The Global Consulting M&A Report 2017 - equiteq.com · Robust private equity activity High profile exits and acquisitions by some of the largest global private equity (PE) investors

The Global Consulting M&A Report 2017

Growing equity, realizing value

ManagementConsulting

Engineering

IT Services

HumanResources

MediaAgencies

Vital research on global M&A trends for owners of consulting businesses.


3

Foreword 4

Your regional contacts 5

Key findings 6

Market overview 9

Overview of M&A activity 9

Segment review 11

Average deal size 12

Deal structuring 13

Regional review 14

Overview of equity market performance 16

Valuation multiples and trends 17

Strategic and private equity buyer trends 19

Segment reviews 26

Management Consulting 26

At a glance 26


Deal size distribution 29

Regional review 30




Selected M&A transactions 36

IT Services 38

At a glance 38



Regional review 42





Media Agencies 50

At a glance 50



Regional review 54





Engineering Consulting 62

At a glance 62



Regional review 66





Human Resources 74

At a glance 74



Regional review 78





Appendix 88

Key definitions 88

A quick word on the data 89

About Equiteq 90

Further resources 90

Disclaimer 91

Contents

Contents© Equiteq Advisors Ltd. 2017


We are pleased to present the findings from our tenth annual review of M&A and equity market trends within the consulting industry.

Foreword

A lot has changed in the last ten years – both for the consulting industry we cover and our own expansion across four continents. This year’s report shines a light on the global trends shaping the industry and reviews M&A in five consulting segments together with a comprehensive analysis of the Equiteq Consulting Share Price Index, the only published share price index for the industry.

While we segment this report into five sectors for convenience, the most prolific acquirers of knowledge-led businesses are undergoing unprecedented diversification. This is driving convergence between consulting sectors and creating hybrid business models with software, consulting and managed services.

This convergence trend - driven by digital disruption, changing client demands and the search for growth - is blurring traditional boundaries. For owners considering selling their business, an appreciation of these trends is critical to best understand the right potential acquirers for their business, within and outside their core sector, and how they approach valuing and structuring acquisitions.

Foreword

CO

NSULTING

M

ANAGED

SO

FTWARE

SE R V I CES

P

RO D UCTS

Peo

ple

depe

nden

ce /

M&

A c

ompl

exit

y

Rich in intellectual property

M&A activity in the year was robust notwithstanding a turbulent political backdrop from events such as the UK’s vote to Brexit and the US Presidential elections. Buyer’s quests for new avenues of growth in rapidly transforming sectors, rising listed company valuations, and cash-rich corporate and private equity buyers, continue to drive up competition for assets. This is supporting premium valuation multiples for well positioned businesses and our expectation is that 2017 should be another great year for owners to sell their business.

We hope this latest edition of the Global Consulting M&A Report gives you a flavor of our insights. Our regional teams would be delighted to explore these further with you in the context of your own strategic objectives.

Best regards,

David Jorgenson, CEO Equiteq

5

Your regional contacts

Nicodemo Esposito

NORTH AMERICA

Managing Director, Head of M&A and Strategic Advisory

[email protected]

Jean-Louis Michelet

ASIA-PACIFIC


[email protected]

Alex White

EUROPE


[email protected]

Pierre Briand

AUSTRALIA AND NEW ZEALAND


[email protected]

Your regional contacts© Equiteq Advisors Ltd. 2017


Key findings

No. of transactions 2016 vs. 2015

1%

1.1x Average 2016 LFY Revenue multiple

8.6x Average 2016 LFY EBITDA multiple

The average deal was structured with 58% of consideration paid upfront and the remainder structured as an earn-out over 3 years.

0.8x Average 2016 LFY Revenue multiple

9.7x Average 2016 LFY EBITDA multiple

12% 2007-2016 CAGR in listed company cash balances plus cheap debt provide lots of liquidity to finance M&A.

Share Price Index 2016 vs. 2015

2007 20122008 20132009 20142010 20152011 2016

Deal volumes Revenue multipleEBITDA multiple

2,0

15 d

eals

12.8x

9.7x

1.1x

1.1x

0.7x

8.6x

2,9

02

deal

s

Share price index Revenue multipleEBITDA multiple

2007 20122008 20132009 20142010 20152011 2016

Inde

x: 8

5

7.9x

9.7x

0.7x

0.8x

Inde

x: 1

24

14%

Strong deal volumes & transaction valuation multiples

Share prices & listed valuation multiples at 10-year high

Key findings

7

Strategic and financial buyer acquisition demands across consulting segments

Regional and cross-border M&A

Hot capabilities across segments

2,902sellers acquired

6%of buyers are

financial buyers

46%of buyers are serial acquirers

completing multiple deals over the last few years

Equiteq consulting segment

Management Consulting IT Services Media

AgenciesEngineering Consulting

Human Resources

# deals 946 787 615 326 228

Revenue (x) 1.4 1.1 1.8 0.6 0.5

EBITDA (x) 10.2 8.0 11.4 6.9 11.1

Selected top buyers

PwC

Huron

BDO

Navigant

CliftonLarsonAllen

Accenture

NTT Data

Deloitte

Gfi Informatique

J2 Global

Dentsu

WPP

Publicis

Interpublic Group

The Marketing Group

NV5

Terracon

Stantec

SPIE

ÅF

Arthur J Gallagher

Randstad

OneDigital

Outsourcing Inc

Vaco

North America

1,271Deals

Europe

1,094Deals

Asia-Pacific

267Deals

Australasia

130Deals

Rest of the World

140Deals

Key findings

Strategy consulting

Business transformation

Cloud consulting

Digital marketing

Mobility consulting

Advanced data analytics

Financial services

consulting

Healthcare consulting

Converging buyer demands across segments for these capabilities

Cross-border deals accounted for 28% of global transactions

© Equiteq Advisors Ltd. 2017

Bob Hendicott, Management Consultancy.

Sold.

9

Overview of M&A activity

Consulting M&A activity remains buoyant

In 2016, the number of completed transactions in the consulting sector nudged up to reach a nine-year high. This was in spite of the restraining influences of slowing growth in global GDP1, the UK’s vote to Brexit and the US Presidential election, which caused a slowdown in the preceding quarters. Activity from both strategic and financial buyers swiftly bounced back, and the year ended with conviction that has carried into 2017.

Strong drivers for consulting M&A

Industry trends such as digital disruption, globalization and geo-political volatility are presenting challenges and opportunities for consulting firms. The opportunities are arising from large industry incumbents that are reconsidering their business and operating models, while looking to their advisors for best-in-class, global, end-to-end consulting solutions.

Convergence between adjacent sectors

These developments have been driving established consulting buyers to enter new geographies and acquire hot niche complementary capabilities. This is resulting in convergence amongst some of the largest global firms operating in the consulting industry, as well as divergence into adjacent sectors like software and managed services. In 2016 this was most evident in high-growth sectors like strategy, cloud-computing and advanced data analytics.

Robust private equity activity

High profile exits and acquisitions by some of the largest global private equity (PE) investors in the consulting industry included KKR’s acquisition of Optiv Security from Blackstone, as well as the sale of AlixPartners by CVC and the divestment of Carlyle’s remaining stake in Booz Allen Hamilton. Notably PE also stepped up the pace of new investments in the sub-$100m market.

Market overview

Market overview

The new year has already seen high-profile deals across segments of the consulting market, as well as strong deal activity amongst high-profile PE investors. We expect that this robust demand for M&A will continue over the next twelve months.

Nine-year high M&A volumes and ten-year high total disclosed deal values.

(1) According to data from the IMF’s World Economic Outlook, global growth for 2016 is estimated at 3.1%, its weakest performance since the financial crisis.


The Global Consulting M&A Report 201710 Market overview

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals 2,916 2,672 2,015 2,401 2,526 2,632 2,368 2,618 2,871 2,902

Mean deal value ($m) 117.7 107.7 90.5 83.1 87.6 133.9 88.7 106.0 75.5 124.0

Median deal value ($m) 9.4 7.0 5.0 8.0 9.2 7.4 10.1 11.3 9.8 12.0

Rev. multiple (x) 1.1 0.8 0.7 0.8 0.8 0.7 0.9 0.9 1.0 1.1

EBITDA multiple (x) 12.8 9.4 6.3 9.1 9.7 8.5 8.1 8.4 8.9 8.6

Figure 1 Consulting M&A activity, annually (2007 to 2016)

Figure 2 Consulting M&A volumes, monthly (2007 to 2016)

Table 1 Summary of M&A activity (2007 to 2016)

Note: Bubble size reflects comparative average deal size for the respective year.

2007 20122008 20132009 20142010 20152011 20160

2,000

1,500

1,000

500

2,500

3,000

3,500

Num

ber

of d

eals


Median deal values 2016 vs. 2015

1%

22%

Num

ber

of d

eals

300

350

250

200

150

100

50

0

Jan

07

Jul

Jan

08 Jul

Jan

09 Jul

Jan

10 Jul

Jan

11 Jul

Jan

12 Jul

Jan

13 Jul

Jan

14 Jul

Jan

15

Jan

16Jul

Jul

2007 - 2016

Number of deals 12 month moving average

11



Human Resources Overall

Number of deals 946 787 615 326 228 2,902

Rev. multiple (x) 1.4 1.1 1.8 0.6 0.5 1.1

EBITDA multiple (x) 10.2 8.0 11.4 6.9 11.1 8.6

Figure 3 Bubble chart of volumes and growth by consulting segment

Table 2 Segmented M&A activity overview

Segment review

The top segments for deal activity were the rapidly evolving Management Consulting, IT Services and Media segments.

Management Consulting M&A was particularly active for companies enhanced with intellectual property such as applications, advanced analytics tools and proprietary data sets. The segment is experiencing strong cross-industry deal activity and notable demand from large accounting networks.

The impact of cloud-based platforms and the spawning of new application providers is continuing to disrupt the broader technology industry, while driving demand for related IT consulting services from buyers across sectors.

Media Agencies enjoyed high buyer demand which supported the highest valuation multiples in the broader consulting industry. Engineering Consulting and Human Resources aggregate deal activity grew in Europe and Asia-Pacific, but volumes were more subdued in North America.

4%

(4)%

2%

(2)%

0%

6%

(6)%

8%

(8)%

10%

200

200 400

600

600

800 1000

1000

(10)%

Dea

l vol

ume

grow

th 2

016

vs.

20

15

HumanResources

EngineeringConsulting

ManagementConsulting

Media Agencies

ITServices

Note: Comparative bubble size reflects average revenue multiple in the respective segment.

Market overview© Equiteq Advisors Ltd. 2017


Average deal size

Landmark consulting transactions drove an increase in average deal sizes, however most of the activity was concentrated on transactions that were valued up to $500m.

The average deal size was $124m in 2016, up over 64% from $76m in 2015. Deals like the merger of Towers Watson and Willis Group, and the sale of Perot Systems and HP Enterprise Services, resulted in a substantial increase to average deal sizes, particularly within Human Resources.

Not surprisingly a large proportion of reported M&A is under $10m, a reflection of the consulting industry being dominated by smaller firms. For PE backed lower and mid-market consulting firms this provides plenty of opportunity to execute buy and build strategies. We typically observe that smaller transactions are consolidated through small mergers or team grabs, with little cash involved. Therefore the sweet-spot for deal activity with a material cash component is typically between $10m and $500m.

Figure 4 Spread of deal sizes by segment

Note: Border outlines sweet-spot for deals with a material cash component.

