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.

American Securities and Lindsay Goldberg acquires AECOM’s Management Services business, creating a new standalone contractor serving the government sector.

Target: AECOM’s Management Services business is a contractor to the U.S. federal government and serves various departments and agencies. The business is part of US-headquartered multinational engineering firm AECOM.

Buyers: American Securities and Lindsay Goldberg are US-headquartered private equity firms.

Deal insight: AECOM’s divestment of its Management Services business follows reports in June that AECOM was intending to spin-out the division. AECOM is exiting the business as part of a strategic initiative to maximize shareholder value through cost reductions and by selling non-core assets. The exit already follows the sale of its Canadian industrial services business and its Irish design build offering over the last two years. 

American Securities and Lindsay Goldberg have significant capital available for investment. Furthermore, Lindsay Goldberg has experience of realizing two investments in the government services space. In 2016, Lindsay Goldberg exited their investment in PAE to Platinum Equity. PAE offers support for essential missions to the US government. In 2018, the investor also sold US-based government services player ECS Federal to strategic buyer ASGN.

There is notable consolidation among government services players in the US. In January, SAIC merged with Engility to create the second-largest independent technology player in government services with over 23,000 employees. Last year’s sale of PwC’s government consulting business to Veritas Capital was followed by a rebranding of the business to “Guidehouse” over Summer. This was followed by the firm’s $1.1bn acquisition of Navigant Consulting in October. Investment in the space is being driven by increased government spending in the region, particularly as it relates to technology-focused defense spending. This is resulting in contractors vying to build more scale and adjacent capabilities to enable them to bid on larger projects.

Boston Consulting Group acquires AllofUS as it expands its design capabilities in the UK.

Target: AllofUs is a UK-based design consultancy.

Buyer: Boston Consulting Group is a US-headquartered strategy consulting firm.

Deal insight: Boston Consulting Group, along with the traditional strategy consulting firms that it historically competed with, is increasing their deal flow in the digital consulting space. AllofUs marks BCG’s third acquisition this year, following its purchase of Kernel Analytics and The Simulation Group. The buyer is also investing in early stage venture capital and organically in its digital-focused business units:

  • BCG Digital Ventures, its digital innovation, incubation, and investment unit;
  • BCG Platinion, its IT architecture and solutions business; and
  • BCG Gamma, its advanced analytics and data science services arm.

The acquisition of AllofUs is set to strength BCG’s design and engineering capabilities that forms a key part of many of its clients’ digital innovation projects. The Fourth Industrial Revolution is being shaped by accelerating innovation, which is driving the fusion of advanced digital technologies to enable many of the latest industry transformations. This presents new opportunities for disruptive consulting firms across industries and is driving buyer demand for the latest innovation strategy capabilities from buyers across industries.

BCG will have been attracted by AllofUs’ roster of blue-chip clients, which include the likes of Samsung, Google and Facebook. The purchase of the AllofUs builds on BCG’s 2017 acquisition of MAYA, a Pittsburgh-based digital design and innovation lab.

Selected Knowledge Economy M&A announced in October:

Source: PitchBook, S&P Capital IQ and company press releases

Knowledge Economy Share Price Index

Source: S&P Capital IQ

Note: The Equiteq Knowledge Economy Share Price Index is the average of Equiteq’s five 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.

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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.

Accenture continues to build its advanced analytics capabilities with the purchase of Pragsis Bidoop.

Buyer: Accenture is an Ireland-headquartered multinational professional services company.

Target: Pragsis Bidoop is a Spain-headquartered big data, AI and advanced analytics company.

Deal insight: As part of the transaction, Accenture will add over 200 people with machine learning and big data engineering experience to the buyer’s applied intelligence business. The business was recently bolstered by Accenture’s acquisition of Analytics8 last month. Analytics8 was an Australian business specialized in data management, visualization, data science and analytics services. Accenture’s acquisitions of Pragsis Bidoop and Analytics8 highlight the continued demand for advanced analytics consulting capabilities among strategic buyers that are shaping the digital age.

There is pressure on many consulting firms to enhance their 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, we observe buyers being focused on acquisition targets with proprietary platforms, leverageable IP and managed services solutions.

Siemens Healthineers acquires ECG Management Consultants from private equity Gryphon Investors.

Buyer: Siemens Healthineers is a US-headquartered medical technology company.

Target: ECG Management Consultants is a US-headquartered provides specialized strategic, operational, financial, and technology-related consulting services to health systems, hospitals, medical groups and academic medical centers.

Deal insight: Siemens AG launched an IPO of Siemens Healthineers in March last year. The floatation was one of the biggest IPOs in Germany in 2018, as well as one of the largest in the medtech industry worldwide. The acquisition of ECG Management Consultants follows the buyer’s landmark purchase of medtech business Corindus Vascular Robotics for $1.1bn. These deals forms part of the buyer’s strategy 2025, which was outlined last year to bolster its market leadership.

