Major deals profiled include Tech Mahindra’s acquisition of BORN, DXC Technology’s purchase of Virtual Clarity and Accenture’s acquisition of Silveo.
Equiteq advised on five completed transactions over the month.
The Equiteq Knowledge Economy Share Price Index rose over the month.
Tech Mahindra continues its North American acquisition
spree with its purchase of digital agency BORN.
Target: BORN Group is a US-headquartered digital
Buyer: Tech Mahindra is an India-headquartered provider of IT services and consulting.
Deal value: $95m
Deal insight: Tech Mahindra continues to build its North American digital capabilities with a string of acquisitions. Its purchase of BORN follows the Indian outsourcer’s acquisition of US-based design agency Mad*Pow in July and the purchase of Canadian IT consulting firm Objectwise Consulting in June. Tech Mahindra also recently invested in US-based software development company Altiostar. This significant deal flow from Tech Mahindra over 2019 reflects a notable uptick in activity as compared with the last five years.
acquisitions of North American digital capabilities by Tech Mahindra reflects a
shift for traditional IT outsourcing giants. Most are pivoting their service
offering away from their shrinking legacy outsourcing core market and toward the
growing digital and innovation consulting sectors. Major outsourcing players are
using a blend of organic growth initiatives, early stage investments, and M&A
to enable this. Some of the most active traditional outsourcing firms that
are purchasing businesses in the digital and innovation space include
Accenture, Cognizant and Capgemini, as well as other Indian outsourcing giants
like Infosys and Wipro.
Deal insight: Thoma Bravo will be acquiring a cyber security provider that has positioned itself as an innovator in the market by leveraging advanced capabilities in artificial intelligence, cloud, data analytics and managed threat response. 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. In addition to these industry drivers, robust capital raises and dry powder are supporting strong demand from private equity firms bidding on the potential for stellar returns in the space.
Thoma Bravo is an
investor that has experience of investing in major assets in the cyber security
space. The private equity buyer previously acquired Imperva, a provider of
cybersecurity solutions to protect systems on-premise and in the cloud, in a
deal which was valued at $2.1bn. The investment firm also acquired Veracode, a
provider of next-generation application security testing, which was purchased
from Broadcom for $950m. We have also noted major recent cyber security deals
from Thoma Bravo’s competitors including Blackstone and KKR, who exited their
investment in Cylance to BlackBerry last year.
Sophos is listed on
the London Stock Exchange and Thoma Bravo’s proposed offer price of $7.40 pence
per share in cash represents a 37.1% premium to the closing price of Sophos
shares on 11 October 2019. The acquisition of Sophos is being denominated in
dollars against a backdrop of continued forex volatility in the UK through Brexit
negotiations. This presents significant foreign exchange risks to investors that
are being paid in sterling.
Major deals profiled include McKinsey’s acquisition of Westney Consulting, Accenture’s purchase of Pragsis Bidoop and Siemens Healthineers’ acquisition of ECG Management Consultants.
Equiteq advised Live Rice Index on its sale to S&P Global Platts.
The Equiteq Knowledge Economy Share Price Index was broadly flat over the month.
McKinsey strengthens its capital-projects
consulting capabilities with acquisition of Westney Consulting.
Buyer: McKinsey is a US-headquartered global management consulting firm serving businesses, governments, and institutions.
Target: Westney Consulting is a US-headquartered capital projects consulting firm.
Deal insight: The acquisition of Westney further strengthens McKinsey’s
industry recognized capital projects and infrastructure consulting business.
Westney has strong capabilities in energy consulting, enabled by rich data
sets. These capabilities have benefited from stabilizing commodity prices,
increased infrastructure spend in the US and the rising complexity of new large
McKinsey has historically focused on organic
growth, while making selective acquisitions in strategically important spaces.
Strategic sectors have included digital consulting and data analytics, which
are also market segments with acute talent shortages. McKinsey’s acquisitions
are typically preceded by a partnership with a target company, which can enable
the testing of synergies before agreeing a deal. McKinsey and Westney note a
longstanding partnership, where they have worked together on various projects
for over 10 years prior to agreeing this transaction.
Major deals profiled include Guidehouse’s
acquisition of Navigant Consulting, BC Partners’ purchase of Presidio and Accenture’s
acquisition of Parker Fitzgerald.
The Equiteq Knowledge Economy Share
Price Index declined
over the month in line with broader equity markets.
Capital-backed Guidehouse acquires Navigant Consulting in a landmark management
Navigant Consulting is
a US-headquartered global
professional services firm that was listed on the NYSE.
Guidehouse is a US-headquartered provider of management
consulting services to government clients. Guidehouse formed following Veritas Capital’s
acquisition of PwC’s public sector advisory business last year.
(1.4x TTM Jun-2019 revenue)
acquisition of Navigant will create a major management consulting player with
deep industry expertise. Guidehouse has worked on high-profile lucrative
engagements with government agencies such as the department of defense, homeland
security and veterans affairs. These government-focused advisory capabilities
will be merged with Navigant’s strengths in consulting to the healthcare,
energy and financial services sectors.
sale of PwC’s government consulting business to Veritas Capital was followed by
a rebranding of the business to “Guidehouse” last Summer. The divestiture is expected
to allow PwC to focus on the growth of other parts of its advisory business and
to enable it to pursue more business in auditing government agencies. This audit
business was being limited due to professional standards which cap consulting
services that audit firms can provide to these agencies.
Major deals profiled include Bain Capital’s acquisition of Kantar, Tech Mahindra’s acquisition of Mad*Pow and PA Consulting’s purchase of 4iNNO.
Equiteq advised WGroup on its sale to Wavestone and RevUnit on its investment from Mountaingate Capital.
The Equiteq Knowledge Economy Share Price Index dipped slightly over the month.
WPP sells research and analytics business Kantar to Bain Capital.
a UK-headquartered research, data and insights business that was owned by global
marketing network WPP.
Bain Capital is a US-headquartered multi-asset alternative
(1.5x TTM Dec-2018 revenue)
Deal insight: In June, The Drum reported that WPP was in the process of selling Kantar. It was noted that Vista Equity Partners, Apollo, Platinum, as well as Bain, were four US private equity’s bidding for the research unit. The private equity focused process exemplifies a broader trend of strong demand for major knowledge-intensive services businesses from cash-rich financial buyers that are supported by robust fresh fundraisings. Kantar’s investment from Bain Capital follows the financial buyer’s acquisition of digital consulting firm Brillio in January.
WPP is undertaking a crucial transformation of its business
following the resignation of Sir Martin Sorrell last year and Mark Read’s appointment
as the marketing network’s new CEO. WPP recently sold its stake in Globant to
pay down debt and announced internal mergers of agencies to create a more
comprehensive digital-focused offerings for its clients. This is part of a
three-year plan of “radical evolution” that was outlined by Read to improve WPP’s
business performance. This is aimed at better positioning WPP for growth by countering
new competition from innovative non-traditional media competitors from the
consulting and technology sectors.
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.
• 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.
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.
We have released a summary of our detailed review of cybersecurity M&A and investment trends for owners of technology and consulting businesses.
demand for deal flow from cash-rich strategic buyers and private equity
raised for investments was well above long-term averages;
Cybersecurity Share Price Index rose c.44% over a two-year period, while the
NASDAQ rose by 26%; and
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
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.
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.