Table 3 Deal size by consulting segment




Average deal size ($m) 111.0 121.2 81.9 110.0 440.1 124.0

Median deal size ($m) 14.0 6.8 14.0 13.2 7.1 12.0

20%

80%

10%

70%

0%

60%

30%

90%

40%

100%

50%

Overall Management Consulting

IT Services Media Agencies

Engineering Consulting

Human Resources

$0-$5m $5-$10m $10-$20m $20-$50m $50-$100m $100-$500m Over $500m

Market overview

13

Deal structuring

The “average” disclosed deal saw 58% paid up-front and the balance paid over 3 years.

Consulting acquisitions often involve some mixture of cash and deferred consideration. There are many factors which influence structure, however those features which tend to drive more significant earn-out elements include:

• Owner’s desire to share in synergy benefit and access to the buyer’s clients;

• Buyer’s perceived risk of acquisition, including dependency on the owner and ability to retain talent, which are often higher risks for smaller companies;

• Nature of the buyer;

• Nature of the sale process; and

• Owner awareness and ability to negotiate on deal structuring options.

There is limited public data in on deal structures and the mix of up-front and deferred consideration can vary widely depending on the circumstances. The graph below illustrates the range of consideration structures on consulting firm transactions where there was sufficient public disclosure of terms. It is generally true that smaller transactions have larger earn-outs and we tend to observe increases in up-front components on well-managed negotiated transactions.

Figure 5 Deal structures – mix of up-front and earn-out, across segments

Note: Blue line indicates median deal with respect to disclosed deal structures in 2016.

Better prepared sellers in well-managed negotiations typically achieve more cash up-front.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Deal structures in 2016

% Upfront consideration % Deferred consideration



Regional review

Value of M&A highest in North America while Europe and Asia-Pacific enjoyed stronger M&A growth.

The decline in North American M&A activity was led by falls in IT Services, Engineering and Human Resources. This broadly correlated with the run-up to the Presidential election. However, M&A activity surged after the election result and remains strong as we go to press.

After a temporary dip, buyers and sellers shrugged off Brexit concerns and M&A activity in Europe rose substantially. These positive trends were particularly strong in IT Services, Media and Human Resources. Deal activity was noticeably robust in the UK where the number of completed transactions increased by 20% over the year.

The number and average value of deals in the Asia-Pacific rose, with Singapore being one of the best performing countries in the region. This robust deal activity was evident across all segments apart from Media. Australia is a consulting market that is observing strong growth, particularly within hot areas like digital consulting, and advisory to the energy, mining and financial services sectors. While M&A volumes in Australasia fell, average values rose substantially particularly in Management Consulting and Engineering Consulting.

Figure 6 Regional M&A review

Note: Deal sizes are median figures for the respective region. * Excludes Australasia.

North America

Revenue multiple: 1.4xEBITDA multiple: 9.8x

1,271 deals (down 7%)

$12.2m Deal size

Europe


1,094 deals (up 12%)

$8.0m Deal size

Asia-Pacific*


267 deals (up 6%)

$14.5m Deal size

Rest of the World

Revenue multiple: 1.1xEBITDA multiple: N/A

140 deals (up 4%)

$3.5m Deal size

Australasia


130 deals (down 9%)

$22.3m Deal size

44% 38% 9%

5%4%

Market overview

15

Cross-border deal activity remained strong, highlighting the global nature of M&A activity in consulting.

Despite some major political upheavals, cross-border deal activity accounted for 28% of all deal volumes, up from 27% in 2015. The proportion of cross-border deals in 2016 rose to 33% for deals between $10m and $500m in value.

In Asia-Pacific and Australasia, cross-border deals represented over half of all the M&A activity. Consulting markets, such as Australia and Singapore, offer gateway opportunities for European and North American buyers, who can develop a footprint in the wider Asia-Pacific region with access to faster growth.

There was substantial activity from cash-rich Indian and Japanese buyers investing into western consulting markets, as evidenced by landmark cross-border acquisitions from NTT, Wipro and Dentsu. There was also strong cross-border activity within Engineering Consulting as buyers extended their reach into regions expecting increased infrastructure spending over the coming years.

Figure 7 Cross-border activity by region

Table 4 Cross-border deal activity by consulting segment

Note: * Excludes Australasia.

Owners should always consider overseas buyers in their sales process.

Management Consulting IT Services Media Agencies Engineering

Consulting Human Resources

17% 17% 19% 16% 17%

71% 71% 74% 72% 73%

12% 12% 7% 12% 10%

Asia-Pacific*

Europe

AustralasiaRest of the World

North America

12%

84%

68%

31%

14%

27%

8%

30%

5%65%

46%46%

18%

42%

4%


Within country

Within country

Cross-border within region

Cross-border within region

Cross-border outside region

Cross-border outside region


Overview of equity market performance

The Equiteq Consulting Share Price Index ended the year up 14%, outperforming the S&P 500.

• The Equiteq Management Consulting Share Price Index grew 32% over the year, boosted by the stellar performance of Navigant Consulting (NYSE: NCI) and FTI Consulting (NYSE: FCN).

• The Equiteq Engineering Consulting Share Price Index achieved strong gains in the second half of the year supported by the recovery in oil prices.

• The Equiteq IT Consulting Share Price Index also performed well, growing 9%.

• Equiteq’s already high Media index achieved more modest returns of 6% and the Human Resources index ended down despite a strong final quarter.

Figure 8 Equiteq Consulting Share Price Index

Table 5 Equiteq Consulting Share Price Index share price returns

Q1 Q2 Q3 Q4 Annual

Management Consulting 2% 1% 17% 12% 32%

IT Services 2% (1%) 3% 5% 9%

Media Agencies 1% (3%) 3% 5% 6%

Engineering Consulting (2%) 1% 6% 7% 11%

Human Resources (4%) (10%) (2%) 11% (4%)

Overall (2%) (6%) 5% 18% 14%

S&P 500 1% 2% 5% 3% 11%

The Equiteq Consulting Share Price Index ended 2016 on a 10-year high.

140

130

120

110

100

90

80

Jan-16 Feb-16 Apr-16 Jun-16 Jul-16 Sep-16 Nov-16 Dec-16

Management Consulting

IT Services

Media Agencies


Human Resources

Equiteq Consulting Index

Rel

ativ

e in

dex,

20

06

= 1

00

June 23: Britain votes to exit the EU and David Cameron plans to step down as PM.

Nov 8: The US Presidential election result.

Market overview

© Equiteq Advisors Ltd. 2017 17

Valuation multiples and trends

Average historic revenue and EBITDA valuation multiples for both M&A transactions and listed companies were good to very strong across segments.

Average transaction valuation multiples were notably highest in the Media segment, reflecting the premium valuations attributed to acquisitions of cutting-edge digital advertising businesses. Valuation multiples were also strong within Management Consulting and IT Services.

Figure 9 Equiteq Consulting Share Price Index (2007 to 2016)

Figure 10 Enterprise Value (EV) as a multiple of Last Full Year (LFY) revenue

120

140

160

180

100

80

60

40

20

0


IT Services

Global financial crisis

European debt crisis

Media Agencies


Human Resources

Equiteq Consulting Index

Jan

07

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Market overview

M&A transactions Listed consultants Interquartile range Median

0.3x

0x

0.6x

0.9x

1.2x

1.5x

1.8x

2.1x

2.4x




Human Resources

LFY

Rev

enue

mul

tipl

e


Figure 11 EV as a multiple of LFY EBITDA

Figure 12 Valuation metrics over time (M&A transactions)

Publicly traded company valuation multiples have been rising over the last 4 years.

The continued robust demand and stable pricing for consulting businesses is being driven by strong industry fundamentals, low interest rates and substantial access to capital for both PE investors and corporate buyers.

Over the last few years many of the highly active strategic buyers have been rapidly growing listed companies. As their publicly quoted valuation

multiples and unused cash balances have risen, so has competition for assets from these buyers. They are looking for new avenues of growth and are able to make earnings accretive acquisitions by paying a discount to their premium earnings ratios.

While the Equiteq Consulting Share Price Index grew 14% in 2016, listed EBITDA valuation multiples were fairly steady in the year. This suggests that equity prices were supported by earnings growth. In the last few years with respect to M&A transactions, revenue valuation multiples appear to have risen faster than EBITDA valuation multiples which implies that acquired company operating margins have strengthened over the period.

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)

EBITDA multiple (LHS) Revenue multiple (RHS)

14.0 1.2

1.0

0.8

12.0

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.0

Mar

07

Mar

12

Aug

07

Aug

12

Jan

08

Jan

13

Jun

08

Jun

13

Nov

08

Nov

13

Apr

09

Apr

14

Sep

09

Sep

14

Feb

10

Feb

15

Jul 1

0

Jul 1

5

Dec

10

Dec

15

May

11

May

16

Oct

11

Oct

16

Market overview

6.0x

5.0x

7.0x

8.0x

9.0x

10.0x

11.0x

12.0x

13.0x




Human Resources

Note: The interquartile range is a measure of variability, based on showing the range of data in ascending order from the 25th percentile result to the 75th percentile result.

LFY

EBIT

DA

mul

tipl

e


19

Figure 13 Valuation metrics over time (listed companies)

Table 6 Top strategic buyers by segment and key buyer statistics

Strategic and private equity buyer trends

Serial strategic and private equity acquirers account for a substantial proportion of all deals completed.

Serial buyers of consulting firms that made multiple acquisitions over the last three years were responsible for 46% of all deals in 2016 - up from 43% in 2015. Dentsu was the most acquisitive buyer in the world as its international arm pursues its aim of everything digital by 2020. Accenture, WPP and Deloitte also topped the tables again, acquiring across strategy & business consulting, media & marketing and technology consulting. Arthur J. Gallagher was another notable acquirer focused on employee benefits and financial management acquisitions.

Note: Proportions relate to % of all buyers that have made multiple acquisitions over the last three years. The overall serial buyer proportion is higher given it takes into account those buyers that make multiple acquisitions across different consulting segments.

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0 1.2

1.0

0.8

10.0

0.6

8.0

0.4

6.0

0.2

4.0

2.0

0.0 0.0Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16




Number of deals 946 787 615 326 228 2,902

% by serial buyers* 40% 35% 37% 37% 34% 46%

Top strategic buyers

PwC

Huron

BDO

Navigant

CliftonLarson-Allen

Accenture

NTT Data

Deloitte

Gfi Informatique

J2 Global

Dentsu

WPP

Publicis

Interpublic Group

The Marketing Group

NV5

Terracon

Stantec

SPIE

ÅF

Arthur J Gallagher

Randstad

OneDigital

Outsourcing Inc

Vaco

Dentsu

WPP

Accenture

PwC

Deloitte



Large accounting networks continue to expand their non-assurance offerings.

Accounting firms are continuing to expand their advisory offerings to counter falling profitability from their core assurance businesses. There was notable M&A activity from BDO and US-based CliftonLarsonAllen, while the Big Four slowed their rate of new deals in 2016. The Big Four have made substantial entries into the consulting space over the last five years, including the landmark acquisitions of Booz & Co and Monitor Group. We expect that most of this buyer group’s focus is on integrating and enabling synergies from existing acquisitions, while taking a more selective approach to future deals.

Figure 14 Global accounting buyers, reported consulting acquisitions (2012 to 2016)

Note: This analysis only includes reported consulting acquisitions that we are aware of. According to the annual reviews of some of the leading professional services buyers, acquisition activity can be as high as 30 deals a year, with many small deals not being reported.

2012 2013 2014 2015 2016

5

10

15

20

25

0PwCDeloitte KPMG Ernst & Young BDOGrant Thornton

Num

ber

of t

rans

acti

ons

Market overview

21

Traditional boundaries between consulting segments are continuing to blur.

