisition of SecureLink, Perficient’s acquisition of Sundog Interactive and Tetra Tech’s purchase of WYG.
  • The Equiteq Knowledge Economy Share Price Index dipped slightly over the month.

Orange deepens its cybersecurity capabilities in Europe.

Target: SecureLink is a Netherlands-headquartered provider of security consulting, security maintenance and support, as well as advanced managed detection and response capabilities.

Buyer: Orange is a France-headquartered provider of a range of telecommunications, data transmission and related services.

Enterprise value: €515m (2.1x FY 2018 revenue)

Deal insight:  Orange accelerates its growth in the European cybersecurity market with its acquisition of SecureLink, one of the largest independent services players in the region. Demand for cybersecurity solutions is growing as technology plays a greater role in critical business functions across industries. According to data from ResearchAndMarkets.com, Europe’s cybersecurity market is anticipated to grow at a CAGR of 11.3% and will be worth $47.2bn by 2023.

The purchase of SecureLink follows Orange’s acquisition of UK-based cybersecurity specialist SecureData, which was purchased at the beginning of the year. These deals, along with the acquisition of Business & Decision, form part of Orange’s strategy to become a global player in digital transformation and data services.

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The Cybersecurity Global M&A Report Q1 2019

By Ramone Param, Director, Equiteq

We have released a summary of our detailed review of cybersecurity M&A and investment trends for owners of technology and consulting businesses.

  • Strong demand for deal flow from cash-rich strategic buyers and private equity investors;
  • Capital raised for investments was well above long-term averages;
  • The Equiteq Cybersecurity Share Price Index rose c.44% over a two-year period, while the NASDAQ rose by 26%; and
  • Notable M&A deals included Blackberry’s completed $1.4bn purchase of Cylance, as well as CACI’s acquisition of LGS Innovations and Mastodon Design for $750m and $225m respectively.

The global cybersecurity market is expected to grow rapidly over the coming years. Accelerating digital transformation of businesses across industries has opened new vulnerabilities with the continued shift to new cloud-based systems, as well as the rising adoption of mobile devices, social media platforms and advanced data analytics tools. Some new technologies such as artificial intelligence, machine learning and behavioral analytics are also being considered to protect against, identify and block cyber-attacks. However, the overall risk of cyber-threats is expected to rise with the proliferation of data.

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April 2019: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Industry deals profiled include Accenture’s acquisition of Droga5, S4 Capital’s acquisition of Caramel Pictures and ProgMedia, and Publicis’ purchase of Epsilon.
  • The Equiteq Knowledge Economy Share Price Index rose with broader equity market indices over the month.

Accenture’s purchase of Droga5 exemplifies the rapid transformation of the digital media competitive landscape

Target: Droga5 is a US-headquartered advertising agency with over 500 employees that has worked with a variety of blue-chip clients including Amazon and The New York Times.

Buyer: Accenture is an Ireland-headquartered global technology services firm.

Deal insight: Droga5 is the largest agency acquisition that Accenture has made to date. The deal further entrenches Accenture Interactive as a major player in the digital media space, putting pressure on the “Big Six” traditional media networks – WPP, Omnicom, Publicis, Havas, IPG and Dentsu. It will also put pressure on acquisitive growing consulting and technology firms that have already entered the space, including Capgemini, Cognizant and Deloitte Digital.

The deal forms part of another active year of deal flow for Accenture. Last year, Accenture Interactive was named the largest digital network worldwide by Advertising Age in its annual agency report for the third year running. Accenture Interactive’s major deals through 2018 included Adaptly in the US, Mackevision in Germany, Meredith Xcelerated Marketing (MXM) in the US, HO Communication in China and Altima in France.

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The Knowledge Economy Global M&A Report 2019

By Ramone Param, Director, Equiteq

We have released a summary of our detailed review of knowledge economy M&A and investor trends for owners of consulting and technology businesses.

  • 2018 was a year of strong M&A activity within an industry undergoing unprecedented change.
  • Deal volumes, average transactions sizes and median revenue valuation metrics rose.
  • Deal structures were more competitive, as observed by a rise in the upfront cash component and a shortening of the earn-out period for the average deal.
  • The Equiteq Knowledge Economy Share Price Index declined with broader equity market indices, but ended the year well above long-term averages.
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March 2019: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Industry deals profiled include CGI’s offer to acquire Acando, Accenture’s purchase of Enterprise System Partners and Version 1’s acquisition of TE4B.
  • The Equiteq Knowledge Economy Share Price Index was broadly flat over the month.