Gryphon Investors acquired ECG in 2014 and has since grown the business with the purchases of NeuStrategy, Eveia Health Consulting and Kurt Salmon’s healthcare business. A confluence of demographic, economic, regulatory and technological drivers are forcing healthcare providers to improve care standards and enable efficiencies. Consulting firms are benefiting from this trend and are seeing further potential from helping clients realize new competitive advantages that will arise from using rapidly evolving technologies. This includes the latest connected devices embedded with the latest artificial intelligence and advanced data analytics solutions.

Selected Knowledge Economy M&A announced in September:

Source: PitchBook, S&P Capital IQ and company press releases

Knowledge Economy Share Price Index

Source: S&P Capital IQ

Note: The Equiteq Knowledge Economy Share Price Index is the average of Equiteq’s five 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.

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.

April 2017: Consulting M&A Update

By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

SNC-Lavalin acquires Atkins

SNC-Lavalin is acquiring British engineering consultancy Atkins for £2.1bn ($2.6bn). The offer represented a c.35% premium to the undisturbed closing price of Atkins prior to acquisitions talks were announced. As highlighted in our January market update, CH2M had been rumored to be in discussions with Atkins about a possible merger earlier in the year.

The acquisition would boost the Canadian engineering and construction firm’s European revenue as it emerges from a self-imposed freeze on acquisitions in 2015. The deal is expected to expand SNC’s projects outside the energy industry, while oil prices continue to remain significantly below their 2014 levels.

In combination with John Wood Group’s acquisition of Amec for £2.2bn ($2.7bn) last month, the deal represents a consolidation of the UK engineering consulting market, a trend that we anticipated globally in our latest Engineering M&A Report.

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March 2017: Consulting M&A Update

 By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

Oracle reportedly exploring Accenture acquisition bid

According to a report by The Register, Oracle has hired consultants to conduct due diligence research on acquiring Accenture. Accenture is a major Oracle partner, while Oracle has a material services business which operates alongside its software offering. The combination would significantly enhance both companies position in their respective markets, creating a leading provider of end-to-end digital transformation products and services.

A deal with Accenture would follow Oracle’s recent acquisition of NetSuite for $9.3bn and its acquisition of PeopleSoft in 2005 for $10.3bn. With Accenture’s market cap at over $77bn, the deal would be by far its largest acquisition to date.

Oracle has been focusing on its cloud business, but is still considered to be behind market leaders Amazon Web Services, as well as Microsoft, Google and IBM. Following reports of the deal, Accenture’s stock fell, with some equity analysts raising concerns about the deal’s implications for Accenture’s independence and the risks to Accenture’s strong relationships with Oracle’s competitors like SAP, Salesforce, ServiceNow and Workday.

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January 2017: Consulting Market Update

Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

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By Ramone Param, Associate Director, Market Intelligence & Buyer Coverage, Equiteq.

The New Year commenced with some notable deal activity and M&A news across all five of the consulting segments that we track. The share prices of many listed consultants that form part of our Equiteq Consulting Share Price Index also rose on the back of strong market sentiment and earnings announcements.

WS Atkins and CH2M $4bn merger talks

The Times reported that British engineering and design consulting firm, WS Atkins Plc (ATKW.L) and US-based CH2M are in merger talks. Atkins had said last year that plans by the new U.S. administration and U.K. government to increase infrastructure spending would benefit the company. Atkins had been using M&A to selectively increase its geographic footprint and capabilities, in a segment that is considered to be consolidating as players look to reduce overheads and increase global market share.

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How to handle an approach from a buyer – ‘Bid-defence’

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By Bruce Ramsay, Managing Director, Business Development, Equiteq

It is quite common for successful consulting firms to be approached by prospective buyers. In fact, our data suggests that a third of the deals we process come about from buyers approaching the client.

During a recent webinar, Equiteq Managing Director Bruce Ramsay answered questions from attendees on the subject of how to handle an approach from a buyer and what to do to maximize the opportunity from such an approach.

1. Will my business be worth more if a buyer approaches me, instead of going to market?

Your business could potentially be worth more if a buyer approaches you, as an incoming enquiry is an indication of proactive interest.

However, it is important to gauge the credibility of an unsolicited approach as soon as possible, as many are just ‘kicking the tyres’ and seeing if they can acquire an asset at a knock-down price. Understanding the buyer’s intention early on will help you understand whether this is an endeavor worth following up with or not.

Here’s what to expect from consulting firm buyers.

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December 2016: Consulting Market Update

Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

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By Ramone Param, Market Insights & Buyer Coverage Associate, Equiteq.

