Earlier today, our team joined owners of global Knowledge Economy firms to review the state of sector M&A, and explore the possibility of achieving a premium in the market as Covid-19 wanes.
Here’s the recording:
Presenters: Head of North American M&A, Jeff Becker, was joined by two of our London-based MDs, Jerome Glynn-Smith and Paul Dondos.
A few weeks ago, we made the at-the-time contrarian assertion that despite paralysis, volatility, the unfortunate human impact of C-19, and the general unknown, it might be a good time to think about realizing equity value
Day by day, that perspective has seemed less outrageous – we see that the immediate health emergency has passed, tailwinds are stronger, deals are progressing, and buyers are strongly engaged with the deals that are emerging
The pandemic has accelerated opportunities for firms providing digital transformation, consulting and technology partner services globally – especially for firms exposed to Financial Services, Government, and Healthcare/Pharma sectors
Risk averseness of buyers and sellers in March and April 2020 has created a bottleneck in the market that is currently increasingly being relieved. This will create an influx of transaction opportunities and a revival of deal volumes in Q4’2020
We are not seeing valuations impacted, as private transactions will follow the recovery of the public markets and in particular high-quality assets will be in strong demand
We have seen strong activity at Equiteq across the Covid period with deals closing at the beginning of the crisis. We have close to 20 ongoing projects at different stages from marketing to definitive documentation negotiations – projects are progressing thanks to a combination of asset resilience, acquirer intent, and creative deal-making
Our own pipelines for near-term decisions/kick-offs of sellside mandates have more than doubled since mid-May, with PE firms encouraging us to bring our better clients to market ASAP. Meantime, our buyside activity/engagements are at their highest level of all time
We are still not far removed from one of the best deal markets in recent memory, with momentum increasing
Owners of firms considering entering M&A should assess whether they are well-positioned to execute a successful transaction in the near-to-mid term, to take advantage of the current window and the continued shortfall of high-quality assets (ahead of a potential wave of supply from owners who deferred a decision)
Following on from deals in the space by Accenture, IT Lab, Cognizant and NTT Data in recent weeks, another five cloud deals announced just this week. Just one of the hotspots we’re tracking in the Tech Services space.
(Equiteq’s first Cloud Consulting M&A report was in 2014 – we were excited about 70 globally deals in the whole year, and predicted it as a major trend.)
As you’re all deeply aware, Covid-19 has impacted markets, supply chains, technologies and talent across the Knowledge Economy.
In line with our mission to help owners and sector firms to grow, acquire and realize equity value, over the last month Equiteq has been providing resources to help navigate these difficult times, including:
Our webinar “Protecting your equity value during the downturn”, the recording of which is available here: https://youtu.be/nj9i2CSRGkk (email email@example.com if you would a copy of the slides and our associated 100 Tips book)
Detailed sub-sector reports describing Covid-19 impacts on M&A in management consulting, technology services & outsourcing, HCM, engineering services, and software & SaaS. (Email us for a copy of the report for your industry)
We also know from talking to clients that many firms are continuing to perform strongly through C-19, and proving highly resilient.
While M&A markets have been disrupted, they have not shut down. In fact, for some firms, COVID-19 could create a unique window to realize equity value. Therefore, our next webinar will aim to help owners of resilient firms decide whether to consider M&A now. You can register for that webinar here:
In the meantime, here are some highlights from April and early May:
Knowledge Economy Share Price Index recovered from March lows, in line with broader equity indices. The index is now above the value of 1 year ago, although some sub-sectors are still down.
Major deals. Profiles highlighted are Accenture’s acquisitions of Gekko and Yesler; WhiteSky Labs being bought by CapGemini Australia; and Investcorp Technology Partners acquisition of German cybersecurity software solutions company Avira.
Knowledge Economy Share Price Index:
Note: The Equiteq Knowledge Economy Share Price Index is the weighted 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 newly listed companies and to remove businesses that are no longer relevant in each quarter.
Accenture acquires Gekko to strengthen its cloud innovation.
Target: Gekko is a Paris-based Amazon Web Services (AWS) business, supporting enterprise migrations and cloud development in end-to-end Intelligent Cloud & Infrastructure services.
Buyer: Accenture, global consulting and technology services, reinforcing its AWS global community of more than 8,000 trained professionals, with over 20 AWS competencies and service delivery designations.
Deal insight: Accenture AWS Business Group (AABG) within Accenture Technology in France, Belgium, Luxembourg, and the Netherlands will reinforce its ability to innovate and transform clients’ businesses in line with evolving customer expectations. With cloud, AI, and DevOps skills more clients will benefit from on-shore AWS fully automated cloud operations and FinOps capabilities. Gekko’s delivery center, with over 100 trained professionals is located in the west of France.
The acquisition will enhance Accenture’s position as one of the leading providers of AWS expertise and cloud transformation in the French market and help more organizations to leverage their journey to the cloud, accelerating their digital transformations, growing their businesses and improving customer experiences.
Despite exceeding $4bn in annual revenue, ServiceNow
continues to grow at a stellar rate as it broadens its software solutions. KPMG
is a Platinum ServiceNow Partner and was named Americas Partner of the Year
2019 and Americas Transformation Partner of the Year 2020. KPMG is undertaking
a multi-year investment program focused on combining KPMG’s deep industry
expertise with expertise in technology ecosystems like ServiceNow, as well as
Workday, Salesforce, Amazon Web Services, Google Cloud, IBM, Microsoft, Oracle
and Alibaba Cloud.
