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)
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Grow Equity Value Webinar – June 17th

Join Paul Beaumont, our Strategic Advisory Director, for a new webinar “Growing Your Consulting Firm’s Value During Uncertain Times.”

Please use this link to register.

Taking positive action during challenging times to increase value within your business will set you up for success when the industry returns to a stronger climate.

Alongside our friends at Deltek, we’ll be offering advice on growing your client relationships, improving consultant and management loyalty, your market proposition, the quality of your fee income, and more.

Webinar highlights:

– The positive steps you can take now to ensure your firm is prepared for the future

– Discover the areas of your consultancy where you can drive value

– See how technology solutions from firms like Deltek can deliver improvements in key areas of your business

– Don’t just survive, ensure you emerge stronger

Is now the time to Realize Value? Key take-aways from Equiteq’s latest webinar

Last week, Equiteq held a webinar ‘Does your firm meet the criteria to realize value now?’, attended by business owners from all sectors of the knowledge economy.

The webinar was hosted by David Jorgenson, our CEO; Jerome Glynn Smith, a Managing Director in our M&A practice, and Paul Dondos who runs our origination and buyside efforts globally. We expanded on the rationale for why C-19 may create a unique window to realize equity value, covering the latest on what buyers and sellers are saying and doing, and providing a framework to assess whether your firm has the characteristics to take advantage.

The recording and some key take-aways below. You can contact us directly on info@equiteq.com if you’d like a copy of the materials, or would like to talk through the details and how they relate to your business

Some key take-aways:

  • Clearly C-19 has caused disruptions, but some market strength has developed and in certain circumstances the current market is favourable for sellers to achieve very attractive deals 
  • Liquidity is at an all-time high with financial investors in the private markets
  • Evolving competitive landscapes (and the requirement to stay relevant to B2B and B2C customers) will drive growth plans for strategic buyers that systematically involve M&A – Equiteq has close to 20 projects ongoing at the moment with these drivers  at the core of strategic interest 
  • The pandemic has provided a strong test of resilience, which will drive demand for well-performing business
  • Market sentiment will improve as visibility increases, fast
  • There is already a scarcity of sellers vs. buyers in the market, in particular for assets of quality. Businesses that are pre-prepared to engage with investors and acquirers will benefit  
  • We are seeing some changes in the way transactions are progressing towards closure, including:
     
    • Exceptional treatment of FY20 in the structuring of earn-outs 
    • COVID normalisations  
    • Creative dealmaking to get things across the line  
  • Time may not be on your side to conclude a deal – with potential risks including removal of favourable tax treatment for entrepreneurs, second spike of the virus, geopolitical uncertainty, shareholder misalignment 

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.

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

  • Major deals profiled include KPMG’s acquisition of Wirefire Creative, Capgemini’s purchase of Advectas, and McKinsey’s acquisition of Orpheus.
  • The Equiteq Knowledge Economy Share Price Index dipped with broader equity indices over the month.

KPMG Canada acquires ServiceNow Partner Wirefire Creative.

Target: Wirefire Creative is the ServiceNow practice of the Canadian technology consultancy Wirefire.
Buyer: KPMG is a global accounting and business advisory firm.

Deal insight:
The deal will add 20 Wirefire professionals to KPMG Canada’s IT advisory team. The team will add strategically important capabilities in ServiceNow consulting, which are enabling many of KPMG’s blue-chip clients’ digital transformations. Wirefire’s Creative co-founder and CEO Karsten Hiemstra will join KPMG as a partner in the firm’s IT Advisory practice and lead its ServiceNow practice in Western Canada.

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.

Capgemini acquires Advectas to bolster its business intelligence and data analytics services.

Target: Advectas is a Sweden-headquartered business intelligence and data science company.
Buyer: Capgemini is a France-headquartered technology and digital transformation consulting firm.

Deal insight:
Capgemini’s acquisition of Advectas will add a team of over 200 people with business intelligence and data analytics services capabilities. Advectas works across multiple industry sectors and providers business intelligence solutions across the data value chain. This includes data management and data science services, data analytics consulting, planning and simulation.

The purchase of Advectas comes shortly after Capgemini purchased Purpose, a 100-person social impact firm based in the US. It also follows Capgemini’s milestone purchase of Altran last year. Capgemini’s deal flow in the consulting space is enabling the growth of Capgemini Invent, which combines the legacy Capgemini Consulting business with expertise in technology and data science. The new brand merged prior notable digital acquisitions including the purchase of digital consulting firm LiquidHub, innovation consulting firm Fahrenheit 212, as well as creative design agencies Idean, Adaptive Lab and Backelite. The growth of Capgemini Invent is better positioning Capgemini against growing digital transformation competitors like Accenture, Cognizant and the Indian IT services players.

McKinsey purchases Orpheus, building its digital procurement and spend intelligence capabilities.

Target: Orpheus, a Germany-headquartered developer of software that helps organizations optimize their external expenditure by analysing purchasing data streams.
Buyer: McKinsey is a US-headquartered global management consulting firm.

Deal insight:
McKinsey’s purchase of Orpheus will enable a new offering to McKinsey’s clients called Spend Intelligence by McKinsey. The service will provide spend transparency, spend and cost analytics, as well as value-capture management. Spend Intelligence combines Orpheus’ advanced platform technology with McKinsey’s industry expertise and digital procurement services. Orpheus had previously received investment from KfW Group, Senovo and Unternehmertum Venture Capital Partners.

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.

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Financial Technologies and Services Industry Bulletin

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:

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Supply Chain Management Industry Bulletin

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.

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

  • 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.

Duff & Phelps receives fresh investment from Stone Point Capital and Further Global Capital Management.

Target: Duff & 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.

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