In 2016, convergence was strong at the intersection of Management Consulting, Media & Marketing and Technology.

Management Consulting has strong cross-sector appeal. Strategic consulting can be used as a generator of a long-tail of activity to implement and embed change. Many buyers in adjacent sectors view this as a gateway to on-sell and protect market share for their own offerings.

The pervasive impact of rapid technological change also makes acquisitions within the digital consulting space universally relevant. Cloud-computing has also led to a proliferation of hybrid business models combining software, consulting and managed services. This in turn has attracted a whole new range of outsourcing buyer groups that are actively moving up the value chain.

Figure 15 Equiteq proprietary heat-map of converging M&A activity

Convergence is strongest at the intersection of Management Consulting, Media & Marketing and Technology. WPP CEO Martin Sorrell and Interpublic CEO Michael Roth have both acknowledged that their competitors now include the likes of Accenture, Deloitte and IBM, as well as Salesforce. This is evident from some of the converging acquisition patterns amongst these names.

The highest price could come from a synergistic buyer outside of an owner’s core industry.

High proportionate cross-industry M&A activity Low proportionate cross-industry M&A activity

Consulting segment of strategic buyer



Human Resources

Con

sult

ing

segm

ent

of t

arge

t co

mpa

ny


IT Services

Media Agencies


Human Resources

Strategy & operational consultants

Global marketing networks

ConvergenceTechnology products &

services



Private equity remain highly acquisitive.

PE providers are enthusiastic investors in consulting firms and can be a flexible solution for a full exit or a partial value realization, that enables sellers to de-risk and retain an interest in the future upside. They are typically competitive for deals above $10m, and their participation in the lower mid-market for deals between $10m and $500m has been rising.

In the lower mid-market in 2016, PE were most active in the Management Consulting, IT Services and Engineering Consulting segments.

Note: Dashed lines indicate averages across years for the respective deal size interval.

Figure 16 Proportion of deals by private equity at various sizes (2007 to 2016)

Figure 17 Proportion of deals by private equity

Private equity bid competitively on deals above $10m and can be a very flexible solution for sellers.

All <$10m $10m to $500m $500m to $1bn $1bn+

30%

20%

10%

40%

33%

29%

9%6%3%

50%

60%

70%

0%20082007 2009 2010 20162011 2012 2013 2014 2015

2%

8%

1%

7%

0%

6%

3%

4%

5%




Human Resources

7% 7%

5%

6%

4%

Market overview

23

Landmark private equity deals in the consulting industry are expected to have a re-affirming effect on financial buyer interest in the space.

There were a number of milestone consulting acquisitions and sales from the world’s leading PE houses, with exits highlighted by substantial returns for the seller. In addition to landmark deals across restructuring, IT consulting and cyber security, there was also substantial activity in the healthcare analytics space - a segment which has benefited from healthcare reforms such as the Affordable Care Act in the US. M&A activity in this sector included Press Ganey’s sale to EQT, KKR’s acquisition of LGC, Veritas Capital’s sale of Truven Health Analytics to IBM and the investment firm’s latter acquisition of Verisk Analytics’ healthcare services business.

Target: Pactera

IT consulting and outsourcing services firm.

Deal value: $930m (c.1.2x LFY revenue)

EV of initial investment: c.$490m (2014)

Target: LGC

Provides a range of life sciences measurement and testing services.

Deal value: $996m (4.5x LFY revenue)


Target: Optiv Security Inc.

Cyber security solutions provider.

Deal value: c.$1.8bn (c.1.0x LFY revenue)

EV of initial investment: n/a (2014)

Target: AlixPartners

Financial advisory firm focused on restructuring and turnaround.

Deal value: $2.5bn (2.5x CY revenue)


Target: Booz Allen Hamilton

Management and technology consultancy focused on defense.

Deal value: Undisclosed

EV of initial investment: c.$2.5bn (2008)

Target: Press Ganey

Patient experience measurement and analytics.

Deal value: $2.4bn (7.4x LFY revenue)

EV of initial investment: $675m (2008)

Market overview

Acquirer: HNA Group

Owner seller: Blackstone Group

Acquirer: KKR & Co.

Owner seller: Bridgepoint

Acquirer: KKR & Co.

Owner seller: Blackstone Group

Acquirer: CDPQ, PSP Investment Board, Investcorp, Jay Alix

Owner seller: CVC Capital Partners

Acquirer: Public Offering

Owner seller: Carlyle Group

Acquirer: EQT Partners

Owner seller: Vestar Capital Partners


Christine Parry, Leadership Development Consultancy.

Sold.



M&A activity

Share price performance

Segment reviews

2007 20122008 20132009 20142010 20152011 2016


698

dea

ls

1.5x1.6x 1.4x

8.9x

10.2x

94

6 de

als


2007 20122008 20132009 20142010 20152011 2016

Inde

x: 7

9

1.4x

9.7x

11.1x 1.0x

Inde

x: 1

17

Total transactions, 2007-2016

Median deal value, $111m mean deal size,

2016

% of cross-border transactions, 2016

Annual growth in deal volumes,

2016 vs. 2015

Annual increase in share-price index,

2016 vs. 2015

8,298

$14m

29%

2%

32%

Segment reviews

At a glance

27


M&A deal activity rose to a ten-year high, with strong demand from buyers across industries.

Looking ahead, we expect that strong industry drivers, such as digital disruption, as well as converging buyer demands, will continue to underpin strong M&A activity in the industry for the foreseeable future.

Strong demand for niche capabilities

Industry trends such as digital disruption, globalization and geo-political volatility are presenting challenges and opportunities for strategy and operational consultants. The opportunities are arising from large industry incumbents that are reconsidering their business and operating models, while looking to their advisors for best-in-class strategy-through-implementation consulting services. This is driving demand for varied functional and sector capabilities.

Accenture’s acquisition of Kurt Salmon was a notable deal in strategy, strengthening the buyer’s capabilities focused on the retail sector, following its acquisition of Javelin in 2015. The Boston Consulting Group also continued with its approach of making selective complementary acquisitions, by acquiring Inverto. This notable deal significantly bolstered the buyer’s procurement and operations capabilities in Germany.

Regulatory change and stronger enforcement

Strong demand for compliance and regulatory advisory services has been driven by new complex regulations in the financial sector, along with stronger enforcement across various jurisdictions, since the 2008 financial crisis.

Significant deals in the space over the year included the acquisition of Promontory by IBM, as well as the acquisition of CounselWorks by Duff & Phelps.

Consulting enhanced by advanced analytics

There is high demand for capabilities enhanced by advanced predictive and prescriptive data analytics solutions. This year contained a number of high-profile data analytics deals in the US healthcare services sector - an industry that is underpinned by powerful long-term drivers, which has benefited from the reforms created by the Affordable Care Act.

McKinsey’s acquisition of PriceMetrix and EQT’s acquisition of Press Ganey were noteworthy deals in the space. Press Ganey and Veritas Capital’s acquisition of Verisk’s health analytics unit formed part of a number of notable private equity (PE) backed deals in the healthcare analytics space.

Convergence with adjacent sectors

Management Consulting capabilities continue to have strong cross-sector appeal, which is driving convergence with complementary consulting segments and adjacent sectors like software and managed services.

Segment reviews© Equiteq Advisors Ltd. 2017


Figure 18 Management Consulting M&A activity, annually (2007 to 2016)

Figure 19 Management Consulting M&A volumes, monthly (2007 to 2016)


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals 904 884 698 774 791 830 738 806 927 946

Mean deal value ($m) 222.9 171.6 152.4 94.0 82.3 291.9 98.7 63.7 70.2 111.0


Rev. multiple (x) 1.5 1.1 1.2 1.2 1.1 0.9 1.6 1.4 1.5 1.4


2007 20122008 20132009 20142010 20152011 20160

600

400

200

800

1,000

1,200

Num

ber

of d

eals

Num

ber

of d

eals

120

100

80

60

40

20

0

Jan

07

Jul

Jan

08 Jul

Jan

09 Jul

Jan

10 Jul

Jan

11 Jul

Jan

12 Jul

Jan

13 Jul

Jan

14 Jul

Jan

15

Jan

16Jul

Jul

2007 - 2016




2%

27%

Segment reviews


29

Deal size distribution

Landmark deals drove high average deal sizes, although a substantial amount of M&A occurred at smaller and mid-market deal sizes.

Average deal sizes rose 58% to $111.0m in 2016, driven by milestone deals including the acquisition of AlixPartners by a consortium of investment firms for $2.5bn. A large proportion of reported M&A is under $10m, which represents a ready source of bolt-on acquisitions for lower and mid-market consulting firms. We typically observe that smaller transactions are consolidated through small mergers or team grabs, with little cash involved. Therefore the hot area for deal activity with a material cash component is typically between $10m and $500m.

Figure 20 Deal values range

Pro

port

ion

of d

eals

don

e

Cum

ulat

ive

valu

e

30%

25%

20%

15%

10%

5%10%

0%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%$0-$5m $20-$50m$5-$10m $50-$100m$10-$20m $100-$500m Over $500m

Proportion of deals Cumulative value, %

28.1%

18.3%

15.0%

7.2%

12.4%

6.5%

12.4%



Regional review

M&A activity accelerated in Europe and Asia-Pacific, while high volumes were maintained in North America.

Management Consulting deal volumes in North America was broadly flat despite deal activity falling in the period preceding the Presidential election. M&A in Europe was particularly strong in the first quarter, but fell in the quarter preceding the UK’s Brexit vote, after which deal activity rebounded sharply. The number of deals closed and average deal sizes in Australia rose substantially. There was also strong increases in M&A volumes in Singapore.

Cross-border deal activity remained strong demonstrating the global nature of buyers of Management Consulting businesses. In 2016 cross-border deal activity accounted for 29% of all deals, up from 27% in 2015.

Figure 21 Regional review

North America

Deals:

450 (up 0.4%)

Deal size:

$15.1m

Rest of the World

Australasia

48% 34% 8%

5%5%

Deals:

45 (up 3%)

Deals:

52 (down 15%)

Europe

Deals:

323 (up 2%)

Deal size:

$13.0m

Asia-Pacific*

Deals:

76 (up 8%)

Deal size:

$10.5m

Deal size:

$2.12m Deal size:

$19.2m

Segment reviews


31


The Equiteq Management Consulting Share Price Index rose strongly to a ten-year high.

The Equiteq Management Consulting Share Price Index ended the year up 32%, outperforming the S&P 500. Its performance was supported by notable increases in the share prices of Navigant Consulting Inc (NYSE:NCI), FTI Consulting (NYSE:FCN), CRA International (NasdaqGS:CRAI) and ICF International (NasdaqGS:ICFI). The index has risen beyond its previous ten-year peak which was achieved at the end of 2015.

Figure 22 Equiteq Management Consulting Share Price Index

Table 8 Equiteq Management Consulting Share Price Index share price returns

Q1 Q2 Q3 Q4 Annual

Management Consulting 2% 1% 17% 12% 32%

S&P 500 1% 2% 5% 3% 11%

140

130

120

110

100

90

80

Jan-16 Feb-16 Apr-16Mar-16 Jun-16May-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16





Figure 23 Equiteq Management Consulting Share Price Index (2007 to 2016)

Table 9 Equiteq Management Consulting Share Price Index ten-year share price returns

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR(2007-16)

Management Consulting (7%) (15%) 12% (8%) (22%) 7% 45% (5%) 2% 32% 3%

S&P 500 4% (38%) 20% 11% (1%) 12% 26% 12% (1%) 11% 5%

120

140

160

180

100

80

60

40

20

0

S&P 500



Management Consulting index

Jan

07

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Segment reviews

33


Valuation multiples for M&A and publicly traded companies are above ten-year averages.


