Buyers expect to complete 5 acquisitions over the next 2 to 3 years
Private equity expect to acquire 75% more businesses than strategic buyers
The optimum turnover size for an acquisition rose 18% since 2016
Strong demand for artificial intelligence, data analytics and Internet of Things capabilities
The Knowledge Economy Global Buyers Report analyzes the findings of our fifth comprehensive independent survey of global strategic buyers and private equity investors acquiring businesses across the knowledge economy. The report provides exclusive insights into current M&A trends among buyers that acquire knowledge-intensive services businesses across five segments: management consulting, IT services, media agencies, engineering consulting and human resources.
Major deals profiled include Cognizant’s acquisition of Softvision, NTT Data’s acquisition of Sierra Systems and Accenture’s acquisition of TargetST8.
Equiteq advised Copperman on its sale to Decision Inc. and Essential Design on its sale to PA Consulting.
The Equiteq Knowledge Economy Share Price Index fell over the month, along with other broader market indices.
Cognizant announces transformational acquisition of Softvision from Tower Arch Capital
Target: Softvision is a global provider of end-to-end digital products and solutions that works with a variety of blue-chip companies. The business has a network of 2,850 professionals with a significant presence in Romania.
Buyer: Cognizant is a US-headquartered global technology services firm.
Deal Value: $550m
Deal Insight: The deal expands Cognizant’s offerings in digital and cloud services to better position it against more acquisitive digital competitors like Accenture. Cognizant will benefit from Softvision’s strong roster of client relationships and experience on high-profile projects. This includes the creation of a disruptive video-streaming platform and an iPad application for US-based healthcare provider Kaiser Permanente. The acquisition also expands Cognizant’s footprint in Romania. Softvision was previously owned by private equity Tower Arch Capital, which acquired the business in July 2015 for an undisclosed sum.
Activity remains focused on media agencies and IT services
Strong rises in M&A in North America and APAC
Equiteq Knowledge Economy Share Price Index pushes to new highs
The global M&A market across the knowledge economy was strong in the third quarter of 2018. Market data from the quarter reflects a key trend we have been monitoring over the last eighteen months: global buyers are pushing ahead with larger deals at premium prices. This is partly down to strategic buyers and private equity having record capital available for M&A. Given the low interest rate environment, there is pressure to deploy this capital on larger transactions. Particularly amid increasing signs that quantitative easing programs are coming to an end across developed economies.
It’s been widely reported that Yahoo and AOL, both owned by Verizon’s business unit Oath, are reading users’ emails to more effectively target advertising.
The WSJ moves beyond the headline issue of privacy and into the privacy trade-off users make with their free email providers. There is an interesting connection here to the concept of “razors” and “blades”, discussed in a previous post. Email could be seen as the razor to Oath’s blade, i.e. how they make money, online advertising. Trying to monetize their “expensive” razor is proving tricky. At the very least it has generated plenty of media attention regarding privacy concerns.
The WSJ article references Yahoo’s ad-free email service for $3.49/month. There have been attempts at pay-for privacy social media platforms in the past. It is interesting to think about the digital assets available to consumers and the price of privacy. My sense is most of us have always thought of online ad targeting as benign. But as we shift more of our lives to the digital world, learn more about how our data is being used (sometimes after the fact), and start questioning where the boundaries are it begs the question: is there a future for digital pay-for privacy?
Major deals profiled include Cognizant’s acquisition of ATG, AlixPartners’ acquisition of Zolfo Cooper’s US operations and SAIC’s acquisition of Engility.
Equiteq advised System Partners on its sale to DXC Technology and Mexia on joining Deloitte.
The Equiteq Knowledge Economy Share Price Index fell modestly over the month.
Cognizant acquires ATG, expanding its capabilities in the rapidly growing cloud-based Quote to Cash consulting space
Target: Advanced Technology Group (ATG) is a US-based provider of advice on planning, implementing, and optimizing cloud-based Quote to Cash (QTC) business processes and technologies for businesses. ATG is a global Salesforce consulting partner.
Buyer: Cognizant is a US-headquartered global technology services firm.
Deal Insight: Equiteq recently published a guide for the Configure Price Quote (CPQ) industry at Salesforce’s Dreamforce 18. CPQ forms part of the QTC space and it was clear from our research that the space is seeing rapid growth, particularly as it relates to cloud-based solutions that are transforming the sales experience for businesses across industries. The following software players are some of the leaders that have received considerable investments and / or expanded into the space via M&A.
Apttus was acquired by private equity Thoma Bravo in September 2018;
SAP completed its acquisition of Callidus Software in April 2018;
Salesforce completed its acquisition of SteelBrick in 2016; and
Oracle completed its acquisition of BigMachines in 2013.
The acquisition of ATG marks Cognizant’s fourth acquisition in 2018. The deal is its second acquisition in the Salesforce consulting space after its recent acquisition of SaaSfocus – an Indian digital transformation consulting business that leverages Salesforce solutions. Salesforce consulting businesses continue to observe strong demand from buyers, as the industry benefits from the growth in the adoption of the latest Salesforce solutions.
