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.
The 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.
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.
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.
By Jason Parks, Director – Strategic Advisory Services, Equiteq.
Equiteq hosted a webinar on why equity incentivizing your key employees can improve equity value. In this blog, we take a look at some of the questions asked by attendees.
I’d like to motivate my Managing Directors, but I’m nervous about giving too much away.
It’s a mistake to simply view equity schemes with key employees as good as giving away your business. When done correctly, they can help you grow your consulting firm faster, thus increasing your equity value. Think about it: it’s better to own 70% of a $10m business than 100% of $3m company.
Managing shareholder dilution is important, but I would encourage you to first consider how to get your key personnel aligned with the shareholders’ interests and objectives. That starts with having a clear plan in place.
The Equiteq Consulting M&A Index remains significantly above long-term averages and the Equiteq Consulting Share Price Index achieves a ten-year high.
Global consulting M&A activity, as tracked by the Equiteq Consulting M&A Index, was robust in the third quarter. Deal volumes rose in comparison to both the prior quarter and the third quarter of 2015 with serial acquirers like Dentsu, Accenture and Deloitte continuing to be highly active. Third quarter M&A activity was highlighted by landmark transactions within media and management consulting, as well as the broader IT sector.
The Equiteq Consulting Share Price Index also performed very strongly this quarter, outperforming both the S&P 500 and FTSE 100. The index is now at a ten-year high with particularly strong increases in the management consulting and engineering consulting indices.