Figure 24 Enterprise Value (EV) as a multiple of Last Full Year (LFY) revenue and EBITDA

Segment reviews

0.2x 8.3x

0x 8.0x

0.4x 8.6x

0.6x 8.9x

0.8x 9.2x

1.8x 10.7x

1.0x 9.5x

2.0x 11.0x

1.2x 9.8x

2.2x 11.3x

1.4x 10.1x

2.4x 11.6x

1.6x 10.4x

2.6x 11.9x

LFY revenue (x) LFY EBITDA (x)




The continued robust demand and stable pricing for Management Consulting businesses over the last few years is being driven by strong industry fundamentals, low interest rates and substantial access to capital for both PE investors and corporate buyers. Over the last few years many of the highly active strategic buyers have also been rapidly growing listed management consultants. As their publicly quoted valuation multiples and unused cash balances have risen, so has competition for assets from these buyers.


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0

16.0

1.2

1.6

2.0

1.0

1.4

1.8

0.8

12.0

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.0

Mar

07

Mar

12

Aug

07

Aug

12

Jan

08

Jan

13

Jun

08

Jun

13

Nov

08

Nov

13

Apr

09

Apr

14

Sep

09

Sep

14

Feb

10

Feb

15

Jul 1

0

Jul 1

5

Dec

10

Dec

15

May

11

May

16

Oct

11

Oct

16


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0

14.0

1.4

1.2

1.6

1.8

1.0

0.8

10.0

0.6

8.0

0.4

6.0

0.2

4.0

2.0


Segment reviews

35


Listed management consultants and growing accounting firms dominated the top buyers in the industry.

Selected top strategic buyers

PricewaterhouseCoopers

Following its transformational acquisition of Booz & Co in 2014, PwC has slowed its rate of reported Management Consulting acquisitions in the US. The buyer appears to now to be focused on integrating recent acquisitions in the region and focusing its M&A strategy on emerging territory consulting businesses. The Big Four firm made a number of acquisitions in 2016, which included IT and Management Consulting acquisitions by its network firms in the UK, Germany, France and Central & Eastern Europe.

Huron Consulting

The buyer has grown rapidly through acquisitions, with a focus on expanding into healthcare, which is now believed to represent over 60% of its business and technology practice. This sector expansion continued in 2016 with its acquisitions of MyRounding and HSM. Another interesting deal in the year was its acquisition of ADI Strategies, which will be used to create one of the largest and fastest growing Oracle application and analytics practices in the U.S.

BDO International

BDO continued to grow in the US, making 7 accounting and consulting acquisitions. There was also considerable deal activity across its global network, particularly within EMEA where notable deals occurred within accounting, business advisory, IT and cyber security.

Navigant Consulting

Navigant stepped up the pace of its acquisitions in 2016, acquiring 3 Management Consulting businesses across Europe and North America. This included acquisitions of consulting firms with specialisms in data-driven market analysis to the medical technology industry, energy and sustainability consulting, as well as strategy and optimization assistance for healthcare providers.

CliftonLarsonAllen

CliftonLarsonAllen made a string of M&A deals this year, as it continues to expand across the US. Its acquisition of CPWR significantly strengthened its presence in Texas with the addition of 130 professionals. Another notable deal, was the acquisition of Bray & Company, which will expand the buyer’s capabilities in the Midwest with 280 accountants and consultants in Wisconsin.

In 2016,

40.0% of all deals were by serial buyers

(down from 41% in 2015)

In 2016,

7.4% of buyers were financial buyers (up from 6.8% in 2015)



Selected M&A transactions

Acquirer: Solidiance Deal value: UndisclosedSeller: Technomic Asia

Rationale: The combination will create a bigger and better-positioned advisor in delivering growth strategy consulting to leading multinational companies in China and across the rest of Asia.

Equiteq advised

Acquirer: Omnicom Group Deal value: UndisclosedSeller: Rabin Martin

Rationale: Omnicom has gained unique expertise in global public health strategy and bolstered its growing healthcare-focused offerings.

Equiteq advised

Acquirer: Yamada Deal value: UndisclosedSeller: Spire

Rationale: With the merger, Spire will be able to leverage the consulting intellectual property developed by YBC such as corporate restructuring, M&A and business succession planning consulting. Spire also gains improved access to the Japanese market.

Equiteq advised

Acquirer: Duff & Phelps Deal value: UndisclosedSeller: CounselWorks

Rationale: The acquisition significantly enhances the buyer’s position as a best-in-class provider of compliance and regulatory advisory services in North America.

Equiteq advised

Note: Acquisitions with solid circles are those completed in the year. Acquisitions with broken circles are those announced in the year. Transaction details and deal values rely on information from various third party sources and in some instances rumoured estimates. LFY = Last Full Year, CY = Current Year.

Rationale: NVM Private Equity successfully exited their stake in Control Risks to transition the specialist risk consultancy to a new corporate structure independent of third party equity.

Acquirer: Undisclosed Deal value: UndisclosedSeller: Control Risks (17% stake)

Rationale: The merger enables the buyer to deliver enhanced advice and strategic outcomes that integrate the specialised skills of both firms.

Acquirer: PPB Advisory Deal value: UndisclosedSeller: Litmus Group Rationale: The acquisition followed

the buyer’s recent commitment of $100m from Madison Dearborn Partners. With the acquisition, Ankura has deepened its capabilities in developing strategies through complex stressed and distressed situations.

Acquirer: Ankura Deal value: UndisclosedSeller: Marotta Gund Budd & Dzera

Rationale: PwC acquires a market leader in providing auditing and consulting services in relation to media trading deals in the UK and Ireland.

Acquirer: PricewaterhouseCoopers Deal value: UndisclosedSeller: Rickards

Segment reviews

37

Rationale: The deal enables the buyer to add a new presence in North America and strong capabilities within the oil and gas sector vertical. The buyer aims to have 1,000 consultants by 2017 and $150m of revenue by the end of 2016.

Acquirer: Sia Partners Deal value: UndisclosedSeller: Molten Group

Rationale: The acquisition forms part of EY’s overall expansion of its consulting practice and leverages from its 2014 acquisition of The Parthenon Group. The deal develops EY’s presence in the Benelux by acquiring an established practice with a strong cultural fit.

Acquirer: Parthenon-EY Deal value: UndisclosedSeller: OC&C Benelux

Rationale: IBM acquires a leading financial consulting business, which it will combine with Watson, the buyer’s artificial-intelligence system. This combined offering will help financial institutions with rising regulatory burdens in areas like anti-money-laundering and bank “stress tests”.

Acquirer: IBM Deal value: UndisclosedSeller: Promontory

Rationale: Morse Consulting combined with Deloitte’s own expertise and Casey Quirk by Deloitte, strengthens Deloitte’s leading position in advisory services to the investment and wealth management sector in the growing Australian global asset management market.

Acquirer: Deloitte Deal value: UndisclosedSeller: Morse Consulting

Acquirer: Livingbridge Deal value: UndisclosedSeller: Four Eyes Insight

Rationale: Livingbridge’s investment enables a new phase of growth to build on the strong momentum that the clinical consulting business has generated to date.

Equiteq advised

Acquirer: Lonsdale Capital Deal value: UndisclosedSeller: P2 Consulting

Rationale: With the backing of Lonsdale, P2 intends to accelerate its growth and capitalize on attractive acquisition opportunities in a fragmented space that is experiencing increasing demand driven by governmental, regulatory, market and business change, as well as the UK’s vote to Brexit.

Equiteq advised

Rationale: McKinsey acquires a comprehensive and detailed dataset on 60,000 financial advisors across North America. The buyer can scale PriceMetrix’s proprietary models and online tools to create a world-class, data-enhanced consulting offering for the wealth management sector.

Acquirer: McKinsey Deal value: UndisclosedSeller: PriceMetrix

Rationale: Accenture expands its strategy capabilities and can leverage Kurt Salmon’s capabilities with its recent acquisitions of dgroup and Javelin, to develop a leading global retail and CPG consulting team with deep expertise in strategic, operational, IT, and digital media consulting.

Acquirer: Accenture Deal value: $165m (1.8x LFY revenue) Seller: Kurt Salmon

Rationale: AlixPartners has grown into one of the top consultancies focused on bankruptcy and restructuring financial advisory, and has received backing from different private equity firms during its expansion. Their new investment will enable the business to continue to grow into new markets.

Acquirer: CDPQ, PSP, Jay Alix Investcorp Deal value: $2.5bn (2.5x CY revenue)

Seller: AlixPartners

Rationale: BCG will benefit from Inverto’s digital consulting offering focused on procurement and supply chain management, which is considered to be a rapidly growing segment of this market. The acquisition is also complementary to BCG’s existing operational consulting services.

Acquirer: BCG Deal value: UndisclosedSeller: Inverto



IT Services

M&A activity


2007 20122008 20132009 20142010 20152011 2016


645

deal

s

13.1x

1.1x

1.1x

0.5x

8.0x72

4 d

eals


2007 20122008 20132009 20142010 20152011 2016

Inde

x: 8

3

10.2x

0.9x0.9x

0.6x

10.3x

Inde

x: 1

54



2016


Annual growth in deal volumes,

2016 vs. 2015


2016 vs. 2015

6,621

$6.8m

29%

9%

9%

Segment reviews

At a glance

39


2016 was an excellent year for IT Services M&A, with significant demand for capabilities related to cloud computing and cyber security.

The disruptive impact of new cloud-based solutions on company’s business and operating models, makes cloud computing and cyber security critical investment priorities. This will underpin strong demand for relevant M&A opportunities from buyers across industries over the next year.

Disruption to legacy players

Most of the recent growth in M&A within this segment has been driven by disruption to legacy players from third-platform service providers, incorporating cloud-based computing, big data analytics, social media and mobile-based services.

This disruption was evident from NTT’s acquisition of Perot Systems, part of a reorganization by Dell to buy data storage provider EMC for $67 billion – a record deal for the technology industry. HPE also sold its Enterprise Services segment to CSC and further restructured its operations with the sale of its software business to the UK’s Micro Focus. The deal resulted in the majority of HPE being focused on hardware and Micro Focus becoming one of the leading European software players.

The shift to cloud services

Many traditional technology services players are using niche acquisitions in cloud services to counter slower revenue generation from traditional on-premise ERP implementations.

Wipro’s acquisition of Appirio in the second half of the year positions the buyer as the leading Indian technology services player in the space. Appirio had particularly strong partnerships with Salesforce and Workday and was considered a prized target after a wave of recent deals left it as the leading independent cloud services player remaining. This included IBM’s acquisition of Bluewolf, Capgemini’s acquisition of Oinio and Accenture’s purchase of leading Workday consultant, DayNine.

Rising demand for cyber security

The continuing shift toward cloud-based computing, and various high-profile cyber-attacks in the year, continue to fuel demand for cyber security solutions. This growth in the market is attracting significant private equity (PE) interest.

The largest deal in the cyber security software space was Intel’s sale of its cyber security unit to PE firm TPG, valuing the business at $4.2bn. A number of other leading PE firms were rumored as having conducted preliminary research on the investment opportunity prior to the sale. The deal was followed by KKR & Co.’s c.$1.8bn acquisition of Optiv Security from The Blackstone Group.

