IT & PROFESSIONAL SERVICES MARKET UPDATE SEPTEMBER … · 2019-10-22 · MERGERS & ACQUISITIONS • CAPITAL RAISES • FINANCIAL & STRATEGIC ADVISORY 1 Conference Date Location October

MERGERS & ACQUISITIONS • CAPITAL RAISES • FINANCIAL & STRATEGIC ADVISORY

1

Conference Date Location

October 2-5 San Fran, CA

October 9-12 Chicago, IL

October 10-13 Las Vegas, NV

Conference Date Location

October 16-19 Las Vegas, NV

November 6-9 San Fran, CA

Nov 27 - Dec 1 Las Vegas, NV

UPCOMING CONFERENCES

TRENDS

IT & PROFESSIONAL SERVICES MARKET UPDATE – SEPTEMBER 2017

Digital transformation by corporations and device mobility aredriving the need for UI/UX talent

▪ IDC projects that worldwide spending on digital transformation (DX)technologies will grow to more than $2.1 trillion in 2019 with acompound annual growth rate (CAGR) of 16.8%

▪ The industries leading this transformation are ranked 1-5: discretemanufacturing, process manufacturing, transportation, retail, andhealthcare

▪ Market demand for mobile application development services is growingat approximately 5x faster than internal IT organizations’ capacity todeliver them

▪ The Big 4 consultancies have developed organically and through M&A,large internal digital agencies to keep up with changing technologylandscape and take advantage of the spend

AWS is winning the shift to cloud infrastructure

▪ AWS is the largest infrastructure provider with an estimated $16-17billion in revenues in 2017 and the Company is relying on its resellerecosystem to propel that growth

▪ IT services firms skilled in cloud migration and DevOps will see large,growing opportunities across the economy as more organizationsconclude that the benefits of cloud technology (flexible deployment,cost, and productivity) far outweigh the perceived risks (e.g. security,compliance)

ServiceNow is the leading ITSM solution

▪ Enterprise IT departments looking for a solution to fragmented toolsand hybrid on-premise / cloud technology have increasingly turned toServiceNow for IT Service Management

▪ NOW consulting partners are rapidly growing due to the heighteneddemand to consolidate legacy infrastructure and applications whilealigning the capabilities of IT teams with business goals

COMMENTARY

▪ This is the first issue of a new IT &Professional Services newsletter which willbe published biannually, focusing on trendsin the technology sector, including “hottopics”, M&A updates, and key economicstatistics

▪ We’re excited to announce we’ve grown to46 professionals across our 4 offices in theU.S. and have completed 72 transactionssince 2014. We recently won the BoutiqueInvestment Bank of the Year award in theU.S. by the M&A Advisor

▪ 2017 continues a trend where private equityand strategic acquirers are actively lookingto invest in high quality companies acrossall sectors; a healthy sellers market willpersist for the foreseeable future

▪ It is our belief this will continue for thebalance of 2017 and into 2018, withvaluations remaining close to all time highs.With $750 billion of dry power andcorporate cash balances at all-time highs,activity remains robust in the U.S., Europe,and Asia, confirming we are in a globaleconomy

▪ The fall conference season is upon us andour senior bankers will be attending thoselisted below. We will be available to meetand discuss M&A, capital raising, andcurrent market trends

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CHILDS Advisory Partners

NOTABLE TRANSACTIONS – IT & PROFESSIONAL SERVICES

has been acquired by

Announced – September 2017

has been recapitalized by

Announced – August 2017

ThoughtWorks is a global IT consultancy that delivers custom applications, consulting services, and helps organizations drive agility and create software

Cloud Technology Partners provides cloud application and infrastructure solutions for mid-market and enterprise customers in the United States


Announced – August 2017

has been recapitalized by

May 2017

The healthcare division of The Advisory Board Company uses a combination of research, technology, and consulting to improve the performance of more than 4,400 healthcare organizations

AIM Consulting is an IT consulting firm that provides clients with strategic guidance on business-critical initiatives, delivering end-to-end solutions

Healthcare division

A UnitedHealth company

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NOTABLE TRANSACTIONS – MANAGED SERVICE PROVIDERS


August 2017


June 2017

TriCore Solutions provides enterprise managed solutions and offers managed application and infrastructure, cloud, infrastructure hosting, consulting, and IT staffing services

