GLOBAL M&A UPDATE – Q3 2020

After a sharp Q2 decline in deal flow due to Covid-19, Q3 shows a notable recovery in most markets.

Despite the headwinds of the global health emergency and the resulting economic uncertainty, deal volumes showed a strong bounce-back, with a 20 % quarter on quarter increase in completed deals.

Many of the deals closing in Q3 have been executed largely remotely, with limited direct engagement between sellers and buyers during the process – historically very unusual for a sector so dependent on talent and cultural alignment.

The strength of the M&A rebound showcases the speed of adoption of new ways of engaging customers, deploying technology and streamlining operations to leverage growth opportunities and preserve profitability – as well, in many cases, as the ability to adapt propositions to directly support the pandemic response.

C-19 has accelerated existing medium to long-term trends around digitization. This is driving sustained, competitive demand from multiple buyer and investor groups for knowledge economy firms that bring digital transformation advisory capabilities and service-enhancing digital tools.

These tailwinds have already helped technology services M&A back to year-on-year growth and are supporting improvements in adjacent and converging management consulting and marketing/information services players. The large drop in human capital and engineering deals in Q3, 2020 compared to last year should be considered in light of relatively low overall deal volumes which means those segments are in any case more volatile when compared over a short period – further data points are needed to establish if M&A in those markets will continue to be adversely affected.

David Jorgenson, CEO, Equiteq said “Despite the rising uncertainty about when this pandemic will end, the market is starting to bounce back and adapt to new working practices out of necessity with digital transformation driving the growth. Covid has caused us to change and this change is now our new normal”

Download the report here.

Monthly Update – M&A Dealflow and Share Prices Increasing Despite Uncertainties

Last week, a well-known UK retailer tweeted, “A customer has just bought a 2021 calendar. Sir, we admire your optimism.”  

A neat encapsulation of how uncertainty across health, economic and political landscapes continues to shape 2020. And yet: stock markets continue to climb the wall of worry, driven by technology and – increasingly – knowledge economy stocks, while commentators continue to walk back from their worst-case forecasts for both the pandemic and its financial impacts.

As early as the start of May, our team started to observe positive signs in knowledge economy M&A markets. Already, after a short hiatus, existing deals were continuing, buyers and investors were already back in the market, and owners of resilient business were still pro-actively considering their exit options.

This momentum has translated into deal completions over the summer, with four Equiteq deals closed since the end of June, including:

  • Advising 4C, a leading Salesforce multi-cloud partner in Europe and the Middle East with over 350 employees, on its acquisition by Wipro – continuing the trend of consolidation in the Salesforce ecosystem, and illustrating Equiteq’s leading position advising on transactions in the digital transformation space
  • Providing advice to SIA Partners on their acquisition of Pathfinder, a leading change and transformation consultancy, as SIA continues their journey to strengthen their presence in UK and Ireland, and build a leading Tier-1 independent consulting firm
  • Advising Water Street Partners, a leading joint venture and alliance advisory firm, on their sale to Ankura, continuing Ankura’s push to establish itself as one of the leading global consulting firms. Our client’s comment neatly sums up the last few months: “It is hard to imagine the Equiteq team delivering a deal under more difficult circumstances. The COVID pandemic was breaking out as we signed the LOI … the team steered us through tremendous uncertainty with dogged persistence, extraordinary effort, real creativity, and integrity.”
  • Advising on a cross-border deal in S.E. Asia – details embargoed until September: more to come

It continues to be our view that the large pool of investors/buyers in market is not seeing adequate deal flow of high-quality acquisition targets like these. 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.

Despite this, our community of owners continues to have reservations. In late July, we surveyed owners on their attitudes to M&A. You can download the report at the bottom of this post (or here). Key observations include:

  • By far the biggest concern owners had about M&A post-Covid is the prospect of achieving a valuation that reflects the true value of their business
  • Most owners are pessimistic about the strength of the economic recovery, and / or have seen detrimental impacts on their trading (although relatively few reported a strong negative impact)
  • Most of you don’t believe the worst of the health emergency is over

It’s probably worth re-stating that in current deals, to date, we have seen minimal impact on headline valuations – negotiations have centred primarily on deal structure (e.g. earn-outs not starting until six months after signing)

You might draw a tentative conclusion from the above that owners would delay their M&A process – but over half of those we polled are not delaying their plans. Perhaps one reason for this is – as a small but increasing numbers of owners told us – that the uncertainty and risks of delaying a deal outweigh the perceived benefits. Moreover, from conversations with the buyer community, we hear that, while the quantity, or even the overall quality, of bids and interest may have suffered in some processes, the knock-out offer is still there, at the same high value that might have been anticipated pre-pandemic.

Do get in contact with us if you’d like to talk through any of our recent deals and our latest thoughts on market trends – in particular, on valuations and deal structures.

In the meantime, an update on the Knowledge Economy Share Price Index. We’ve seen our index continue its recovery from March lows, easily outperforming the S&P 500, reflecting the importance of our sector to economic growth, and the increasing application of technology within sector firms.

