IT Services M&A trends

By Ramone Param, Associate Director, Equiteq.

We recently ran a series of webinars exploring the themes within our Global Consulting M&A report 2017, which reviews the key M&A and equity market trends within the consulting industry across five of Equiteq’s industry specialisms: Management Consulting, Media agencies, Engineering consulting, IT services and HR

In this week’s blog, we outline some of the key topics discussed in our IT Services webinar, which provides vital insight for IT Services firm owners considering selling, including average deal size and valuation multiples, drivers for deal activity, top buyers and M&A activity by region.

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Hot demand for big data and analytics consultancies

Big data cropped

Businesses are continuing to capture and interpret customer data, and as data analysis translates into increased profits, the acquisition demand for consultancies in big data and analytics is driven higher. Consider, as an illustration of this trend, the 165% increase in big data services’ global revenue between 2012 and 2014.

Consultancies advising on big data strategies play an integral role in a corporation’s long-term adoption of specific data and analytics technology providers. Because of this, such hardware and software providers have increased their pursuit of partnerships and collaborations with professional services (PS) firms. The sector wide shortage of PS practitioners who are able to implement, interpret and leverage big data is reflected in their revenue: In 2014, PS companies represented more than 38% of big data’s global revenue – almost US$10.5bn.

There are 4 primary drivers that enable acquirers to monetize the broad market opportunity in big data and analytics:

  1. Leverage existing services: Integration of big data and analytics capabilities into the existing advisory capabilities allows deeper, more robust insights to be drawn out. Integration also lengthens the advisory period by adding a valuable analytics advisory session at the start of a project and the potential for analytics services when nearing the project’s conclusion
  2. Acquire talent: There is a high demand for professionals with the required analytical expertise – and it can be more efficient to acquire this expertise via an M&A strategy, rather than developing the necessary skills in-house
  3. Fuel business development: With additional capabilities, there is the potential to increase client and market share by bringing the newer technologies through along with more traditional service offerings
  4. Gain access to big data and analytics intellectual property (IP): Acquirers are focused on how to remain at the cutting edge of technological innovation, with top consulting firms launching standalone ‘innovation labs’ for big data and analytics. To fuel development of these labs they are adopting an aggressive acquisition strategy

M&A activity in the big data and analytics sector is healthy across the globe, with top buyers being diverse and usually international. In North and South America, Teradata (5 deals) and IBM (3 deals) have been the most active 2010-2016. EMEA has seen SAP make 6 deals and Accenture, 5. In APAC, NTT has been active with 4 deals.

The years 2010-2016 (year to date February 2016) saw a total of 639 transactions in this space with 65% of the acquired firms based in North America. Big data and analytics firms continue to be able to command premium prices; IP and stable revenue growth, coupled with high profit margins and deep sector specialism are reflected in higher multiples for these businesses. These multiples lend themselves to a strong forecast.

With 17 deals in big data and analytics since the beginning of the year already, we believe this presents exciting opportunities for both consultancy owners looking to sell their businesses, and for acquirers determined to remain at the forefront of technological development to increase their market share.

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Equiteq’s Big Deal Insight

New M&A trend: Traditional consultancies buying up creative agencies

Latest M&A trend


Creative BorderDeloitte’s recent acquisition of San Francisco based advertising agency Heat, is further evidence of the convergence of two very different business models: creative media and consulting. We’ve been tracking this developing theme for quite some time. Not only is it driving significant transactional activity, but more importantly it indicates a broad and pervasive shift in how business is being done.

It’s another example of traditional consulting and tech firms buying into creative. Deals like this now abound in the current M&A market. BCG bought Brighthouse last year, McKinsey acquired LUNAR Design, IBM has been active, so has Accenture who bought the digital content agency Brightstep in Sweden, and we’re constantly hearing from the large buyers about their desire to acquire in this space.

 

Why would traditional tech and strategy houses make the leap into the creative agency space?


Fundamentally, it’s about growth and protecting relationships. There is always a strategic mandate to capture more client spend, so finding ways to be relevant to another C-level exec, like the CMO, enables the large players to earn more wallet share from their big, multinational clients.

But that isn’t the whole story. There are underlying changes in how business is being done, primarily driven by technology, that are creating huge opportunities and risks for traditional players. The lines between marketing, technology, business operations and analytics are blurring:
Media

  • How consumers interact with companies and brands (code for how they make money!) is becoming more and more about technology. Personalized interactions with technology are defining more and more of the “customer experience”. It’s rapidly evolving, distributed and multi-channel.
  • Social media and mobile continue to tear down old modes of interaction and drive the invention of new modes.
  • Networked devices and applications are increasingly delivered to consumers in new and evolving ways, as they directly interact with companies and brands, in the store, on the street, at the restaurant!

So to protect relationships and capture more share of wallet, the traditional marketing firms who are good at ideas, need to be able to deliver technology solutions, and the traditional consultants who deliver solutions, need to be able to propose the creative solutions.

Couple this with the increasingly specialized skills required to stay current in a rapidly evolving technology environment and you have all the makings of a strong acquisition imperative.

 

Equiteq Edge


Equiteq Edge
Our 2016 Consulting Sector M&A Report launches next month where you can get the insights on deal trends like this so watch this space! The M&A report is just one of the assets freely available to you within our Equiteq Edge insights program, so join 4000 others now and get access to our entire portfolio of content aimed at helping owners achieve their exit objectives.

None of this stands in the way of a confidential call if you just want to get an expert opinion on your situation, so let us know if you’d like that to be arranged.