Data Intensity provides analytics, business intelligence, and managed and cloud services for enterprise application and data management


Announced – July 2017


January 2017

OnX Enterprise Solutions provides technology services and solutions to companies in North America and the United Kingdom

Datalink Corporation provides data center services and solutions in the United States

NOTABLE TRANSACTIONS – VAR / SYSTEM INTEGRATORS

4

–

1,000

2,000

3,000

4,000

5,000

6,000

De

al

Vo

lum

e

Undisclosed Less than $100M $100M - $499M $500M - $1,000M

M&A ACTIVITY AND TRENDS


MID MARKET M&A TRANSACTION VOLUME

Sources: Capital IQ, Gartner, Forrester, CHILDS proprietary database

IT & PROFESSIONAL SERVICES EV/EBITDA MULTIPLES – QUARTERLY TRENDS

Transaction volume across the mid-market is down year-to-date, but IT & Professional Services M&A activity continuesto remain strong, with both strategic and financial buyersactively pursuing deals and paying healthy multiples.

▪ Volume for ITPS deals was up 9.6% over the previousquarter and 5.8% from the same period last year

▪ ITPS deals through the first half of the year have tradedat a premium to the 5 year average of EV/EBITDAmultiples

▪ Opportunities for high-quality growth deals continue tobe well received by buyers

Large strategics and private equity backed platforms havebeen the most active buyers, with a variety of high profileacquisitions this year.

▪ Created by the merger of CSC and the EnterpriseServices business of Hewlett Packard Enterprise, DXCTechnology has already been active in its new form withthe acquisition of Tribridge, a Microsoft-focused cloudsolutions and services firm

▪ Accenture has acquired 27 targets year-to-date,including Interactive Broadband Consulting andSolutionsIQ

▪ Datavail, an Oracle-focused database and managedservices provider backed by Catalyst Investors, hasacquired two add-ons this year, Navantis and AdvancedEPM

With the combination of low interest rates, strong stockmarket performance, cash on strategics’ balance sheets, anddry powder held by private equity firms, we expect demandand valuations to remain strong through the end of the year.

EV/EBITDA MULTIPLE COMPARISON

12.9x

10.6x

14.1x

7.5x

11.5x 11.7x 11.7x

13.9x

8.4x

11.5x 11.6x 11.7x

14.8x

8.7x

12.0x 12.1x 11.7x

14.8x

8.7x

12.2x

–

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

IT Services Management Consulting Managed Services VAR/SI S&P 500

Q3-2016 Q4-2016 Q1-2017 Q2-2017

12.6x 12.0x

15.6x

8.5x

12.2x 12.0x

9.8x

14.1x

7.0x

10.3x

-

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

IT Services ManagementConsulting

ManagedServices

VAR/SI S&P 500

2017 EV/EBITDA Multiple 5-Year Average EV/EBITDA Multiple

5


IT & PROFESSIONAL SERVICES PUBLIC TRADING STATISTICS

Source: Capital IQ* Denotes figure excluded from mean/median calculation

IT SERVICES

MANAGEMENT CONSULTING

(USD in millions, except for stock price)

MANAGED SERVICES

VAR / SYSTEM INTEGRATOR

Market Data Operating Statistics EV as a Multiple of: Growth

Stock Price LTM LTM CY2017 16 - '17

Company Name 8/31/17 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA GrowthAverage

Cognizant Technology Solutions $70.8 98.2% $41,798.4 $38,411.4 $14,131.0 $2,775.0 19.6% 2.7x 13.8x 2.4x 11.4x 9.7% 13.8%

Computer Task Group, Incorporated 5.3 83.8% 83.2 74.7 308.1 5.8 1.9% 0.2x 12.8x 0.2x 6.7x (4.2%) (8.5%)

Edgewater Technology, Inc. 6.4 68.1% 89.2 81.1 114.0 7.2 6.3% 0.7x 11.3x 0.6x 5.0x (3.0%) 4.1%

EPAM Systems, Inc. 81.3 92.5% 4,271.7 3,852.9 1,285.4 183.5 14.3% 3.0x 21.0x 2.3x 12.6x 23.3% 26.6%