The only sub-sector still down on a 12-month basis is “Human Resources”, which directly mirrors what we saw in our survey. A ray of hope there though – we’re seeing some training, leadership development and recruitment businesses with positive momentum (especially ones with some tech-enablement behind them). It could be a sector that benefits very strongly from a rebound as end clients scale up their investment in people and workforce transformation post-pandemic.

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

Knowledge Economy Share Index – Sub-Sectors:

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.

 

Equiteq advises 4C, a leading Salesforce multi-cloud partner in Europe and the Middle East, on its acquisition by Wipro

London- July 27th, 2020

Equiteq, the leading M&A advisory firm for companies in the Knowledge Economy, is pleased to announce that it has advised 4C, one of the largest Salesforce partners in UK, Europe and the Middle East, on its acquisition by Wipro, a leading global information technology, consulting and business process services company.

About the Transaction

On July 23, 2020, Wipro Limited (NYSE: WIT, BSE: 507685, NSE: WIPRO), announced that it has signed a definitive agreement to acquire 4C, one of the largest Salesforce partners in UK, Europe and the Middle East.

Established in 1997 with its headquarters in Mechelen, Belgium, 4C is an independent Salesforce Platinum Partner and one of the leading customer-centric consultancies in Europe and the Middle East. 4C has deep capabilities across multiple Salesforce clouds including Sales, Marketing, Field Services and specializes in transforming Quote-to-Cash processes with Salesforce’s Configure, Price, Quote (CPQ) and Billing solutions. 4C has successfully delivered over 1500 projects, for more than 500 customers and is one of EMEA’s most certified Salesforce partners with over 1000 Salesforce certifications.

With over 350 employees based out of local offices in London, Paris, Brussels, Copenhagen and Dubai, 4C has a robust Salesforce practice in the UK, France, Benelux, the Nordics and the United Arab Emirates regions. This acquisition significantly strengthens Wipro’s position as a leading provider of Salesforce solutions in these markets. Wipro has a well-established Salesforce business in the Americas, Japan and Australia which was reinforced with the Appirio acquisition in 2016. 4C will be consolidated as part of Wipro’s Salesforce practice, which provides market leading solutions globally around multiple Salesforce clouds and its ecosystem of products.

Jerome Glynn-Smith, Equiteq’s Managing Director in London, said, “We are delighted to have delivered this transaction, setting 4C up for its next phase of expansion. We see an ongoing trend of business combination between innovation boutiques and global majors in consulting, to support the ever-expanding scope of the Salesforce ecosystem.”

“We are excited to have the team at 4C join us. They bring in a rich blend of deep Salesforce expertise across multiple clouds coupled with a team of multi-faceted, multilingual experts with strong regional knowledge. This combination along with Wipro’s reach across the region and industry, will help us become a dominant player in Europe and a leader in Salesforce’s Quote to Cash domain,” said Harish Dwarkanhalli, President, Cloud Enterprise Platforms (CEP), Wipro Limited.

“Wipro shares the same values as we do. Their global presence, robust digital transformation consulting and delivery capabilities and significant investment in the European market, provides an excellent platform for the growth of our employees. We will now leverage this opportunity to take the next leap in building companies for the future for our customers, not just locally but across EMEA,” said Johan Van Genechten, Chief Executive Officer, 4C

The acquisition is subject to customary closing conditions and is expected to be closed in the quarter ending September 30, 2020.


M&A Market Round Table – 30th July

The 4C-Wipro transaction marks Equiteq’s fourth deal in the Knowledge Economy since the end of June. 

This Thursday at 4pm GMT, Equiteq is hosting the latest in a series of webinars covering the latest on M&A market trends, and what buyers/investors are saying and doing.

The session will also feature feedback of results from our M&A Attitudes survey, and address questions from business owners on how to optimize transaction outcomes in the current market.

You can still complete the 10-minute survey here, and add questions you’d like to be covered. The survey includes an option to register for the webinar.  Or you can directly register here.

Webinar – achieving a scarcity premium in the post-Covid M&A market

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.

Take-aways below.

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.

Key take-aways:

  • 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)

M&A boom for Cloud MSPs focused on AWS and Azure

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.)

2nd June – ProArch (Atlanta) Acquires iv4
Read full article here >

3rd June – Netreo Acquires CloudMonix (Azure)
Read full article here > 

3rd June – Navisite acquires Privo  (AWS)
Read full article here > 

3rd June – Deloitte Ireland acquires DNM (next gen AWS)
Read full article here >

3rd June – Effectual acquires Five Talent (DevOps)
Read full article here >

Equiteq Edge Monthly Update – Knowledge Economy Share Price Index Recovers Most of Covid-19 Losses

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 info@equiteq.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:

https://us02web.zoom.us/webinar/register/2315894787079/WN_Dp4hb29nTleyPWwctaEYtw

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.

Accenture Buys B2B Marketing Services Agency Yesler

Target: Yesler provides business-to-business (B2B) marketing services.

Buyer: Accenture provides B2B marketing services worldwide.

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.

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.

Sales Performance and Enablement Industry Bulletin

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 outcomes.

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.

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January 2020: Knowledge Economy M&A and Equity Market Update

  • 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.

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

  • 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 contentand productionagency.

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.

The 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.

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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.

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