Key trends in the Australian B2B services M&A market

Australia & ChinaIn 2014 Australia became the second largest M&A market in Asia-Pacific, behind only China in volume and value terms. And across all industries, 2015 saw Australia M&A totals reach $146b, versus $117b in 2014, highlighting that there are exciting opportunities for both sellers and buyers in the “Lucky Country”.

The B2B services market in Australia is mature and vibrant across a number of segments, such as digital marketing and engineering. And while growth has slowed as a consequence of the evolution of the Chinese economy and the mining industry, it’s good timing for acquirers seeking targets and for sellers interested in joining larger organizations. The Australian dollar is at its lowest point against the US dollar in 7 years, a situation that is particularly appealing for international buyers. The country is demonstrating economic stability with prudent policy making, close trading relationships with China and well-targeted fiscal stimulus. The middle market and SMEs are the cornerstone of the Australian economy.

All the major global players in B2B services have operations in Australia and cross-border deal flows are healthy, with foreign investment (30% from the US, 45% from Asia, 10% from the UK) and outbound acquisitions.

Data from our Global Consulting M&A Report 2016, the only publicly available information on the global consulting M&A market, found that 75% of deals done worldwide were completed by only 5 countries: the US, UK, Australia, France and Canada.

Figure 18

Asia Pacific accounted for around 13% of all deals, largely driven by activity in Australia. The country experienced 3% growth in 2015 deal volumes, recovering from a 2014 decrease in deal activity of 5.8%. Its deal volume increases in 2015 were aided by falling commodity and currency prices that helped keep acquisition targets in the region competitive to international buyers.

Our research shows that buyers’ acquisition expectations have more than doubled in the past year. This reflects a growing M&A market in consulting, IT and other segments, underpinned by buyer appetite that continues to increase in size and volume across corporate and private equity buyers. With Australia having seen 25 years of consecutive economic growth and enjoying a thriving B2B services sector, we can see an exciting year of activity in this market.

If you are preparing to sell your consulting firm and would like to discuss your exit plans, please contact Pierre Briand, Managing Partner, on Pierre.Briand@equiteq.com

Facts and figures on Australia:

  • Population of 24m with Melbourne and Sydney combined reaching almost the 10m mark
  • 2015: GDP +2.3%, CPI +1.7%, unemployment rate 5.9%, GDP/capita US$64k
  • 12th economy in the world and AAA rating
  • IT and new tech sector ca $50b
  • Australia’s “soft power” in Asia: 260,000 Asian students in Australia

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Consulting firm M&A market intelligence on digital marketing

mobile apps concept

The media industry has experienced significant change in recent years. Despite the ongoing presence of the printed medium, online content continues to gain prevalence and has now become the medium of choice. In line with this, digital media and marketing companies are becoming more attractive than ever as acquisition targets.

But what is digital marketing and why is it generating so much M&A interest? Analytics and intelligence software provider SAS describes digital marketing as ‘The promotion of products or brands via one or more forms of electronic media.’ SAS concludes that what sets digital apart from traditional marketing is data. Digital marketing uses channels and methods which allows a firm to analyze marketing campaigns and understand what is working and what isn’t in real time.

Digital marketing is comprised of three main categories: earned media, paid media and owned media, according to Titan SEO. However, each category does not stand alone, and using all three techniques in unison can be the most effective marketing method. The venn diagram below, from Titan SEO, outlines how each media segment exists in the digital marketing ecosystem.

digital marketing

Since 2010 digital marketing deals have doubled, outstripping the growth in overall media deals. This means deals in digital marketing are outpacing the market.

Digital marketing vol

The heat in this market is coming from the fact that this is a fast moving industry seeing huge amounts of change. Acquisition interest is thus driven by the need to quickly obtain these skills, rather than growing them in-house, which tends to require more time. The shift to digital means media and IT firms need to quickly acquire new media skills, technology and intellectual property (IP). There is also the opportunity for new customer channels to be acquired through various methods including mobile and social. Digital marketing is playing a pivotal role in this.

Nicola Kemp, Head of Features at Marketing magazine, agrees that the digital marketing ecosystem is in the midst of fundamental change and the industry’s true growth potential is only just beginning to be realized.

She says: “From the rise of the smartphone to the social media revolution, businesses are being challenged to meaningfully collect and analyze an ever-increasing pool of data. The importance of acquiring and embedding new skill sets into existing business models in order to better meet this demand cannot be over-estimated.”

Media and advertising companies are overwhelmingly the most prolific buyers in this area, having been responsible for 106 acquisitions since 2012, with the likes of WPP and Publicis Groupe involved. The next biggest acquirers are technology/IT services firms, such as IBM and Google, with 44 acquisitions. In a hot, fast moving sector, private equity firms will always be represented and firms such as The Carlyle Group and Berkshire Partners have made 23 acquisitions in this space since 2012. Finally, management consultancies such as Deloitte and McKinsey have also invested in this space, albeit in lower numbers, with 10 acquisitions made during the same period.

The areas within digital marketing that gain the most attention include customer analytics, mobile marketing and social media marketing, along with digital agencies and CRM/database marketing.

It goes without saying that digital technology organisations have had a dramatic impact on M&A in the world of marketing. Activity in this area is likely to continue apace in the coming years. As increasingly more services are digitized, it is only natural that digital marketing will grow alongside them.

If you’d like a full copy of our marketing intelligence report, please email us on info@equiteq.com

Consulting firm M&A intelligence on cloud-based consulting

Cloud intelligence cropped

In the last decade cloud computing has become one of the world’s leading transformational technologies. It’s assisted businesses in reducing the total cost of ownership, easing scalability and boosting profitability, amongst other benefits. And in recent years, it has helped consumer technology boom.