Globant S.A. 38.9 81.9% 1,358.3 1,331.4 357.9 51.9 14.5% 3.7x 25.6x 2.8x 16.4x 24.7% 26.0%

Huron Consulting Group Inc. 30.3 47.3% 642.4 1,029.7 731.8 112.1 15.3% 1.4x 9.2x 1.4x 9.7x 1.2% (3.2%)

ICF International, Inc. 48.1 80.7% 900.2 1,168.7 1,198.8 115.2 9.6% 1.0x 10.1x 1.0x 9.6x 2.4% 6.8%

Infosys Limited 14.3 84.5% 32,681.7 27,442.3 10,358.0 2,811.0 27.1% 2.6x 9.7x 2.4x 9.0x 2.5% 7.3%

Perficient, Inc. 18.3 89.4% 642.6 705.0 452.1 47.4 10.5% 1.6x 14.9x 1.3x 8.5x 2.3% 5.0%

PFSweb, Inc. 7.9 78.8% 149.6 184.2 282.6 16.2 5.7% 0.7x 11.4x 0.5x 6.5x 0.0% 13.0%

Syntel, Inc. 18.1 38.8% 1,511.2 1,822.0 931.8 248.8 26.7% 2.0x 7.3x 2.1x 8.2x (8.4%) 1.9%

Tech Mahindra Limited 6.7 81.7% 6,528.4 5,422.4 4,606.2 639.3 13.9% 1.2x 8.5x 1.2x 8.4x 5.5% 14.2%

TeleTech Holdings, Inc. 39.7 91.4% 1,819.9 2,006.2 1,349.4 171.4 12.7% 1.5x 11.7x 1.3x 9.5x 11.6% 3.6%

The Hackett Group, Inc. 13.7 66.0% 394.4 399.9 262.6 40.6 15.5% 1.5x 9.9x 1.4x 8.2x (0.5%) 8.8%

Wipro Limited 4.7 99.5% 22,616.5 19,127.3 8,582.1 1,703.0 19.8% 2.2x 11.2x 2.1x 10.8x 1.4% 7.1%

Mean 78.8% $2,996.8 $595.2 14.2% 1.7x 12.6x 1.5x 9.4x 4.6% 8.4%

Median 81.9% $931.8 $115.2 14.3% 1.5x 11.3x 1.4x 9.0x 2.3% 7.1%

% of 52Week High

Market Cap.Enterprise

Value3 Year

Rev CAGR




Accenture plc $130.8 99.9% $80,807.9 $78,160.0 $34,189.5 $5,804.2 17.0% 2.3x 13.5x 2.1x 12.5x 5.7% 5.3%

CRA International, Inc. 37.5 93.8% 308.7 294.7 343.0 29.4 8.6% 0.9x 10.0x 0.8x 4.9x 11.4% 4.0%

Exponent, Inc. 68.1 99.7% 1,756.5 1,594.5 311.5 71.9 23.1% 5.1x 22.2x 4.9x 18.0x 7.8% 3.1%

FTI Consulting, Inc. 33.9 72.0% 1,308.9 1,651.3 1,771.0 149.4 8.4% 0.9x 11.1x 0.9x 8.1x (0.6%) 1.2%

Navigant Consulting, Inc. 15.3 55.0% 716.4 894.6 948.2 131.9 13.9% 0.9x 6.8x 0.9x 6.3x 4.7% 9.3%

Resources Connection, Inc. 12.8 64.4% 380.8 366.5 583.4 41.8 7.2% 0.6x 8.8x 0.6x 8.5x (1.6%) 0.9%

Mean 80.8% $6,357.8 $1,038.1 13.0% 1.8x 12.0x 1.7x 9.7x 4.6% 4.0%

Median 82.9% $765.8 $101.9 11.2% 0.9x 10.5x 0.9x 8.3x 5.2% 3.6%

% of 52

Week HighMarket Cap.