CGI makes recommended offer to acquire Acando to strengthen its capabilities in Northern Europe.

Target: Acando is an IT and management consulting business headquartered in Sweden.

Buyer: CGI Group is a Canada-headquartered IT services and business consulting firm.

Deal size: $459m (1.5x TTM revenue)

Deal insight:CGI is a global technology services player with a strong model of organic growth and M&A. The buyer has made numerous acquisitions over recent years that have expanded its global consulting and technology capabilities. Its most recent offer to acquire Acando will deepen its presence in Northern Europe adding over 2,100 professionals across the region. The purchase will expand the buyer’s strategic consulting, system integration and digital innovation capabilities. The deal builds on CGI’s €98m acquisition of Affecto in 2017. Affecto is a data analytics business headquartered in Finland.

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February 2019: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Industry deals profiled include Orange’s acquisition of SecureData, Point B’s acquisition of Independence Consulting and Blackstone’s investment in Lionpoint Group.
  • The Equiteq Knowledge Economy Share Price Index experienced rises over the month.

Orange broadens its cyber security capabilities in the UK with its acquisition of SecureData

Target: SecureData is the largest independent cyber security provider in the UK with additional operations in South Africa.

Buyer: Orange is a France-headquartered provider of a range of telecommunications, data transmission and related services.

Deal insight:
Demand for cybersecurity solutions is growing as technology plays a greater role in critical business functions across industries. According to data from ResearchAndMarkets.com, Europe’s cybersecurity market is anticipated to grow at a CAGR of 11.3% and will be worth $47.2bn by 2023.

Orange acquires strong capabilities in this growing industry, particularly within cyber-criminality, security research and penetration testing. The acquisition extends Orange Cyberdefense’s existing operations in France and Belgium into the UK and South Africa. The acquisition follows Orange Business Services’ purchase of data and digital services specialist Business & Decision. These deals form part of the buyer’s strategy to become a global player in digital transformation and a leader across data services.

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Knowledge Economy Industry and M&A Outlook 2019

By Ramone Param, Director, Equiteq

The following summarizes our five key predictions for business owners in 2019 as discussed in our recently released Knowledge Economy Outlook paper.

1. Economic and political uncertainties will create opportunities for agile consulting companies to develop solutions that can help mitigate the current business risks facing their clients.

In 2018, the Equiteq Knowledge Economy Share Price Index posted its biggest decline since 2008. This mirrored weak performance across broader market indices. After a highly volatile end to the year, we commence 2019 with increased equity market uncertainty led by a range of political and economic risks. Against this backdrop, consulting business owners will need to be aware of the opportunities to position their organizations appropriately in 2019.

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January 2019: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Major deals profiled include DXC’s acquisition of Luxoft, Bain Capital’s acquisition of Brillio and IBM’s reported acquisition of T-Systems’ mainframe service business.
  • Equiteq advised Orbium on its sale to Accenture and Cervello on its sale to A.T. Kearney.      
  • The Equiteq Knowledge Economy Share Price Index experienced rises along with broader market indices.

DXC’s transformational acquisition of Luxoft builds new digital capabilities and sector vertical expertise.

Target: Luxoft is a global provider of technology solutions, including software development services.

Buyer: DXC Technology is a US-headquartered global IT services firm.

Deal Value: $2bn (2.2x TTM Sep-18 revenue)

Deal Insight: 
DXC Technology was formed in 2016 following the merger of HPE’s spin-off of most of its enterprise services business with Computer Sciences Corporation (CSC). Since its formation, DXC has been highly acquisitive and has announced notable deals across technology and consulting, including the acquisitions of:

  • Tribridge and Logicalis SMC in 2017; and
  • System Partners, Molina Medicaid Solutions and argodesign in 2018.

DXC’s acquisition of Luxoft is a transformational deal for the firm. It provides DXC with important capabilities in outsourced digital engineering, cloud and devops. It also enables DXC to deepen its capabilities for clients in the automotive and financial services sector verticals, particularly in Europe. At the end of January, DXC also announced its acquisition of EG A/S, a Microsoft consulting firm with a strong presence across the Nordics.

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