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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Marketing & Communication Agencies Industry Bulletin

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.

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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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The Knowledge Economy Global Buyers Report 2020

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.

  • Strong propensity for larger deals, driven by expectations of robust levels of capital being available for M&A, particularly for private equity investors
  • A competitive 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.

The following summarizes some of the key trends discussed in more detail in The Knowledge Economy Global Buyers Report 2020.

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

  • 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 infrastructure projects.

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.

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

  • Major deals profiled include Guidehouse’s acquisition of Navigant Consulting, BC Partners’ purchase of Presidio and Accenture’s acquisition of Parker Fitzgerald.
  • The Equiteq Knowledge Economy Share Price Index declined over the month in line with broader equity markets.

Veritas Capital-backed Guidehouse acquires Navigant Consulting in a landmark management consulting transaction.

Target: Navigant Consulting is a US-headquartered global professional services firm that was listed on the NYSE.

Buyer: Guidehouse is a US-headquartered provider of management consulting services to government clients. Guidehouse formed following Veritas Capital’s acquisition of PwC’s public sector advisory business last year.

Deal value: $1.1bn (1.4x TTM Jun-2019 revenue)

Deal insight: 

The acquisition of Navigant will create a major management consulting player with deep industry expertise. Guidehouse has worked on high-profile lucrative engagements with government agencies such as the department of defense, homeland security and veterans affairs. These government-focused advisory capabilities will be merged with Navigant’s strengths in consulting to the healthcare, energy and financial services sectors.

The sale of PwC’s government consulting business to Veritas Capital was followed by a rebranding of the business to “Guidehouse” last Summer. The divestiture is expected to allow PwC to focus on the growth of other parts of its advisory business and to enable it to pursue more business in auditing government agencies. This audit business was being limited due to professional standards which cap consulting services that audit firms can provide to these agencies.

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