Q3 2018 Knowledge Economy Global M&A Update

Global deal values and valuation multiples continue to rise led by media agencies and IT services M&A

By Ramone Param, Director, Equiteq

  • The number of completed deals rose 12%
  • Median deal sizes nearly doubled vs. Q3 2017
  • Activity remains focused on media agencies and IT services
  • Strong rises in M&A in North America and APAC
  • Equiteq Knowledge Economy Share Price Index pushes to new highs

The global M&A market across the knowledge economy was strong in the third quarter of 2018. Market data from the quarter reflects a key trend we have been monitoring over the last eighteen months: global buyers are pushing ahead with larger deals at premium prices. This is partly down to strategic buyers and private equity having record capital available for M&A. Given the low interest rate environment, there is pressure to deploy this capital on larger transactions. Particularly amid increasing signs that quantitative easing programs are coming to an end across developed economies.

The following summarizes the main trends discussed in more detail in our recent Q3 2018 M&A update report.

Deal activity concentrated on media agencies and IT services

This quarter we saw a substantial rise in the number of media agency transactions. Deal flow in the segment was strongest in North America and diversified across a variety of buyers beyond the leading marketing networks. The digital media segment is undergoing rapid disruption as a result of shifts in both client demand and the competitive landscape.

The IT services segment also saw large rises in deal activity. Major North American deals included Atos’ acquisition of Syntel and SAIC’s acquisition of Engility. A variety of transactions were also announced in the Salesforce Consulting space around the Dreamforce 2018 conference. This included deals by serial buyers like Cognizant, Infosys and WPP’s Wunderman.

In contrast, deal flow in the human resources space dipped, along with falls in M&A across management consulting and engineering consulting. There were, however, major deals within each of these segments. M&A from non-traditional buyers in the management consulting space is occurring as the industry is disrupted by a variety of market forces, including rapid digital transformation across client industries and major geopolitical developments.

M&A statistics by knowledge economy segment

Equiteq Knowledge Economy Share Price Index reaches new highs

The Equiteq Knowledge Economy Share Price Index rose c.3%, outperforming the FTSE 100, but trailing the strong gains of the S&P 500. The management consulting index continues to rise, with robust gains achieved over the quarter by The Hackett Group, Huron and FTI Consulting. The IT services index also made solid gains. Wipro, NTT, Allgeier, Tata Consultancy Services, HCL and DXC were particularly strong performers. The overall index is at a premium of 73%, compared with its ten-year average, and has recently outperformed the gains of some major diversified global share price indices.

Buyers have strong appetite for M&A as we enter the final quarter of the year

It is clear that M&A activity in our sector remains very strong. We will be monitoring the impact of a number of important global events over the final quarter of 2018, including global trade discussions and the development of Brexit negotiations. If you would like to discuss the findings of this market update in the context of your strategic business objectives, please get in touch.

Access the full Q3 2018 Knowledge Economy Global M&A Report.

For more information sign up to Equiteq Edge, our content platform to help owners of knowledge-intensive services firms prepare for sale and sell their business. Register here to gain full access.

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