We have just returned from an exhilarating week in San Francisco for Dreamforce 18, the largest technology event in the world and this year attracting over 170,000 people from Salesforce’s client, investor, research and partner network. The most pertinent discussions revolved around the latest artificial intelligence solutions and how they are further disrupting customer experience. The conference also provided the opportunity for major deals and investments to be announced, including the sale of Equiteq’s M&A advisory client and Salesforce Platinum partner, System Partners, to DXC Technology.
At this year’s conference, Equiteq and Quote-to-Cash experts, Simplus, announced the release of The Configure-Price-Quote (CPQ) Industry Guide 2018, the most comprehensive publicly available study of the CPQ industry and investment within the space. The guide provides exclusive industry perspectives on the CPQ trends currently transforming customer experience for businesses and driving investment in solutions providers.
I recently listened to Sunil Gupta’s HBR IdeaCast on digital strategy – a topic relevant to many, if not all, of our clients. After providing examples of failed approaches to digital strategy he rightfully points out that in order to be successful, strategies need to incorporate four components:
Operations and value chain
I think this is an incredibly helpful and balanced perspective. When advising companies in the knowledge economy and looking at the M&A focus of the large players, we see far too much focus on a single component, specifically customer engagement. There are perhaps a number of reasons for this, for example you can see immediate success, outcomes are more tangible, etc.
However, where we see organizations making significant strides is when they take a far more comprehensive approach to their digital strategy and look beyond the digital experience of the customer as their sole focus.
Major deals profiled include Wunderman’s acquisition of Gorilla Group, Omnicom’s acquisition of Credera and Accenture’s acquisitions of Mindtribe & Pillar.
Equiteq advised DBM Consultants on its merger with Illuminera.
The Equiteq Knowledge Economy Share Price Index rose over the month led by share price rises in various listed management consulting and IT services.
Wunderman acquires Gorilla and WPP announces Mark Read as its new CEO
Target: Gorilla Group is a 370-person global digital agency specializing in eCommerce consulting. In FY2017 the agency generated $40m of revenue.
Buyer: Wunderman is a digital agency that is part of WPP, one of the leading global networks of advertising agencies.
Deal Insight: Gorilla Group will become part of Wunderman Commerce. The acquisition deepens Wunderman Commerce’s eCommerce capabilities in North America. The buyer will also benefit from Gorilla’s strong relationships with key technology partners including SAP Hybris, Salesforce and Magento.
At the end of the month, it was announced in the Financial Times that Mark Read will be named as the new CEO of WPP, succeeding Sir Martin Sorrell. There was a lot of speculation on internal and external candidates that may be chosen as WPP’s new leader. Mark Read had previously held leadership positions at WPP Digital and Wunderman respectively. Read is expected to undertake a strategic review of the business as it faces a range of fresh challenges.
Major deals profiled include IPG’s acquisition of Acxiom Marketing Solutions, S4 Capital’s acquisition of MediaMonks and Accenture’s acquisition of Kogentix.
The Equiteq Knowledge Economy Share Price Index was broadly flat over the month.
IPG’s acquisition of Acxiom Marketing Solutions gives it access to anonymized customer data to enhance its targeted marketing solutions
Target: Acxiom Marketing Solutions (AMS) is Acxiom’s legacy data management business. It consists of a team of 2,100 people and represents about three quarters of Acxiom’s total revenue.
Buyer: Interpublic Group (IPG) is one of the leading networks of advertising agencies.
Deal Value: $2.3bn
Deal Insight: At the beginning of July, the Wall Street Journal reported that Dentsu and IPG were both expected to submit offers to acquire part of Acxiom. IPG followed with its announced acquisition of AMS, which gave it access to customer data that can drive more targeted marketing campaigns for its clients. The deal comes as the leading marketing agencies are coming under pressure from major consultancies and technology firms entering the digital media space. These more recent entrants are utilizing strong data analytics solutions to build effective advertising campaigns.
Data ethics has become an important issue with the adoption of GDPR in Europe and the controversies surrounding Facebook and Cambridge Analytica. Acxiom is considered to have a strong reputation in data integrity, which will have supported the strategic nature of this deal and premium valuation metrics. AMS was part of Acxiom’s Marketing Services and Audience Solutions segments, which generated total revenue of $706m in the year to March 2018.
Strong rise in average deal size and valuation multiples in H1 2018
The number of completed deals fell 5% on H1 2017
Activity remains focused on IT services and management consulting
Equiteq Knowledge Economy Share Price Index continues to reach new highs
Across the global knowledge economy in the first half of the year, average M&A deal sizes and valuation multiples rose markedly, but the number of completed deals fell. Many buyers pushed ahead with a smaller number of larger transformational deals for their businesses at premium prices in the current low interest rate environment. This is against a backdrop of rising signs that quantitative easing programs are coming to an end across developed economies.
The following trends are discussed in more detail in our recent mid-year M&A update report.