Knowledge Economy Industry and M&A Outlook 2019

By Ramone Param, Director, Equiteq

The following summarizes our five key predictions for business owners in 2019 as discussed in our recently released Knowledge Economy Outlook paper.

1. Economic and political uncertainties will create opportunities for agile consulting companies to develop solutions that can help mitigate the current business risks facing their clients.

In 2018, the Equiteq Knowledge Economy Share Price Index posted its biggest decline since 2008. This mirrored weak performance across broader market indices. After a highly volatile end to the year, we commence 2019 with increased equity market uncertainty led by a range of political and economic risks. Against this backdrop, consulting business owners will need to be aware of the opportunities to position their organizations appropriately in 2019.

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

By Ramone Param, Director, Equiteq

  • Major deals profiled include DXC’s acquisition of Luxoft, Bain Capital’s acquisition of Brillio and IBM’s reported acquisition of T-Systems’ mainframe service business.
  • Equiteq advised Orbium on its sale to Accenture and Cervello on its sale to A.T. Kearney.      
  • The Equiteq Knowledge Economy Share Price Index experienced rises along with broader market indices.

DXC’s transformational acquisition of Luxoft builds new digital capabilities and sector vertical expertise.

Target: Luxoft is a global provider of technology solutions, including software development services.

Buyer: DXC Technology is a US-headquartered global IT services firm.

Deal Value: $2bn (2.2x TTM Sep-18 revenue)

Deal Insight: 
DXC Technology was formed in 2016 following the merger of HPE’s spin-off of most of its enterprise services business with Computer Sciences Corporation (CSC). Since its formation, DXC has been highly acquisitive and has announced notable deals across technology and consulting, including the acquisitions of:

  • Tribridge and Logicalis SMC in 2017; and
  • System Partners, Molina Medicaid Solutions and argodesign in 2018.

DXC’s acquisition of Luxoft is a transformational deal for the firm. It provides DXC with important capabilities in outsourced digital engineering, cloud and devops. It also enables DXC to deepen its capabilities for clients in the automotive and financial services sector verticals, particularly in Europe. At the end of January, DXC also announced its acquisition of EG A/S, a Microsoft consulting firm with a strong presence across the Nordics.

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Data Analytics Consulting Global M&A Review 2019

By Ramone Param, Director, Equiteq

We have released a summary of our detailed review of data analytics consulting M&A and investor trends for owners of businesses across the knowledge economy.

At the core of the Fourth Industrial Revolution is the fusion of big data, advanced analytics and new physical technologies. The key to business success in the new digital age is no longer being able to simply use data to measure current and past performance. It is being able to make predictions about the future and quickly prescribe recommended strategies that can enrich decision making.

From a delivery model perspective, there is pressure on knowledge-intensive services firms to enhance their consulting offering with new data analytics solutions. This same pressure is being felt by consulting firms’ clients, who look to their advisers for assistance in innovating and realizing competitive advantages from new data analytics tools. Across the space in 2018, we found that buyers focused on acquisition targets with proprietary platforms, leverageable IP and managed services solutions.

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December 2018: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Major deals profiled include Cognizant’s acquisition of Mustache, PA Consulting’ acquisition of We Are Friday and Accenture’s acquisition of Knowledgent.
  • Equiteq advised LightStream Analytics on its sale to ABeam Consulting.
  • The Equiteq Knowledge Economy Share Price Index declined along with broader market indices.

Cognizant acquires creative agency Mustache after another strong year of deal flow for the prolific buyer.

Target: Mustache is a US-based content creation agency that provides video production and marketing services with a focus on developing integrated advertising campaigns for blue-chip clients.

Buyer: Cognizant is a US-headquartered global technology services firm.

Deal Insight: Cognizant stepped up its deal flow across digital capabilities following a lull in activity in 2015. In its debut appearance, Cognizant Interactive was named among the top of Ad Age’s Agency Report 2018 rankings. The acquisition of Mustache adds strong content specialist capabilities and develops Cognizant Interactive’s digital content services to better position it against competitors like Accenture Interactive and Deloitte Digital. The transaction builds on Cognizant’s acquisition of Softvision for $550m in October. Softvision is a provider of end-to-end digital products and solutions with experience in developing video-streaming platforms.

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November 2018: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • Major deals profiled include Accenture’s acquisition of Intrigo, BDO’s acquisition of Moore Stephens LLP and Tata Consultancy Services’ acquisition of BridgePoint.
  • Equiteq advised OEE Consulting on its sale to Webhelp’s gobeyond.
  • The Equiteq Knowledge Economy Share Price Index experienced some volatility over the month along with broader market indices.

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The Knowledge Economy Global Buyers Report 2018/19

Strong demand for M&A in 2019 is driven by industry convergence with a desire among buyers to deepen industry and digital expertise

By Ramone Param, Director, Equiteq

  • 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.

The following summarizes the main trends discussed in more detail in our recently published Knowledge Economy Global Buyers Report.

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October 2018: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • 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.

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September 2018: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • 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.

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August 2018: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • 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.

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July 2018: Knowledge Economy M&A and Equity Market Update

By Ramone Param, Director, Equiteq

  • 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.

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