Convergence with adjacent industries

Marketing networks and Management Consulting firms are developing their digital transformation capabilities by acquiring IT consultants with cutting-edge niche capabilities. Large accounting firms are also demanding professional services related to the latest disruptive technologies.



Figure 27 IT Services M&A activity, annually (2007 to 2016)

Figure 28 IT Services M&A volumes, monthly (2007 to 2016)


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals 723 645 504 646 666 631 613 682 724 787

Mean deal value ($m) 77.3 125.4 91.4 106.3 71.7 55.4 55.5 98.4 114.0 121.2


Rev. multiple (x) 1.1 0.9 0.5 0.7 0.7 0.6 0.8 0.7 0.9 1.1


2007 20122008 20132009 20142010 20152011 20160

600

400

200

800

1,000

Num

ber

of d

eals

Num

ber

of d

eals

100

80

60

40

20

0

Jan

07

Jul

Jan

08 Jul

Jan

09 Jul

Jan

10 Jul

Jan

11 Jul

Jan

12 Jul

Jan

13 Jul

Jan

14 Jul

Jan

15

Jan

16Jul

Jul

2007 - 2016




9%

46%

Segment reviews


41


Major deals drove high average deal sizes. However, a substantial amount of M&A occurred at smaller transaction sizes.

Average deal sizes were up 6% to $121m, driven by a number of landmark IT Services deals, including the sales of HP Enterprise Services, Perot Systems and Optiv Security. Beyond the headlines, a large proportion of reported M&A is under $5m, a reflection of a fragmented IT Services industry that is dominated by smaller businesses, many of whom are consolidated through small mergers or team grabs, with little cash involved. Most M&A with a material cash component typically occurs between $10m and $500m.


Pro

port

ion

of d

eals

don

e

Cum

ulat

ive

valu

e

50%

40%

45%

35%

30%

25%

20%

15%

10%

5% 10%

0%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%$0-$5m $20-$50m$5-$10m $50-$100m$10-$20m $100-$500m Over $500m


44.8%

10.3%11.2%13.8%

5.2%

8.6%6.0%



Regional review

Disclosed M&A activity in Europe and Asia-Pacific soared in 2016.

IT Services deal volumes in North America declined, due to slow activity in the second and third quarter preceding the Presidential election. This was followed by a recovery in deal volumes in the final quarter of the year. Despite the political volatility arising from the UK’s Brexit vote, M&A volumes in the UK and the rest of Europe were strong. Notwithstanding the Asia-Pacific region’s overall strong performance, the number of deals closed in Australia and Singapore fell. However, there was a substantial increase in the size of deals being closed in these regions.

Cross-border deal activity remained strong demonstrating the global nature of buyers in this segment. In 2016 cross-border deal activity accounted for 29% of all deals, up from 23% in 2015.



North America

Deals:

334 (down 9%)

Deal size:

$10.0m

Rest of the World

Australasia

42% 40% 10%

5%3%

Deals:

43 (up 105%)

Deals:

24 (down 33%)

Europe

Deals:

314 (up 32%)

Deal size:

$2.8m

Asia-Pacific*

Deals:

72 (up 16%)

Deal size:

$16.4m

Deal size:

$3.5m Deal size:

$9.5m

Segment reviews

43


The Equiteq IT Consulting Share Price Index rallied to its ten-year high.

The Equiteq IT Consulting Share Price Index ended the year up 9%, slightly underperforming the S&P 500. Its performance was supported by notable increases in the share prices of Devoteam SA (ENXTPA:DVT) and Computer Sciences Corporation (NYSE:CSC). The index is now rallying at a significant premium of over 50% as compared with its ten-year average.

Figure 31 Equiteq IT Consulting Share Price Index

Table 11 Equiteq IT Consulting Share Price Index share price returns

Q1 Q2 Q3 Q4 Annual

IT Consulting 2% (1%) 3% 5% 9%

S&P 500 1% 2% 5% 3% 11%

120

115

110

105

100

95

90

85

80






Figure 32 Equiteq IT Consulting Share Price Index (2007 to 2016)

Table 12 Equiteq IT Consulting Share Price Index ten-year share price returns

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR(2007-16)

IT Consulting 9% (54%) 24% 10% (12%) 6% 24% 7% 30% 9% 6%

S&P 500 4% (38%) 20% 11% (1%) 12% 26% 12% (1%) 11% 5%

120

140

160

180

100

80

60

40

20

0

S&P 500



IT consulting index

Jan

07

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Segment reviews

45


Valuation multiples for both M&A transactions and publicly traded companies are above ten-year averages.


Segment reviews


0.2x 7.5x

0x 7.1x

0.4x 7.9x

0.6x 8.3x

0.8x 8.7x

1.8x 10.7x

1.0x 9.1x

2.0x 11.1x

1.2x 9.5x

2.2x 11.5x

1.4x 9.9x

2.4x 11.9x

1.6x 10.3x

2.6x 12.3x





Strong demand and robust pricing within the IT Services sector is being driven by rapid innovation, combined with low interest rates, and large unused cash balances of corporates and PE investors. In 2016, many of the active strategic buyers were rapidly growing listed companies like Accenture (NYSE: ACN), NTT Data (TYO: 9613) and j2 Global (NASDAQ: JCOM). As their publicly quoted valuation multiples and cash balances rise, so does competition for assets from these buyers, who are looking for new avenues of growth and are able to make earnings accretive acquisitions by paying a discount to their premium earnings ratios. Listed company valuation multiples have grown faster than transaction valuation multiples in the last few years, which suggests listed buyers have been able to sustain a slew of earnings enhancing acquisitions.


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0 1.2

1.0

0.8

12.0

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.0

Mar

07

Mar

12

Aug

07

Aug

12

Jan

08

Jan

13

Jun

08

Jun

13

Nov

08

Nov

13

Apr

09

Apr

14

Sep

09

Sep

14

Feb

10

Feb

15

Jul 1

0

Jul 1

5

Dec

10

Dec

15

May

11

May

16

Oct

11

Oct

16


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0

0.7

0.6

0.8

0.9

1.0

0.5

0.4

10.0

0.3

8.0

0.2

6.0

0.1

4.0

2.0


Segment reviews

47


Serial technology buyers continue to dominate the M&A scene.


Accenture

Accenture continues to be the most acquisitive buyer within IT Services, particularly focused on acquiring niche capabilities related to disruptive technologies, and broadening its capabilities into adjacent industries, such as strategy consulting and digital advertising. It acquired at least 4 cloud-related companies, many of which focus on a particular cloud ecosystem such as Salesforce, Workday or ServiceNow. It also made 2 cyber security acquisitions, Redcore in Australia and Maglan in Israel. Maglan will form a future Accenture Cyber Fusion Center to support Accenture around the globe.

NTT Data

NTT Data has been aggressively acquiring technology businesses across the globe for several years to expand its global reach. Its acquisition of Perot Systems was its largest deal and results in NTT becoming the fifth largest systems integrator in the world, with strengthened industry consulting and vertical solutions in major segments, including healthcare and life sciences and the public sector. NTT also made a number of smaller niche acquisitions, such as Nefos, one of the leading Salesforce consulting partners in Germany.

Deloitte

Deloitte’s rate of acquisitions has slowed to its lowest level in the past five years, with a notable slowdown in reported M&A within the US and UK. Nevertheless, the Big Four firm made at least 5 acquisitions in the IT Consulting space in Australia and Asia. Furthermore, the buyer invested in over 30 disruptive start-ups, 20 of which were developed by Deloitte’s own staff through its £25m Innovation Investments scheme, which encourages employees to turn start-up ideas into business.

Gfi Informatique

Mannai Corporation invested in Gfi Informatique in 2015, with the plan of expanding the business internationally beyond France and Southern Europe via acquisition. In 2016 the buyer made at least 6 reported acquisitions in the IT Services space, including Efron, a reputed Spanish digital services firm with nearly 750 employees and Roff an 800-person leading European SAP solutions integration and maintenance player based in Portugal.

J2 Global

J2 Global is believed to be one of Southern California’s most active acquirers of cloud services companies. The buyer announced 6 acquisitions in 2016, acquiring businesses across internet services, as well as digital media. Its most significant deal was in the latter space, acquiring Everyday Health at an implied enterprise value of $465 million.

In 2016,

35% of all deals were by serial buyers

(down from 39% in 2015)

In 2016,





Acquirer: BackOffice AssociatesDeal value: UndisclosedSeller: CompriseIT

Rationale: The acquisition expands BackOffice’s digital solutions with specialist skills in the adoption of SAP’s Business Suite 4 SAP HANA.

Equiteq advised

Acquirer: GFT Group Deal value: UndisclosedSeller: Habber Tec Brazil

Rationale: Habber Tec Brazil is Brazil’s largest IBM partner for business process management. GFT Group extends its market position in Latin America by significantly increasing the size of its Brazilian revenue.

Equiteq advised

Acquirer: Activeo Deal value: UndisclosedSeller: Kasturi

Rationale: Helps broaden and strengthen Kasturi in the field of ICT (Info-Communication Technology) to provide a wider scope of ICT and AV (Audio Visual) services to customers.

Equiteq advised

Rationale: The deal will further enhance PwC’s cross-industry customer and digital capabilities to deliver innovative solutions across all channels, platforms and devices. The business will also establish a Centre of Excellence for these skills within PwC in Europe.

Acquirer: PwC Deal value: UndisclosedSeller: Outbox

Rationale: The seller’s consulting services and tools, along with Blackberry’s existing security offerings, will help clients to identify the latest cyber security threats, and implement mitigation strategies.

Acquirer: Blackberry Deal value: UndisclosedSeller: Encription


Rationale: The combination aims to create a leader in technology and BPO for the global insurance industry. For CSC’s clients in other industries, the addition of Xchanging will enable the business to offer a broader set of services.

Acquirer: CSC Enterprise value: $503m (0.8x LFY revenue)

Seller: Xchanging

Rationale: The strategic combination of the two complementary businesses, which do not have a lot of client overlap, will create one of the world’s largest pure-play IT Services companies. This spin off allows HP to focus on its cloud services business and other fast-growing units.

Acquirer: CSC Deal value: $8.5bn (0.4x LFY revenue)

Seller: HP Enterprise Services

Rationale: Bluewolf is one of Salesforce’s most experienced partners. The combination expands IBM’s analytics, experience design and industry consulting offering to meet growing market demand for transformational cloud-based services.

Acquirer: IBM Deal value: $200mSeller: Bluewolf

Rationale: Maglan leverages Israel as a cybersecurity innovation hub and will form a future Accenture Cyber Fusion Center in Israel to support Accenture around the globe. This will expand on Accenture’s current network of these centers in Bangalore, Manila and Prague. These centers are dedicated to providing Accenture’s clients with one-stop access to a mix of capabilities ranging from innovation and incubation to strategic consulting and transformation, to the managed delivery of a broad range of cybersecurity services.

Acquirer: Accenture Deal value: UndisclosedSeller: Maglan

Segment reviews

49

Rationale: The acquisition enables Accenture to expand its IAM services and security-as-a-Service capabilities while developing its strong position in the Asia-Pacific region.

Acquirer: Accenture Deal value: UndisclosedSeller: Redcore

Rationale: The deal is an acquisition in HNA’s domestic market that builds on their acquisition of Ingram Micro, the largest Chinese acquisition of a US-based IT company.

Rationale: The deal doubles Gfi’s revenues in Iberia and simultaneously improves access to Brazil, Mexico, and Colombia.