Deal insight: Accenture’s acquisition of Yesler continues to strengthen and scale the company’s B2B marketing services, adding depth in offerings such as account-based marketing, customer advocacy, sales enablement, and marketing automation. With more than 400 people globally, Yesler is headquartered in Seattle and has additional offices in Portland, Philadelphia, London, Toronto, and Singapore. Post-transaction, Yesler will be integrated into Accenture Interactive and further enhance the company’s complete set of B2B services, ranging from strategy and creative to ongoing management and support.
Accenture’s acquisition of Yesler highlights the continued convergence between traditional creative agencies and management consultancies. As brands continue to adapt their marketing and consumer engagement models, it is likely that agency and consultancy offerings will continue to merge and brands will continue to seek out firms that offer a data-heavy, analytics approach to marketing.
Capgemini Australia acquires Mulesoft Partner WhiteSky Labs.
Target: WhiteSky Labs is a leading Australian privately owned Mulesoft Practice.
Buyer: Capgemini is a global consulting firm listed on the Paris stock exchange.
Deal insight: Multinational consulting firm Capgemini has acquired Sydney-headquartered MuleSoft partner WhiteSky Labs for an undisclosed sum. The acquisition expands the consulting giant’s digital transformation capabilities in Asia Pacific while also adding more than 150 staff across Australia, Singapore and the Philippines. Whitesky Labs is one of the largest independent MuleSoft full-service consultancies in the region.
Since being acquired by Salesforce in March 2018, MuleSoft has experienced exceptional growth. For the past several years Capgemini had been quiet on the acquisition front in Australia, but this acquisition may mark the beginning of more deal activity from them.
Investcorp Technology Partners acquires German cybersecurity software solutions company Avira for $180m.
Target: Avira is a leading antivirus and other cybersecurity software solutions business, headquartered in Germany.
Buyer: Investcorp is a Bahrain-headquartered global manager of alternative investment products. Investcorp Technology Partners is a direct private investment arm of Investcorp for European technology companies.
Deal insight: Founded in 1986 by Tjark Auerbach, Avira has grown without external funding to be a well-known brand with a strong position in its markets. The company is particularly well known for its anti-virus suite of products, licensed into the European and Asian OEMs and Consumer markets as own-branded as well as white-label. This acquisition will support the business growth, expansion into new geographies, and development of its comprehensive cybersecurity offering in areas such as anti-malware, threat intelligence, identify management and IoT.
The transaction, which remains subject to anti-trust approval, values Avira at $180m and brings in Investcorp Technology Partners as majority shareholders, with Tjark Auerbach remaining a significant shareholder.
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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.
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.
Major deals profiled include Bain Capital’s acquisition of Kantar, Tech Mahindra’s acquisition of Mad*Pow and PA Consulting’s purchase of 4iNNO.
Equiteq advised WGroup on its sale to Wavestone and RevUnit on its investment from Mountaingate Capital.
The Equiteq Knowledge Economy Share Price Index dipped slightly over the month.
WPP sells research and analytics business Kantar to Bain Capital.
a UK-headquartered research, data and insights business that was owned by global
marketing network WPP.
Bain Capital is a US-headquartered multi-asset alternative
(1.5x TTM Dec-2018 revenue)
Deal insight: In June, The Drum reported that WPP was in the process of selling Kantar. It was noted that Vista Equity Partners, Apollo, Platinum, as well as Bain, were four US private equity’s bidding for the research unit. The private equity focused process exemplifies a broader trend of strong demand for major knowledge-intensive services businesses from cash-rich financial buyers that are supported by robust fresh fundraisings. Kantar’s investment from Bain Capital follows the financial buyer’s acquisition of digital consulting firm Brillio in January.
WPP is undertaking a crucial transformation of its business
following the resignation of Sir Martin Sorrell last year and Mark Read’s appointment
as the marketing network’s new CEO. WPP recently sold its stake in Globant to
pay down debt and announced internal mergers of agencies to create a more
comprehensive digital-focused offerings for its clients. This is part of a
three-year plan of “radical evolution” that was outlined by Read to improve WPP’s
business performance. This is aimed at better positioning WPP for growth by countering
new competition from innovative non-traditional media competitors from the
consulting and technology sectors.
We have released a summary of
our detailed review of digital agencies M&A and investment trends.
Equiteq is pleased to present the results of our review of M&A and equity market trends across the digital agency space. Digital agency M&A activity was strong in the first of half 2019 (H1 2019) as cash-rich buyers continued to acquire new capabilities in a tight talent market. Deal activity has been strong over the last five years as buyers continue to build new capabilities via M&A. In H1 2019, deal activity was broadly in line with H1 2018. M&A is concentrated on North America and Europe with a growing market emerging in the Asia Pacific.
M&A Deal Volumes FY 2010 to H1 2019
Note: Dotted line indicates deals in first half of the respective year. Source: Equiteq Market Intelligence, S&P Capital IQ
There is considerable activity from non-traditional media agency buyers from the consulting and technology sector. This is putting pressure on the “Big Six” media networks – Dentsu, Havas, Interpublic Group (IPG), Omnicom, Publicis and WPP. These major marketing networks have also experienced declines in their share price over the past couple of years, driving reorganizations and new M&A.