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

  • Major deals profiled include American Securities and Lindsay Goldberg’s acquisition of AECOM’s Management Services business, BCG’s purchase of AllofUs and Thoma Bravo’s acquisition of Sophos.
  • Equiteq advised Presence of IT on its sale to Deloitte and Mitrais on its sale to CAC Holdings.
  • The Equiteq Knowledge Economy Share Price Index rose modestly over the month.

Thoma Bravo makes offer to acquire next generation cloud-enabled cybersecurity solutions provider.

Target: Sophos is a UK-headquartered specialist in advanced cloud-enabled cybersecurity solutions.

Buyers: Thoma Bravo is a US-headquartered private equity firm.

Deal value: £3.1bn ($3.9bn) (5.5x TTM 31-March-2019 revenue)

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.

American Securities and Lindsay Goldberg acquires AECOM’s Management Services business, creating a new standalone contractor serving the government sector.

Target: AECOM’s Management Services business is a contractor to the U.S. federal government and serves various departments and agencies. The business is part of US-headquartered multinational engineering firm AECOM.

Buyers: American Securities and Lindsay Goldberg are US-headquartered private equity firms.

Deal insight: AECOM’s divestment of its Management Services business follows reports in June that AECOM was intending to spin-out the division. AECOM is exiting the business as part of a strategic initiative to maximize shareholder value through cost reductions and by selling non-core assets. The exit already follows the sale of its Canadian industrial services business and its Irish design build offering over the last two years. 

American Securities and Lindsay Goldberg have significant capital available for investment. Furthermore, Lindsay Goldberg has experience of realizing two investments in the government services space. In 2016, Lindsay Goldberg exited their investment in PAE to Platinum Equity. PAE offers support for essential missions to the US government. In 2018, the investor also sold US-based government services player ECS Federal to strategic buyer ASGN.

There is notable consolidation among government services players in the US. In January, SAIC merged with Engility to create the second-largest independent technology player in government services with over 23,000 employees. Last year’s sale of PwC’s government consulting business to Veritas Capital was followed by a rebranding of the business to “Guidehouse” over Summer. This was followed by the firm’s $1.1bn acquisition of Navigant Consulting in October. Investment in the space is being driven by increased government spending in the region, particularly as it relates to technology-focused defense spending. This is resulting in contractors vying to build more scale and adjacent capabilities to enable them to bid on larger projects.

Boston Consulting Group acquires AllofUS as it expands its design capabilities in the UK.

Target: AllofUs is a UK-based design consultancy.

Buyer: Boston Consulting Group is a US-headquartered strategy consulting firm.

Deal insight: Boston Consulting Group, along with the traditional strategy consulting firms that it historically competed with, is increasing their deal flow in the digital consulting space. AllofUs marks BCG’s third acquisition this year, following its purchase of Kernel Analytics and The Simulation Group. The buyer is also investing in early stage venture capital and organically in its digital-focused business units:

  • BCG Digital Ventures, its digital innovation, incubation, and investment unit;
  • BCG Platinion, its IT architecture and solutions business; and
  • BCG Gamma, its advanced analytics and data science services arm.

The acquisition of AllofUs is set to strength BCG’s design and engineering capabilities that forms a key part of many of its clients’ digital innovation projects. The Fourth Industrial Revolution is being shaped by accelerating innovation, which is driving the fusion of advanced digital technologies to enable many of the latest industry transformations. This presents new opportunities for disruptive consulting firms across industries and is driving buyer demand for the latest innovation strategy capabilities from buyers across industries.

BCG will have been attracted by AllofUs’ roster of blue-chip clients, which include the likes of Samsung, Google and Facebook. The purchase of the AllofUs builds on BCG’s 2017 acquisition of MAYA, a Pittsburgh-based digital design and innovation lab.

Selected Knowledge Economy M&A announced in October:

Source: PitchBook, S&P Capital IQ and company press releases

Knowledge Economy Share Price Index

Source: S&P Capital IQ

Note: The Equiteq Knowledge Economy Share Price Index is the average of Equiteq’s five segmental indices and is the only published share price index which tracks the listed companies within the knowledge economy. The index is continually revised to consider new listed companies and to remove businesses that are no longer relevant in each quarter.

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