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.

Bain Capital invests in Brillio to further grow its digital transformation consulting offering.

Target: Brillio is a US-headquartered technology consulting and business solutions company focused on digital transformation consulting.

Buyer: Bain Capital is a US-headquartered multi-asset alternative investment firm.

Deal Insight: 
Brillio was formed from a 2014 spinoff of the consulting arm of IT services firm Collabera. The business made a number of acquisitions and investments focused on building its analytics capabilities. Its most recent acquisition of Comity Designs added cloud and mobile solution capabilities, including Salesforce consulting.

Bain’s control investment in Brillio will enable the business to build in-demand capabilities across user experience, artificial intelligence, machine learning, cloud and analytics. The business has a stated goal of becoming one of the global leaders in digital solutions over the next five years and achieving revenue of $500m.

IBM reportedly acquiring T-Systems’ mainframe services business from Deutsche Telekom.

Target: The mainframe business of T-Systems, a provider of information and communications technology including IT consulting.

Buyer: IBM is a global IT services firm.

Deal Value: €860m (reported by Reuters)

Deal Insight:
Reuters recently reported that IBM is acquiring T-Systems’ mainframe services business, although the deal is yet to be officially announced by the buyer or target. The acquisition would closely follow IBM’s transformational $34bn acquisition of open-source technology business Red Hat. It will also mark a major restructure of T-Systems by its CEO Adel Al-Saleh who joined the business last year.

Al-Saleh announced large job cuts last Summer as he looked to return T-Systems to profitability over the next three years. Although T-Systems works with major blue-chip clients including Microsoft and Shell, the business has suffered from losses and declining revenue in recent years. This has resulted in a variety of unsuccessful restructuring drives and speculation that the business could be broken up.

Selected Knowledge Economy M&A announced in January:

Source: PitchBook, S&P Capital IQ and Company Press Releases

Equiteq Knowledge Economy Share Price Index:

Source: S&P Capital IQ

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