Acquirer: HNA Group Enterprise value: $930m (c. 1.2x LFY revenue)

Seller: Pactera

Acquirer: Gfi Informatique Deal value: UndisclosedSeller: Efron Consulting

Rationale: The large IT Services businesses have complementary service portfolios and the combined business will be one of the industry’s most comprehensive offerings for modernizing business and technology.

Acquirer: NTT DATA Deal value: $3.2bn (1.1x LFY revenue) Seller: Dell Services

Rationale: KKR will be attracted by the significant growth potential in the cyber security industry. The private equity firm has already invested over $18bn of equity in TMT-related PE investments since 1983, which includes an array of security related investments.

Acquirer: KKR Deal value: $1.8bn (c. 1.0x LFY revenue)

Seller: Optiv

Rationale: The deal enhances Datapipe’s European presence and expands its capabilities in managed cloud services and advanced AWS consulting.

Acquirer: Datapipe Deal value: UndisclosedSeller: Adapt

Rationale: Wipro benefits from Appirio’s top-tier client base and exposure to the rapidly growing cloud services market in the U.S., which will enable the buyer to better compete with the likes of Accenture, IBM and Capgemini.

Acquirer: Wipro Deal value: $500m (2.6x LFY revenue)

Seller: Appirio

Rationale: The deal strengthens Cognizant’s business transformation capabilities for the insurance industry, and expands its presence in the growing Australasian market.

Acquirer: Cognizant Deal value: UndisclosedSeller: Adaptra

Rationale: The acquisition provides Capita with a set of complementary capabilities in enterprise-as-a-service and deepens its relationship with Microsoft.

Acquirer: Capita Deal value: $95.9m (0.3x LFY revenue)

Seller: Trustmarque

Acquirer: SNP Deal value: UndisclosedSeller: Harlex

Rationale: SNP will gain access to a highly trained team of experts in the field of SAP data migration. Harlex Consulting also possesses an impressive customer base and extensive project experience. Furthermore, the acquisition will enhance the SNP Group’s presence in the British market.

Equiteq advised

Acquirer: Cornerstone Deal value: UndisclosedSeller: PMSquare

Rationale: The merger of two IBM Premier Business Partners creates a strong regional player in the Asia-Pacific market, delivering budgeting & forecasting, business intelligence and information management solutions.

Equiteq advised



Media Agencies

M&A activity


2007 20122008 20132009 20142010 20152011 2016


352

deal

s

1.8x

0.5x

13.9x

11.4x62

6 de

als


2007 20122008 20132009 20142010 20152011 2016

Inde

x: 6

2

0.8x

0.7x

9.2x

9.0x

Inde

x: 9

8


Median deal value, $81.9m mean deal size,

2016


Annual decline in deal volumes,

2016 vs. 2015


2016 vs. 2015

5,011

$14m

26%

6%

2%

Segment reviews

At a glance

51


Strong transaction momentum was sustained, with the large advertising agencies assembling digital media and customer analytics capabilities.

The transition away from legacy media will continue to fuel M&A activity from the leading global marketing networks. Digital transformation will also bring challenges for some research businesses, where vast quantities of data can be acquired more quickly and at lower cost. We may therefore see research divisions in large marketing networks invest in Management Consulting capabilities to enhance their ability to pitch insight and grow margins.

Digital marketing and customer analytics

There continues to be strong demand across buyers for digital marketing and customer analytics capabilities, as both become increasingly important investment items across the C-suite.

Dentsu Aegis Network announced their acquisition of Merkle, considered to be the largest independent US-based agency focused on CRM and search, managing a vast dataset of first-party customer records. Merkle is also one of Google’s largest agency partners and was one of the first agencies to offer custom audience data relating to Facebook. Another notable deal was XIO Group’s acquisition of J.D. Power, a leading provider of consumer data and analytics, from S&P Global.

Strong demand for mobility consulting

Within digital media, there was substantial activity in the mobile consulting space. Buyers are looking to capitalize on the shift in consumer use of mobile as a first touchpoint. In a world of growing Internet of Things, there are also demands on applications to be built for an increasingly complex range of devices that draw on user experience insight.

Important deals in the space included WPP Grey’s acquisition of ArcTouch, St. Ives’ acquisition of The App Business and IPG Mediabrand’s acquisition of Mubaloo. These deals were followed by Perficient’s acquisition of Bluetube and Accenture’s acquisitions of MOBGEN and Karmarama.


There was notable convergence in deal activity amongst traditional media buyers and buyers from IT, Management Consulting and Publishing.

IBM’s design unit acquired three digital agencies across the US and Europe, and Salesforce acquired two creative agencies based in Chicago. The New York Times acquired a full-service social media marketing agency and a branded content specialist. The Financial Times and The Economist also acquired media agencies in the year. Deloitte acquired San Francisco-based creative agency Heat and public relations consultancy, Regester Larkin.



Figure 36 Media M&A activity, annually (2007 to 2016)

Figure 37 Media M&A volumes, monthly (2007 to 2016)


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals 558 422 352 404 488 527 458 561 626 615

Mean deal value ($m) 82.3 43.6 14.6 38.3 58.6 39.8 111.9 142.3 47.0 81.9


Rev. multiple (x) 1.5 0.7 0.8 1.3 1.1 0.5 2.0 1.0 0.7 1.8


2007 20122008 20132009 20142010 20152011 20160

600

400

200

800

Num

ber

of d

eals No. of transactions

2016 vs. 2015


2%

175%

Num

ber

of d

eals

80

60

40

20

0

Jan

07

Jul

Jan

08 Jul

Jan

09 Jul

Jan

10 Jul

Jan

11 Jul

Jan

12 Jul

Jan

13 Jul

Jan

14 Jul

Jan

15

Jan

16Jul

Jul

2007 - 2016


Segment reviews


53


Large deals drove high average deal sizes, but there was strong activity for small to medium-sized businesses valued between $10m to $500m.

Average deal sizes increased to $82m in 2016 (up by 74%), driven by milestone deals like the sales of Merkle and J.D. Power. Interestingly, there were more deals valued $50m to $500m, as there were deals below $5m, possibly signaling a shift away from smaller tech-focused deals with less repeated market traction. Smaller deals are typically consolidated through small mergers or team grabs, with little cash involved. The sweet-spot for M&A with a material cash component is between $10m and $500m.


Pro

port

ion

of d

eals

don

e

Cum

ulat

ive

valu

e

30%

25%

20%

15%

10%

5%10%

0%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%$0-$5m $20-$50m$5-$10m $50-$100m$10-$20m $100-$500m Over $500m


26.8%

12.2%13.4%

18.3%

1.2%

8.5%

19.5%



Regional review

M&A continues to be focused on North America, however there was strong growth in European deal volumes.

M&A continues to be focused on North America, however deal volumes were broadly flat in the year. In contrast M&A volumes in Europe rose, led by strong deal activity in the UK but average deal size fell indicating that the focus of buyers in the region was on smaller in-fill acquisitions. The number of deals closed in Australia fell, but average deal sizes rose substantially. In contrast to the overall fall in deal activity in Asia-Pacific, M&A volumes grew in Singapore.

Cross-border deal activity remained high demonstrating the global nature of buyers in this segment. In 2016 cross-border deal activity accounted for 26% of all deals, down from 31% in 2015.



North America

Deals:

258 (down 1%)

Deal size:

$16.8m

Rest of the World

Australasia

42% 38% 12%

5%3%

Deals:

29 (down 22%)

Deals:

24 (down 19%)

Europe

Deals:

231 (up 7%)

Deal size:

$6.3m

Asia-Pacific*

Deals:

73 (down 9%)

Deal size:

$30.5m

Deal size:

$1.7m Deal size:

$12.1m

Segment reviews

55


The Equiteq Media Share Price Index rose, with mixed performance amongst constituent listed media players.

The Equiteq Media Share Price Index ended the year up 6%, with notable increases in the share prices of WPP (LSE:WPP), Omnicom (NYSE:OMC) and Ipsos (ENXTPA:IPS). Variable performance amongst listed media players is being attributed by many equity analysts to increased competition for large client contracts, as listed media players continue to fight to stay ahead of the latest digital marketing trends. In spite of its recent mixed performance, the index remains at a premium of 11% to its ten-year average.

Figure 40 Equiteq Media Share Price Index

Table 14 Equiteq Media Share Price Index share price returns

Q1 Q2 Q3 Q4 Annual

Media Agencies 1% (3%) 3% 5% 6%

S&P 500 1% 2% 5% 3% 11%

120

115

110

105

100

95

90

85

80






Figure 41 Equiteq Media Share Price Index (2007 to 2016)

Table 15 Equiteq Media Share Price Index ten-year share price returns

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR(2007-16)

Media Agencies (9%) (36%) 31% 59% (8%) (18%) 80% (4%) (33%) 5% (1%)

S&P 500 4% (38%) 20% 11% (1%) 12% 26% 12% (1%) 11% 5%

120

140

160

180

100

80

60

40

20

0

S&P 500



Media index

Jan

07

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Segment reviews

57




Segment reviews


0.2x 8.4x

0x 8.0x

0.4x 8.8x

0.6x 9.2x

0.8x 9.6x

1.8x 11.6x

1.0x 10.0x

2.0x 12.0x

1.2x 10.4x

2.2x 12.4x

1.4x 10.8x

2.4x 12.8x

1.6x 11.2x

2.6x 13.2x





In recent years, valuation multiples on transactions have been volatile, with recent increases being driven by strong multiples paid on many digital media transactions, combined with continued low interest rates, and large unused cash balances of corporates and PE investors. As publicly quoted valuation multiples and cash balances of listed companies like Dentsu (TYO: 4324) and WPP (LON: WPP) have risen, so has competition and pricing from this buyer group.


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0

16.0

1.2

1.6

2.0

1.0

1.4

1.8

0.8

12.0

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.0

Mar

07

Mar

12

Aug

07

Aug

12

Jan

08

Jan

13

Jun

08

Jun

13

Nov

08

Nov

13

Apr

09

Apr

14

Sep

09

Sep

14

Feb

10

Feb

15

Jul 1

0

Jul 1

5

Dec

10

Dec

15

May

11

May

16

Oct

11

Oct

16


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0

0.7

0.6

0.8

0.9

1.0

0.5

0.4

10.0

0.3

8.0

0.2

6.0

0.1

4.0

2.0


Segment reviews

59


The top five Media buyers were highly acquisitive, with Dentsu making the most acquisitions over the year.


Dentsu

Dentsu stepped up its transaction rate and was the most acquisitive buyer in 2016. It acquired over 25 digital media agencies through its international arm Dentsu Aegis Network. Dentsu continues to aggressively expand this business following its acquisition of Aegis in 2012, while reducing its dependence from revenue generated in its sluggish Japanese home market. This year it also acquired data and analytics expertise, most notably through its acquisition of Merkle.

WPP

WPP slowed the pace of its acquisitions and was overtaken by Dentsu as the most prolific buyer of media agencies in the year. WPP focused its acquisitions on digital and tech agencies, which notably included WPP’s digital ad-buying group Xaxis acquisition of Triad Retail Media, which helps retailers sell advertisements on their websites.

Publicis

Publicis was the third most active acquirer, but significantly slowed down its acquisitions in the year after suffering from slowing business in the US following the loss of a string of big media accounts including P&G and Walmart. Publicis was reportedly in talks with Samsung over a possible investment in Cheil Worldwide, Samsung’s Korean advertising agency. These talks reportedly ended in the middle of the year. Publicis has undergone a major reorganization which may result in a renewed focus on M&A in 2017.