Our research shows that cloud-based consulting deals have increased consistently from 2010, with this trend expected to continue in 2015. Within this activity, the sub-sectors of cloud consulting, including software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS) are expected to show similar M&A growth levels as cloud-based consulting. Furthermore, as ‘cloud’ is effectively a delivery mechanism for technology services, areas such as data analytics and cyber security are increasingly being delivered through cloud technologies.

Since 2010 the UK has seen a 67 per cent increase in year-on-year cloud-based consulting mergers and acquisitions*. The USA and Canada have also seen an increase in cloud-based consulting deals, especially the North American market, as it is larger, more established and tends to be a global leader in technology adoption. The chart below highlights the speed of cloud consulting M&A activity in North America and the UK.

year on year consulting

*Compound percentage increase from FY10 to FY14

A key reason for M&A activity in this space includes larger IT firms needing to keep pace with changes in the IT industry. This involves acquiring new skills around cloud-based services and determining how to make these work with traditional in-house or datacentre based IT systems. Furthermore, the acquisition of intellectual property continues to be a key driver of M&As. Cloud-based technologies that can be licensed to consulting/advisory clients provide easily scalable, ongoing revenues off the back of consulting engagements.

Our market data of M&A activity in this space from 2006 is highly illustrative of how the acquisition of cloud consulting firms is taking place across a wide spectrum of industries. In amongst the traditional acquirers such as technology firms, IT and research consultancies and private equity firms, some purchases have come from healthcare, telecom, publishing and industrial firms.

As the interest in the industry continues to grow, it remains to be seen where the future M&A activity is going to be focused in the cloud computing industry. Currently consultancies offering cloud-based software, cyber security and cloud infrastructure solutions are showing the greatest demand. Certainly SaaS, PaaS and IaaS have garnered a lot of interest in the market.

Cloud has been a major driver of innovation across the industry in recent years and this is expected to continue for some time. Cloud technology has helped drive the success of some of the largest firms on the planet, including Apple and Amazon, so it is very possible that this could create large deals for brilliant cloud businesses.

While still in relative infancy, large global IT consulting and other advisory businesses are starting to seriously focus on cloud. This opens up consolidation opportunities for advisory businesses in this space and we expect to see many more consulting deals involving these technologies as it becomes more mainstream in the IT industry.

If you would like a copy of our cloud-based consulting report please contact us at info@equiteq.com.

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Consulting firm M&A market intelligence on cyber security

Cyber security cropped

Cyber security never seems to be far from the news these days. Whether it’s the attacks on Sony or President Obama’s rally for increased cyber security legislation (just before accounts belonging to the US Central Command were targeted), the ubiquity with which we hear about this topic demonstrates how important it is to our lives.

As consumers, we’re becoming increasingly reliant on technologies such as smartphones and social media. Organizations are also becoming more dependent on their data for operational and strategic management. With datacentres split across continents and storage of data increasing in the cloud, personal and company information is also becoming increasingly exposed to cyber threats.

In response to these dangers, businesses of all sizes need help improving and strengthening IT security systems, and cyber security consulting services are increasingly in demand.

Innovation in this space is critical, as threats often evolve more rapidly in the cyber sector than the pace of solutions. This can in turn drive acquisition activity in cyber, as larger firms look to acquire skills and intellectual property (IP) rather than refreshing or building these in-house, which can often take longer.

In line with this, in 2013-2014 we have seen deal volumes of firms being acquired in cyber security consulting growing at over 20% per year, well ahead of the global IT consulting sector which saw growth of just under 10%.

Specific drivers of this M&A demand include the following:

  • Innovation driven by small-scale firms offering niche cyber security services and products. As they gain market share they become attractive targets to larger cumbersome corporates
  • As businesses become ever more connected, often through less secure devices such as mobile phones, the amount of damage cyber threats can cause increases. Threats include potential loss of IP, reputation and customers
  • Regulations and standards relating to individual privacy and data privacy are increasing as the public becomes more aware of data scandals
  • Global adoption of poorly secured cloud-based IT services has made cyber attacks more attractive. As companies move critical business data from more secure in-house databases to cloud-based networks, businesses must try and defend themselves against attacks

We’ve analyzed transaction data from 2006 to understand who have been the key buyers of cyber security consultancies, as this trend has evolved:

  • IT and research consulting firms have been prolific buyers over this period, with IBM, All Covered Inc. and CGI Group among the top
  • Technology firms, including IT software, hardware, data processing, internet service firms and IT distributors have also been consolidating this market. Frequent buyers of cyber consultancies in this group include CA Technologies and Dell.
  • Private equity firms are typically frequent buyers in growing market sectors such as cyber. Within cyber consultancies, we have seen Providence Equity Partners, Apax Partners and Thomas H. Lee Partners making several acquisitions in this space.
  • Beyond these key buyer groups, we also have seen telecom firms making cyber consulting acquisitions as Voice over Internet Protocol (VoIP) has driven the industry towards digital technology. Industrial and manufacturing firms have also been acquiring cyber consultancies, as front-end sales and back-end supply chain processes are becoming increasingly dependent on data and online systems.

Geographically, acquisition activity in the cyber security consulting market has been gaining significant momentum since 2011 in both the US and UK. The UK cyber security consulting sector is currently growing faster than in the US, but the US sector is larger and more mature. Within cyber, Identity and Access Management (IAM), data loss prevention and recovery, device management, and encryption are key areas of focus.

The importance of cyber security skills and IP to tech-related and non-tech sectors is likely to continue going forward, and we expect this acquisition trend, particularly for consultancies with cyber skills, to continue in 2015.

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