Enterprise

Value

3 Year

Rev CAGR




Akamai Technologies, Inc. $47.2 65.8% $8,082.6 $8,050.9 $2,418.3 $684.1 28.3% 3.3x 11.8x 3.0x 8.2x 5.5% 11.1%

Equinix, Inc. 468.4 99.6% 36,510.3 44,735.6 3,883.3 1,631.2 42.0% 11.5x 27.4x 8.9x 18.3x 19.8% 19.2%

Internap Corporation 4.5 93.4% 347.0 816.3 289.8 71.0 24.5% 2.8x 11.5x 2.8x 8.8x (5.1%) (2.2%)

j2 Global, Inc. 75.3 82.3% 3,638.7 4,551.0 989.8 384.2 38.8% 4.6x 11.8x 3.7x 8.4x 32.4% 22.0%

Limelight Networks, Inc. 3.6 95.0% 392.2 331.6 173.4 7.0 4.0% 1.9x 47.5x * 1.7x 10.1x 7.8% 1.2%

Mean 87.2% $1,550.9 $555.5 27.5% 4.8x 15.6x 4.0x 10.8x 12.1% 10.3%

Median 93.4% $989.8 $384.2 28.3% 3.3x 11.8x 3.0x 8.8x 7.8% 11.1%

% of 52


Enterprise

Value

3 Year

Rev CAGR




Atos SE $129.6 97.8% $13,570.7 $13,765.1 $12,331.3 $1,642.0 13.3% 1.1x 8.4x 1.1x 8.0x 9.2% 13.2%

Black Box Corporation 3.0 17.6% 45.4 138.7 828.9 20.3 2.4% 0.2x 6.8x 0.2x 7.9x (10.4%) (5.1%)

ePlus inc. 83.7 93.4% 1,185.8 1,263.0 1,398.0 101.2 7.2% 0.9x 12.5x 0.8x 11.5x 13.5% 9.3%

ITS Group 6.7 89.1% 51.7 53.5 188.8 7.6 4.0% 0.3x 7.1x 0.3x 5.3x (3.2%) 17.9%

Insight Enterprises, Inc. 40.1 75.4% 1,434.3 1,744.3 6,021.9 223.6 3.7% 0.3x 7.8x 0.3x 6.7x 17.1% 5.2%

Mean 74.5% $3,686.8 $442.8 6.8% 0.6x 8.7x 0.6x 8.2x 2.3% 8.8%

Median 91.3% $1,113.5 $60.7 5.6% 0.6x 7.7x 0.6x 8.0x 3.0% 11.3%

% of 52


Enterprise

Value

3 Year

Rev CAGR

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STOCK MARKET FUNDAMENTALS

IT Services: CTSH, CTG, EDGW, EPAM, GLOB, HURN, ICFI, INFY, PRFT, PFSW, SYNT, TECHM, TTEC, HCKT, WIPROManagement Consulting: ACN, CRAI, EXPO, FCN, NCI, RECN

IT & PROFESSIONAL SERVICES SECTOR INDICES VS. S&P 500

VALUATION TREND DATA (EV/LTM EBITDA)

Managed Services: AKAM, EQUIX, INAP, JCOM, LLNWVAR/SI: ATO, BBOX, ITS, PLUS, NSIT

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17


50

100

150

200

250

Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17


7


FIRM OVERVIEW

MERGERS & ACQUISITIONS

CAPITAL RAISESFINANCIAL &

STRATEGIC ADVISORY

CHILDS ADVISORY PARTNERS SERVICES

• 46 professionals across four offices in the U.S. withheadquarters in Atlanta

• 72 total transactions closed since the beginning of 2014with 26 in the technology space

• Over 450 transactions completed in the middle market(Enterprise Value less than $1.0 billion)

• 60% of transactions since 2013 have involved astrategic buyer; 40% a financial sponsor

• Market leading close rate

QUICK FACTS

• 2016 U.S. Boutique Investment Bank of the Year

• 2016 Ranked #1 by 451 Group for IT Servicestransactions in the U.S.