Interpublic Group

The Interpublic Group has not been as acquisitive as many of its rivals over the last few years. In 2016 it acquired a number of specialist agencies including a product design and innovation business called Speck Design, as well as Mubaloo and The Brooklyn Brothers.

The Marketing Group

The Marketing Group was highly acquisitive this year, acquiring various media businesses including Imagine Group, its largest acquisition to date. This year it notably made a large push into Australia, acquiring 3 businesses in the country.

In 2016,

37% of all deals were by serial buyers

(in line with 2015)

In 2016,





Acquirer: ActiveoDeal value: UndisclosedSeller: Jusfeedback

Rationale: The deal reinforces Acti-veo’s skills in customer and employee engagement market.

Equiteq advised

Rationale: This acquisition was undertaken by WPP’s Grey Group, which is expanding its digital capabilities. ArcTouch is known for its creativity and technological expertise in developing transformational mobile experiences.

Acquirer: WPPDeal value: UndisclosedSeller: ArcTouch

Rationale: This acquisition strengthens PwC’s position as a thought leader in corporate and brand strategies for Asia-Pacific Entrepreneurial and Private Clients.

Acquirer: PwCDeal value: UndisclosedSeller: StrategiCom

Rationale: Through the acquisition, IPG Mediabrands is able to deliver end-to-end mobile programmes, app development, enterprise integration and connected IoT technologies.

Acquirer: IPGDeal value: UndisclosedSeller: Mubaloo


Rationale: Deloitte Digital acquires Heat to create a new market category called creative digital consulting. The acquisition adds award-winning creative capabilities to complement Deloitte’s growing digital business.

Acquirer: Deloitte Digital Deal value: UndisclosedSeller: Heat

Rationale: This deal forms part of WPP’s strategy of investing to strengthen its capabilities in digital and data investment management.

Acquirer: WPPDeal value: UndisclosedSeller: Analytics Quotient

Rationale: The acquisition of Vertiba and its strong Salesforce expertise strengthens Publicis’ ability to help clients reinvent customer interactions, while driving the technology and operational change needed to support highly effective digital enterprise.

Acquirer: PublicisDeal value: UndisclosedSeller: Verbita

Rationale: The deal follows the buyer’s acquisition of Periscopix and DBG in the UK. Comet increases Merkle’s European scale and strengthens the agency’s offering in enhanced real-time decisioning capabilities and partner alliances.

Acquirer: MerkleDeal value: UndisclosedSeller: Comet Global

Rationale: The investment will help W2O Group in its aim to accelerate its growth through a mix of strategic acquisitions, talent, expanded global footprint and increased innovation around its capabilities.

Acquirer: Mountaingate CapitalDeal value: UndisclosedSeller: W2O Group

Rationale: The acquisition will drive the build out of Iris’ B2B marketing capabilities and creative technology offerings. The partnership will also give Iris an entry into the west coast of America through Founded’s San Francisco office.

Acquirer: Iris Worldwide Deal value: UndisclosedSeller: Founded

Rationale: The acquisition will enable Dentsu Aegis to expand its data strategy services and expand further into North America.

Acquirer: Dentsu AegisDeal value: UndisclosedSeller: Cardinal Path

Rationale: This acquisition, combined with their recent acquisition of US-based Solstice Mobile in 2015, significantly increases the Group’s mobile strategy and product development engineering capabilities.

Acquirer: St Ives GroupDeal value: $77.5m (4.6x LFY revenue)

Seller: The App Business

Rationale: The acquisition builds upon Capita’s existing expertise, allowing it to offer an extended range of digital solutions to customers. As part of Capita the seller will also be able to offer a broader range of services to its clients.

Acquirer: CapitaDeal value: Undisclosed

Seller: Orange Bus

Segment reviews

61

Rationale: The move will strengthen Accenture’s digital consulting capabilities in Germany and further develop its digital transformation offering for retail companies.

Acquirer: Accenture Deal value: UndisclosedSeller: dgroup

Rationale: The acquisition of the multi-channel content creator is the group’s largest acquisition to date and helps The Marketing Group establish global TV content expertise.

Acquirer: The Marketing Group Deal value: $48m Seller: Augustus

Rationale: Merkle’s data management and analytics capabilities will further reinforce Dentsu Aegis Network’s transition away from legacy media. The acquisition also creates leverage and operating scale in the US, continuing parent company Dentsu’s drive to reduce its dependence on revenue generated in its relatively sluggish Japanese home market.

Acquirer: Dentsu Aegis NetworkDeal value: $1.5bn (3.4x LFY revenue)

Seller: Merkle

Rationale: Salesforce built on their acquisition of ÄKTA to develop a creative agency hub in Chicago. These acquisitions continue to broaden the buyer’s technology consulting offering into an adjacent customer-focused advisory segment.

Acquirer: Salesforce Deal value: Undisclosed

Seller: Gravitytank

Rationale: The acquisition expands Perficient’s capabilities in the rapidly growing area of customer experience and increases its presence in Atlanta, Georgia.

Acquirer: Perficient Deal value: $10.1m (1.4x LFY revenue) Seller: Bluetube

Rationale: Media Agencies are increasingly competing against consulting firms in the digital advertising space. Accenture Interactive is building its digital media capabilities globally to better position itself in this competitive market, as highlighted by a number of recent acquisitions.

Acquirer: Accenture Deal value: UndisclosedSeller: Karmarama

Rationale: The investment will enable Ansira to move forward with its strategic plan of expanding into new markets and leveraging new capabilities to serve client needs in the context of a rapidly evolving digital landscape.

Acquirer: Advent International Deal value: UndisclosedSeller: Ansira

Rationale: Deloitte UK’s acquisition of leading capabilities within crisis and reputation management is expected to double Deloitte’s crisis and strategic risk business.

Acquirer: Deloitte Deal value: UndisclosedSeller: Regester Larkin

Rationale: The acquisition strengthens Cognizant’s digital transformation capabilities in the Netherlands and across other parts of Europe. The deal follows pressure on Cognizant to use its cash to strengthen its capabilities in the digital space.

Acquirer: Cognizant Deal value: UndisclosedSeller: Mirabeau

Acquirer: Mountaingate Capital Deal value: UndisclosedSeller: HS2

Rationale: HS2 was acquired to accelerate its long-term growth both organically and through selective acquisitions. The market opportunity for digital transfor-mation agencies like HS2 who are well-positioned at the intersection of technology, data, e-commerce and marketing is very compelling for PE firms.

Equiteq advised




M&A activity


2007 20122008 20132009 20142010 20152011 2016


478

dea

ls

6.9x

9.7x 0.9x

11.6x

5.3x0.6x

358

dea

ls


2007 20122008 20132009 20142010 20152011 2016

Inde

x: 7

6

0.7x

0.6x

10.3x

9.0x

Inde

x: 1

53



2016



2016 vs. 2015


2016 vs. 2015

3,883

$13.2m

28%

9%

11%

Segment reviews

At a glance

63


Engineering Consulting M&A activity fell against a backdrop of slow economic growth and continued low oil prices.

M&A activity is likely to correlate with the concentration of infrastructure growth spending and the continued recovery of oil prices. Based on current trading conditions, we expect continued consolidation to occur amongst the leading E&C players, as well as demand for smaller acquisitions that add niche capabilities and expanded geographic presence.

In North America acquisitions have the potential to increase with the new US administration’s pledge to increase infrastructure spending by $1 trillion.

Deal activity within oil & gas

M&A activity picked up in the final quarter, with oil prices ending the year with their biggest annual gain in seven years after OPEC and other key producers cut production. Although oil prices continue to remain below their five-year average, we are starting to see a more robust commodity pricing environment and some notable consolidation amongst players operating in the segment.

Schlumberger completed its acquisition of Cameron for $14.8bn deal in response to the failed merger between Halliburton and Baker Hughes. The oilfield services giant also expanded its consulting offering with its acquisition of ADIL, a UK-based oil and gas consulting company. Another notable deal in the Management Consulting space, with a significant focus on the mid-market oil & gas industry, was French consulting firm Sia Partner’s acquisition of UK-based Molten Group.

Buyers broaden capabilities and expand overseas

There was strong deal activity from large acquirers expanding into niche areas and new geographies.

Stantec completed its $1bn acquisition of water engineering giant MWH Global, as it continues to shift away from oil and gas. The deal was followed by WSP Global’s acquisition of Schlumberger’s industrial water consultancy arm and its acquisition of Mouchel, a leading player in the UK public transportation and infrastructure sectors.

Meanwhile, Atkins continued its drive to build its business outside of the UK, by acquiring the Projects, Products and Technology segment of EnergySolutions, strengthening its nuclear services capacity with highly specialized technologies. Another notable deal in Asia was Singapore-based urban development consultancy Surbana Jurong’s acquisition of Australian infrastructure consultancy SMEC Holdings.



Figure 45 Engineering Consulting M&A activity, annually (2007 to 2016)

Figure 46 Engineering Consulting M&A volumes, monthly (2007 to 2016)

Table 16 Summary of M&A Activity (2007 to 2016)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals 467 478 320 420 396 415 361 342 358 326

Mean deal value ($m) 96.5 68.3 62.7 68.2 173.0 74.5 124.9 210.9 61.1 110.0


Rev. multiple (x) 0.8 0.6 0.6 0.6 0.6 0.5 0.8 0.9 0.5 0.6


2007 20122008 20132009 20142010 20152011 20160

500

400

300

200

100

600

Num

ber

of d


2016 vs. 2015


9%

4%

Num

ber

of d

eals

60

50

40

30

20

10

0

Jan

07

Jul

Jan

08 Jul

Jan

09 Jul

Jan

10 Jul

Jan

11 Jul

Jan

12 Jul

Jan

13 Jul

Jan

14 Jul

Jan

15

Jan

16Jul

Jul

2007 - 2016


Segment reviews


65


Mega deals drove high average deal sizes, but there was strong activity for small to medium-sized businesses valued between $10m to $500m.

Average deal sizes increased by 80% to $110m in 2016, supported by large deals from buyers like Stantec, WSP and WS Atkins. Deals under $100m represented 76% of deal volume, but only c.10% by value. We typically observe that smaller transactions are consolidated through small mergers or team grabs, with little cash involved. M&A with a material cash component was strongest over $10m.


Pro

port

ion

of d

eals

don

e

Cum

ulat

ive

valu

e

35%

30%

25%

20%

15%

10%

5%10%

0%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%$0-$5m $20-$50m$5-$10m $50-$100m$10-$20m $100-$500m Over $500m


31.0%

8.6%

13.8% 13.8%

8.6%

5.2%

19.0%



Regional review

Europe and Asia-Pacific observed substantial growth in M&A volumes.

Engineering Consulting deal volumes in North America were strong in the first quarter of 2016, but fell dramatically in the period preceding the Presidential election and ended the year 24% down on 2015. In contrast, volumes rose in Europe and Asia-Pacific. The number of deals closed in the UK rose substantially over the year and there were also strong increases in M&A volumes in Singapore and Australasia.

Despite heightened geopolitical uncertainty across the globe, cross-border deal activity remained strong demonstrating the global nature of buyers of Engineering Consulting businesses. Cross-border M&A accounted for 28% of all deals, up from 27% in 2015.



North America

Deals:

142 (down 24%)

Deal size:

$20.2m

Rest of the World

Australasia

43% 37% 10%

4%6%

Deals:

11 (down 34%)

Deals:

20 (up 6%)

Europe

Deals:

122 (up 13%)

Deal size:

$12.8m

Asia-Pacific*

Deals:

31 (up 14%)

Deal size:

$6.5m

Deal size:

$4.3m Deal size:

$36.9m

Segment reviews

67


The Equiteq Engineering Consulting Share Price Index rallied to its ten-year high.