2016 ended with a number of high-profile deals being signed across all five of our knowledge-intensive services segments. The share prices of many listed consultants that form part of our Equiteq Consulting Share Price Index also reached record highs. This continued strong investor confidence in the sector is also observed across other industries as reflected by the strong gains of the S&P 500 and Dow Jones, as well as the FTSE 100 which reached an all-time high by year end.

december-update-blog-image-1The largest deal to be announced in December was KKR & Co.’s acquisition of cyber-security specialist, Optiv Security, from The Blackstone Group. The deal followed Blackstone’s filing for an initial public offering of Optiv last month. The sale of the business follows a number of recent high-profile and lucrative private equity exits of portfolio companies operating in the consulting sector, including the sale of Pactera by Blackstone and the sale of AlixPartners by CVC Capital Partners. We expect that these successful landmark sales will support strong appetite from financial buyers investing in the sector in the New Year.

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November 2016: Consulting Market Update

Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

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By Ramone Param, Market Insights & Buyer Coverage Associate, Equiteq.

In November, we continued to observe strong deal activity amongst prolific IT services buyers such as Accenture, Cognizant and CGI Group. This month’s sale of AlixPartners by CVC Capital Partners also marked one of the largest private equity exits within the consulting industry. With respect to equity market performance, U.S.-based listed consultants tracked within the Equiteq Consulting Share Price Index have rallied following the Presidential election result. This is expected to be reflective of hopes amongst many investors of an improved business outlook in the U.S. stemming from future fiscal stimulus plans, corporate tax rate reductions and regulatory reforms.

CVC Capital Partners agreed to sell its stake in AlixPartners to company founder Jay Alix, as well as to investment firms: Caisse de dépôt et placement du Québec, Public Sector Pension Investment Board and Investcorp Group. The deal values AlixPartners at over $2.5bn and implies a current year revenue multiple of approximately 2.5x.

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October 2016: Consulting Market Update

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By Ramone Param, Buyer Coverage Associate, Equiteq.

Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

As we anticipated in our third quarter update, significant deal activity is continuing to occur in the IT services segment, with a number of notable transactions in the sector being announced this month. This comes as the broader M&A market has observed a wave of mega deals across sectors, with October being reported as one of the busiest months for deal activity in the US, according to data from Dealogic.

In the month, the share prices of many listed consulting players contained within the Equiteq Consulting Share Price Index were impacted by quarterly earnings announcements, the release of macroeconomic data and US Presidential election uncertainty. The share price of WPP, a constituent of the Equiteq Media Share Price Index, was boosted by stronger than expected third quarter earnings. These results were in contrast to weaker quarterly earnings from some of its peers like Publicis. This variation in results amongst large listed media players has led some equity analysts to attribute these differences to rising competition for key client accounts as the evolution of digital media continues to disrupt the industry.

There were three notable deals announced this month within the IT Services segment:

  • In our recent article analyzing trends within Cloud Consulting M&A, we discussed the landmark acquisition of Appirio by leading Indian IT-Services player, Wipro, for $500m. Appirio will position Wipro as the leading Indian technology services player in the cloud services space.
  • The Blackstone Group sold Chinese IT outsourcing and consulting firm, Pactera, to a unit of Chinese shipping and air giant HNA Group. This deal reportedly values the business at c.$930m and returns Blackstone c.1.5 times on its initial investment of over $600m that it made in March 2014.
  • Aon agreed to acquire a 550-person US-based cyber-security specialist called Stroz Friedberg. The deal was seen as a move within the insurance industry to capitalize on the risk management opportunities from rising client concerns over cyber threats.

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September 2016: Consulting Market Update

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Consulting M&A Activity and Equiteq Consulting Share Price Index Performance

In September, we saw a number of high-profile deals being announced, particularly amongst buyers in the IT consulting and broader technology sector. This month also saw the performance of many listed consulting players contained within the Equiteq Consulting Share Price Index being positively impacted by macro-events such as poll results following the debates in the lead up to the U.S. elections and OPEC’s tentative agreement to cut oil production.

Accenture, a listed consultant tracked within the Equiteq IT Consulting Share Price Index, reported quarterly earnings above estimates, highlighting strength in their new bookings and an expansion in their profit margins. The announcement was followed by a 4% jump in their share price.

Accenture remains highly acquisitive, announcing three notable acquisitions this month:

  • DayNine, a leading 400-person global Workday consulting firm. The acquisition builds on past acquisitions by Accenture to strengthen its enterprise cloud services offering.
  • Kurt Salmon, a retail-focused consulting business and part of Management Consulting Group plc (MCG) was acquired for $165m in cash payable on completion. MCG’s disposal of Kurt Salmon follows recent exits from its healthcare and French operations, leaving MCG focused on its international operational performance consulting subsidiary Alexander Proudfoot.
  • OCTO Technology, a French IT consulting business focused on digital transformation and software development. The deal valued OCTO at €115m.

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