Equiteq Edge Monthly Update – Potential for a scarcity premium in the Knowledge Economy M&A market?

Since early May, we’ve been cautiously – and increasingly – optimistic about prospects for Knowledge Economy M&A as the C-19 epidemic passes.

Accordingly, we recently ran a webinar “Is now the time to Realize Value?” for those in our community that have continued to perform strongly through C-19 and proven their businesses are highly resilient.

Key take-aways and recording are available on this blog – email info@equiteq.com if you would a copy of the slides.

In the three weeks since this webinar, our team has become even more convinced that an advantageous window for value realization is opening in the market.

Deals are getting done with minimal impact on valuation (unlike in 2008/09), and there are active buyers and investors in the market.  What’s more, the underlying drivers for M&A are intact – there are record levels of private equity ‘dry powder’ on the sidelines, and the strategic rationale for trade buyers to acquire is as strong as ever.

This large pool of investors/buyers is not seeing adequate deal flow of high-quality acquisition targets. Owners of firms that are positioned to be among the early waves of new deals to come to market will meet this pent-up demand and may command a market premium.

Our next webinar, on June 26th, will dive deeper on this them, addressing the question: “Can your business achieve a scarcity premium in the post-Covid M&A market?”

You can register for that webinar here.

In the meantime, here are some highlights from the last month:

  • Knowledge Economy Share Price Index continued its recovery from March lows, in line with broader equity indices. Almost all sub-sectors are not above the value of 1 year ago. It’s also interesting to note that over the longer-term, the Knowledge Economy index is handily outperforming the S&P 500, reflecting the importance of our sector to economic growth, and the increasing application of technology within sector firms
  • Major deals. Profiles highlighted this month are:
    • Cognizant’s acquisition Collaborative Solutions (Workday services)
    • CyberArk’s acquisition of Idaptive (identity security)

Knowledge Economy Share Price Index vs. S&P 500:

Knowledge Economy Share Index – Sub-Sectors:

Knowledge Economy Share Index vs. S&P over 10 years:

Outperforming the S&P since 2018

Source: S&P Capital IQ

Note: The Equiteq Knowledge Economy Share Price Index is the average of Equiteq’s six 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.

Cognizant acquires Collaborative Solutions to jump into Workday services

Target: Collaborative is the longest tenured Workday services partner and one of the largest consultancies focused on the implementation of Workday’s HR and finance solutions to large and mid-sized businesses.

Buyer: Cognizant is one of the world’s leading professional services firm delivering technology, digital transformation, consulting and outsourcing solutions to help transform its clients’ businesses.

Deal insight:

The acquisition of Collaborative, a prime asset in the large and rapidly growing Workday services market, enables Cognizant to enhance several key offerings:

  1. Cloud-enabled enterprise applications services
  2. Solutions for the HR and finance functions, particularly in the increasingly important Human Capital Management sector
  3. Workday consulting and implementation, as Workday has become one of the top software application suites globally. 

The acquisition of Collaborative’s 1,000+ employees will also enable Collaborative to leverage Cognizant’s size, brand and relationships to scale its business to more clients in more geographies and continue its market leadership position.

CyberArk Buys Identity Security Vendor Idaptive for $70 Million.

Target: Idaptive, a Thoma Bravo-backed Company, offers Identity and Access Management services (IAM) and is based in Santa Clara, CA.

Buyer: CyberArk (NASDAQ: CYBR) is a leading provider of Privileged Access Management (PAM) solutions and is based in Israel.

Deal insight:

Idaptive was formed just 16 months ago after spinning out from Centrify that Thoma Bravo acquired in July 2018. It offers comprehensive single sign-on, multi-factor authentication and identity life-cycle management for workforce, third-party, machine and consumer identities. The company’s capabilities allow for the escalation of suspicious user interactions while fast-tracking non-risky requests to enable users to be both secure and productive.

With the acquisition, CyberArk expects to deliver a further diversified, modern approach to the ever-changing dynamic threat landscape. This represents CyberArk’s first acquisition since March 2018 when it bought certain assets of Vaultive.

Are you a member of Equiteq Edge? It’s full of content to help owners of knowledge-intensive companies prepare for sale and sell their businesses. Register here to gain full access.

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