• 2014 Cross-Border Transaction of the Year Finalist

• 2014 Professional Services Transaction of the YearFinalist

• 2013 Strategic Acquisition of the Year Winner

• 2013 U.S. Boutique Investment Bank of the YearFinalist

ACCOLADES

CORE COVERAGE

Process Outsourcing

Human Capital

Industrial Services

B U S I N E S S

S E R V I CE SH E A L THCA R E T E CHN O L O G Y

IT Professional Services

Software

IT SERVICES

MAN AGEMENT

C ON SULTING

MAN AGED S ERVICES

VAR / S Y STEM

IN TEGRATORS

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TEAM’S EXTENSIVE EXPERIENCE IN IT SERVICES & TECHNOLOGY

has acquired has been acquired byhas been acquired byhas been acquired byhas been acquired byhas been acquired by

has been acquired by has been acquired byhas acquiredhas been recapitalized

byhas been recapitalized

by

Undisclosed

has acquired

has acquiredhas been acquired byhas been acquired by has been acquired byhas been acquired byHas been acquired by

has been acquired byhas been acquired by has acquiredhas been recapitalized

byhas been acquired byhas been acquired by

Undisclosed

Project Gemini

has been acquired by has been acquired byhas been acquired byhas been recapitalized

byhas been acquired by has been acquired by

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CHILDS IT & PROFESSIONAL SERVICES TEAM

CHILDS Advisory Partners | 3438 Peachtree Road, Suite 1400 Phipps Tower | Atlanta, GA 30326 | 404.751.3000 | www.childsadvisorypartners.com

CHILDS OFFERS THE SENIOR LEVEL ATTENTION AND ADVISORY FOCUS OF A BOUTIQUE FIRM

COUPLED WITH BANKERS THAT HAVE BULGE BRACKET EXPERIENCE

▪ 8 years of investment banking experience

▪ Current and past clients include companies such as Sagacious, Taos, Symmetry, Aggressor, and HighPoint Consulting

▪ Former investment banker at SunTrust Robinson Humphrey

▪ Graduated cum laude from Washington & Lee University

Steve CarrVice [email protected]

▪ 7 years of investment banking experience

▪ Current and past clients include companies such as Channelinsight, Aggressor, Cumberland Consulting, FineLineTechnologies, Solstice Mobile, and Utopia

▪ Graduated cum laude from the University of Georgia

R.B. McCutcheonVice [email protected]

▪ 7 years of investment banking experience with Morgan Stanley and KPMG

▪ Executed 15 M&A and capital markets transactions (over $15 billion in value)

▪ MBA from Darden School of Business at the University of Virginia and undergraduate from the University of Virginia

Justin BentleyVice [email protected]

▪ Corporate Development executive for Equifax and Waste Management. CEO of PE-backed Bagster, sold to Fortune 500 strategic

▪ 14 years of investment banking experience including Citigroup and BofA

▪ Executed over 80 M&A and capital markets transactions

▪ MBA from Kellogg School at Northwestern University (Beta Gamma Sigma) and BA from UNC Chapel Hill (Phi Beta Kappa)

Scott RhodesManaging [email protected]

▪ 19 years of investment banking experience executing M&A transactions and raising capital

▪ Co-founder of Bulger Capital Partners

▪ Co-head of East Coast Services and Software for Needham & Company

▪ MBA from F.W. Olin School of Business at Babson College and a B.A. from Hobart College

Tom DonahueManaging [email protected]

▪ Over 20 years of investment banking experience solely focused on technology & services

▪ Don has sourced and executed over 50 transactions in the technology industry

▪ Don maintains close contact with all strategic buyers

▪ MBA from McColl School of Business and undergraduate from Roger Williams University

Don HolbrookManaging [email protected]

▪ Investment banking experience with UBS, Piper Jaffray, and Duncan-Williams

▪ 15 years focused predominantly on healthcare services & technology M&A and Capital Markets transactions

▪ MBA from Columbia Business School and JD from University of Georgia School of Law

Ross DeDeynManaging [email protected]

▪ Former CEO of Impact Innovations, an IT Services firm

▪ Former Robinson Humphrey Investment Banker

▪ Over 20 years of experience as an investment banker and owner/operator

▪ Personally led over 100 M&A and financing transactions

▪ MBA from Harvard Business School

Jim ChildsManaging Director & [email protected]

Documents

IT & PROFESSIONAL SERVICES MARKET UPDATE SEPTEMBER … · 2019-10-22 · MERGERS & ACQUISITIONS • CAPITAL RAISES • FINANCIAL & STRATEGIC ADVISORY 1 Conference Date Location October