Equiteq reviewed M&A and investment trends in the increasingly disrupted financial technologies and services industry.
A broad range of technological innovations have transformed the financial services industry in the last five years. Alternative lending platforms, cryptocurrencies, robo-advisers and AI technology as well as other solutions have changed the landscape of the market. According to PwC’s Financial Services Technology 2020 and Beyond, 81% of banking CEOs are concerned about the speed of technological change. Traditional financial services players view the rise of fintech and challenger banks as a threat to their market share.
Expansion of Financial Technology and Services
From banking to payments, fintech has managed to dramatically transform the financial services industry. Customer empowerment initiatives continue to be an overarching theme in the market giving customers access to previously restricted assets and services, while emerging innovations have allowed financial institutions to access new data sets. The urge for companies to implement new fintech technologies has spread globally – adoption in 2019 grew almost four times more than in 2015, according to EY’s Global FinTech Adoption Index 2019.
Through the innovation of financial technology and services, Equiteq has acknowledged the following outcomes:
Equiteq reviewed M&A and investment trends in the expanding supply chain management industry.
According to Research and Markets, analysts estimate the total addressable market for all Supply Chain Management (SCM) solutions to reach $22.7 billion by 2022 – growing at a CAGR of 12.6% since 2019. Industry growth is being driven by digital and data-driven technologies that continue to significantly transform SCM. SCM services and systems integrators (SIs) will become ever-increasingly important strategic players for large enterprise customers to enable this transformation.
Enterprise adoption of SCM platforms has undergone
significant disruption during the past decade
Core SCM systems have shifted to the cloud with new disruptive cloud solutions being offering by the likes of SAP, Oracle and JDA Software. Analysts expect supply chain operations to keep expanding in both scope and sophistication. This will put pressure on SCM services firms and SIs to meet the demands of increasingly complex clients. The capture and analysis of data generated along the value chain will also remain a critical component of SCM process design and management. Firms with the ability to deliver data-driven SI services and drive adoption of tech-enabled supply chain management have increased EBITDA multiples 18.5% on average over their legacy counterparts.
Major deals profiled include Stone Point Capital and Further
Global Capital Management’s acquisition of Duff & Phelps, CGI Group’s purchase
of Meti and ICF’s acquisition of Incentive Technology Group.
Equiteq advised The
Shelby Group on its sale to WestView Capital Partners and Choice Financial Solutions
on its sale to Raisin.
The Equiteq Knowledge Economy
Share Price Index rose over the month.
& Phelps receives fresh investment from Stone Point Capital and Further
Global Capital Management.
& Phelps is a US-headquartered provider of
valuation, corporate finance and regulatory consulting services.
Buyers: Stone Point Capital and Further Global Capital Management are US-headquartered providers of investment capital.
Deal value: $4.2bn
Deal insight: Duff &
Phelps has received fresh capital from Stone Point Capital and Further Global
Capital Management to enable the next phase of its growth. Duff & Phelps
has c.3,500 professionals located throughout offices in the Americas, Europe
and Asia. The firm’s longstanding client relationships include nearly 50% of
the companies in the S&P 500, 65% of Fortune 1000 companies and 70% of
top-tier private equity firms, law firms and hedge funds.
Permira continues to hold a
significant stake in the business as part of the consortium. Permira had acquired
Duff & Phelps from Carlyle at the end of 2017. The deal valued Duff &
Phelps at $1.75bn, implying a c.2.5x valuation multiple on FY16 revenue. The
acquisition marked Permira’s eighth investment in the financial services
industry and netted Carlyle 2.4x its investment, according to a report from The
Wall Street Journal. During the hold period, Permira was able to partially
enable the growth of the business through organic initiatives and also through acquisitions
including Kroll in 2018 and Prime Clerk in 2019.
Equiteq reviewed M&A and investment trends in the disrupted marketing and communication agencies industry.
Digital transformation initiatives continue to be an overarching theme, with large enterprises looking to leverage data and technology to drive consumer engagement and sales. Despite a robust market with increased spending by clients on sales and marketing, traditional marketing and communication agencies have underperformed as they have been unable to capitalize on this opportunity. The agencies have not been able to adapt to how brands are spending marketing budgets and engage consumers.
Brands are moving towards managing the overall consumer experience by interacting directly with individual consumers on a one-to-one basis, rather than pushing a standardized message to broad groups. Brands are looking to software vendors, hardware vendors and consultancies which provide tools that enable digital strategies and one-on-one customer interactions. It is expected that marketing will migrate to a model where brands interact with consumers directly or via online platforms. Capturing and analyzing the data generated by customer interactions will be a critical function for marketing agencies.
Equiteq reviewed M&A and investment trends in the growing sales performance and enablement industry.
Digital transformation initiatives continue to be an overarching
theme with large enterprises looking to leverage data and technology to drive
consumer engagement and sales. Sales performance and enablement sits at the
intersection of training, management consulting and sales effectiveness. This
mission critical function increasingly matters to overall business strategy and
Clients are changing how they engage with sales improvement systems and how they spend related budgets. Equiteq expects these trends to continue with training organizations pursuing M&A as a means to ensure they have the necessary digital and data analytic capabilities to revitalize growth and support their client needs. While on the face of it, increased competition for deals should facilitate sales processes and more lucrative outcomes, preparation and timing remain critical.
Major deals profiled include NTT Data Services’ acquisition of Flux7, Accenture’s purchase of Clarity Insights and Atos’ acquisition of Maven Wave.
The Equiteq Knowledge Economy Share Price Index rose over the month.
NTT Data Services acquires Flux7, bolstering its
AWS consulting capabilities.
Target: Flux7 is a US-headquartered
company specialized in cloud implementation and migration, automation and
DevOps consulting services.
Buyer: NTT Data Services is a US-headquartered provider
of IT insights and solutions.
Deal insight: The acquisition of Flux7 forms part of three acquisitions announced by NTT Data Services in 2019. The buyer is bolstering its IT consulting capabilities across North America and the purchase of Flux7 adds consulting capabilities in the rapidly growing AWS’ public cloud. The deal also strengthens NTT Data Services’ capabilities in application modernization, a space in which it was named a leader in the Q3 2019 Forrester Wave for Application Modernization and Migration Services.
In April, Flux7 raised funding from NewWave Partners to invest in the expansion of its DevOps consulting services. Its acquisition by NTT Data Services will give Flux7 access to NTT’s global R&D capabilities and infrastructure. The deal will also enable Flux7 to offer its clients a broader set of digital transformation and innovation capabilities from an established global platform.
We are pleased to present the findings of our sixth annual survey
of global strategic buyers and private equity investors acquiring businesses
across the knowledge economy.
propensity for larger deals, driven by expectations of robust levels of capital
being available for M&A, particularly for private equity investors
M&A market is maintaining upward pressure on pricing and deal structures
A major driver
of M&A is digital transformation, while buyers are also monitoring the
potential headwinds from economic and political instability
Pricing and deal structures are dependent upon an assessment of
a variety of quantitative and qualitative metrics discussed in the report
Each year we commission a comprehensive independent survey of
the knowledge economy to deliver actionable M&A intelligence for business
owners. This Knowledge Economy Global Buyers Report analyzes the findings of
this survey and provides unique insights into current trends among strategic
buyers and private equity investors that acquire knowledge-intensive businesses.
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.