The Equiteq Engineering Consulting Share Price Index ended the year up 11%, in line with the performance of the S&P 500. Its performance was supported by the rising price of crude oil. There was notable increases in the share prices of Tetra Tech Inc (NasdaqGS:TTEK), Sweco AB (OM:SWEC B), Alten SA (ENXTPA:ATE) and Akka Technologies (ENXTPA:AKA). The index is now trading at a significant premium of almost 65% as compared with its ten-year average.

Figure 49 Equiteq Engineering Consulting Share Price Index

Table 17 Equiteq Engineering Consulting Share Price Index

Q1 Q2 Q3 Q4 Annual

Engineering Consulting (2%) 1% 6% 7% 11%

S&P 500 1% 2% 5% 3% 11%

115

110

105

100

95

90

85

80






Figure 50 Equiteq Engineering Consulting Share Price Index (2007 to 2016)

Table 18 Equiteq Engineering Consulting Share Price Index ten-year share price returns

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR(2007-16)

Engineering Consulting 15% (11%) 25% (8%) (5%) 24% 23% 19% 0% 11% 4%

S&P 500 4% (38%) 20% 11% (1%) 12% 26% 12% (1%) 11% 5%

120

140

160

180

100

80

60

40

20

0

S&P 500



Engineering index

Jan

07

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Segment reviews

69




Segment reviews


0.2x 6.0x

0x 5.6x

0.4x 6.4x

0.6x 6.8x

0.8x 7.2x

1.8x 9.2x

1.0x 7.6x

2.0x 9.6x

1.2x 8.0x

2.2x 10.0x

1.4x 8.4x

2.4x 10.4x

1.6x 8.8x

2.6x 10.8x





As publicly quoted valuation multiples and cash balances of listed companies tracked within the Equiteq Engineering Consulting Share Price Index rise, so does competition from this buyer group who are able to make earnings accretive acquisitions by paying a discount to their substantial earnings ratios. Transaction EBITDA multiples have been steady for the last four years against a backdrop of higher and rising listed company multiples, suggesting larger buyers have been successful in making earnings enhancing acquisitions.


LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0 1.2

1.0

0.8

10.0

0.6

8.0

0.4

6.0

0.2

4.0

2.0



LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0 1.2

1.0

0.8

12.0

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.0

Mar

07

Mar

12

Aug

07

Aug

12

Jan

08

Jan

13

Jun

08

Jun

13

Nov

08

Nov

13

Apr

09

Apr

14

Sep

09

Sep

14

Feb

10

Feb

15

Jul 1

0

Jul 1

5

Dec

10

Dec

15

May

11

May

16

Oct

11

Oct

16

Segment reviews

71


Deal activity was concentrated on serial buyers such as ÅF, NV5 and Stantec.


NV5

NV5 made at least 5 acquisitions in the year, developing their existing MEP services and adding niche capabilities in areas like environmental health and safety. Two notable deals were the acquisitions of MEP engineering businesses JBA Consulting Engineers and Sebesta, both generating around $35m in annual revenue each.

Terracon

In 2016, Terracon made at least 5 acquisitions, expanding its capabilities in niche areas like exterior building solutions, air quality consulting and geotechnical testing, while building its presence in specific US regions such as the Pacific Northwest and Texas.

Stantec

In addition to completing its purchase of MWH, its largest acquisition to date, Stantec also acquired at least 4 other businesses across the architecture, design, engineering and construction space in the US and Canada. Following the acquisition of MWH, the buyer expanded its international footprint outside of North America from around 3% to 20%. Recent commentary from CEO Bob Gomes suggests that the buyer is expected to continue to diversify geographically by looking for opportunities in the UK and Australia.

SPIE

In 2016 SPIE acquired 4 MEP consultants, as part of the 7 total acquisitions it made in 2016. Its acquisitions for the year comprised of more than €210m of revenue, ahead of the buyer’s stated target of €200m for the full year. SPIE has become a major acquirer in the European multi-technical services sector and this year completed its 100th bolt-on acquisition in ten years.

ÅF

ÅF made a total of 15 acquisitions in 2016, with combined sales totalling SEK 1.5bn. The acquisitions were primarily focused on Norway, Denmark and Switzerland and on expanding new services lines such as architecture. A notable deal in the year was its acquisition of Edy Toscano, a leading engineering consulting firm within infrastructure, which resulted in ÅF becoming one of the three largest engineering consulting firms in Switzerland with more than 600 employees.

In 2016,

37% of all deals were by serial buyers (up from 34% in 2015)

In 2016,

6.5% of buyers were financial buyers

(down from 8.9% in 2015)




Rationale: The acquisition is aligned with the oil & gas industry-focused engineering consultancy’s strategy to drive growth and build on its successful track record.

Acquirer: Tattva International Deal value: UndisclosedSeller: Project Development International

Rationale: This move marks a significant step for Atkins into the African engineering consultancy and project management services market, which presents strong opportunities for future growth.

Acquirer: Atkins Deal value: UndisclosedSeller: Howard Humphreys (East Africa)

Rationale: The acquisition enhances Atkins’ market presence in North America, and will strengthen its positioning for future nuclear decommissioning opportunities across the globe.

Acquirer: Atkins Deal value: $318mSeller: EnergySolutions (PP&T business)


Rationale: The deal provides the buyer with expertise in structural engineering and also gives it creative skills in areas like hurricane analysis.

Acquirer: Pennoni Deal value: UndisclosedSeller: McCarthy & Associates

Rationale: DBK becomes the first project and cost management consultancy to join RPS in the UK and offers a substantial pipeline of opportunity with the buyer.

Acquirer: RPS Group Deal value: $19mSeller: DBK Partners

Rationale: The acquisition will provide the buyer with an immediate footprint in Vancouver and emerging engineering opportunities more broadly in Canada and North America.

Acquirer: Norman Disney & Young Deal value: UndisclosedSeller: Sterling Cooper

Rationale: This will be Anthesis’ first acquisition in the US and forms part of its drive to become the leading global sustainability services and solutions provider.

Acquirer: Anthesis Deal value: UndisclosedSeller: Mosaic

Rationale: ADIL is expected to take advantage of Schlumberger’s global reach to expand its services including an innovative oil and gas industry collaboration project.

Acquirer: Schlumberger Deal value: UndisclosedSeller: ADIL

Rationale: Stantec becomes a leading player in water resources infrastructure and achieves greater presence in key targeted geographies, including the United Kingdom, Australia, New Zealand, South and Central America, Europe and the Middle East.

Acquirer: Stantec Deal value: $795m (0.4x LFY Revenue)

Seller: MWH

Rationale: SMEC is focused on major infrastructure projects in the urban transport, energy and water sectors, while Surbana’s strength is in urban planning, township and industrial development. The deal means Surbana will become the largest development consultancy in the Asia-Pacific.

Acquirer: Surbana Jurong Deal value: $339m (0.9x LFY Revenue)

Seller: SMEC

Segment reviews

73

Rationale: Elevates the buyer’s capabilities in the attractive water consulting sector and gives the buyer a presence in Chile and Peru.

Acquirer: WSP Global Deal value: UndisclosedSeller: Schlumberger (Industrial Water Consulting)

Rationale: The combination creates a leading construction advisory business. The buyer expects to generate cost savings from delisting Sweett and rationalizing property, back office and shared services.

Acquirer: Currie & Brown Deal value: $37m (0.4x LFY Revenue) Seller: Sweett Group

Rationale: The acquisition of BBB and Cube will enable the buyer to become a one-stop-shop provider of a full-service offering within the value chain of wind energy projects.

Acquirer: Ramboll Deal value: UndisclosedSeller: BBB and Cube

Rationale: The acquisition expands and strengthen NV5’s existing energy and environmental platform with new clients and a broader set of services to its existing clients.

Acquirer: NV5 Global Deal value: UndisclosedSeller: JBA Consulting

Rationale: The acquisition provides expertise in cost estimating and property condition assessments to broaden JLL’s Project and Development Services offering.

Acquirer: JLL Deal value: UndisclosedSeller: Merritt & Harris

Rationale: The deal gives the buyer a leading position in the UK public transportation and infrastructure sectors, particularly in highways and intelligent transportation systems.

Acquirer: WSP Global Deal value: $92.9m (0.5x LFY Revenue) Seller: Mouchel Consulting

Acquirer: Savills Deal value: UndisclosedSeller: GBR Phoenix Beard

Rationale: The companies combine to strengthen their positions in Birmingham and the wider Midlands market. GBR’s high quality staff, strong client base and stream of recurring revenue attracted Savills to the acquisition opportunity.

Equiteq advised

Acquirer: Turner & Townsend Deal value: UndisclosedSeller: Suiko

Rationale: The acquisition of this pioneer in lean approaches positions Turner & Townsend as the first independent construction consultancy to offer lean expertise at all stages of project delivery and into operations.

Equiteq advised

Rationale: The deal is part of the buyer’s strategy of profitable growth and geographic expansion in regions such as the Mid-Atlantic. GC&T was especially recognized for its laboratory testing capabilities and cost-effective performance of tests on soil, concrete, and reinforcing steel.

Acquirer: Terracon Deal value: UndisclosedSeller: Geotechnical Consulting & Testing



Human Resources

M&A activity


2007 20122008 20132009 20142010 20152011 2016


243

deal

s

9.8x

11.1x

0.3x 0.5x0.5x

236

deal

s


2007 20122008 20132009 20142010 20152011 2016

Inde

x: 4

6

0.5x

0.3x

10.9x

9.7x8.6x

Inde

x: 1

18



2016



2016 vs. 2015

Annual decrease in share-price index,

2016 vs. 2015

2,108

$7.1m

27%

3%

4%

Segment reviews

At a glance

75


Human Resources M&A fell in 2016, but remained above its five-year average.

Looking ahead, growth in M&A in the segment will be dependent upon job growth and the impact to professional migration within the EU from the UK’s Brexit deal. Nevertheless, we expect that technological advancements and continued convergence of adjacent industries will drive demand for niche capabilities in the segment.


Deal flow in the segment appears to be supported by rising employment levels and the convergence of various specialisms within Human Resources and sectors adjacent to the industry.

The merger of Towers Watson and Willis Group, which completed at the beginning of 2016, was aimed at better positioning the business to compete with insurance and professional services giants, Aon and Marsh & McLennan, both of which were also created through large mergers. Staffing giant, Randstad acquired Ausy, a French consulting and engineering firm with strong capabilities in advanced technologies. Another notable deal was Manpower Group’s acquisition of Ciber’s Norwegian and Dutch businesses, as part of the struggling IT solution and staffing provider’s streamlining efforts. Building on its acquisition of Co Company last year, Heidrick & Struggles also acquired two businesses in the leadership and Management Consulting sector.

HR SaaS and analytics

There was notable M&A activity amongst large buyers within HR SaaS and analytics.

Building on its 2014 acquisition of Jeitosa, Mercer acquired Workday-specialist CPSG. The deal was followed by Accenture’s acquisition of DayNine, making Accenture the largest certified workforce in the Workday ecosystem. Mercer also acquired Sirota Consulting, a provider of employee engagement solutions through surveys which utilize sophisticated analytics tools. This deal followed Aon’s acquisition of Modern Survey and Deloitte’s acquisition of predictive HR analytics business, iNostix.

Employee benefits and actuarial consulting

There was also strong demand for employee benefits and actuarial consulting businesses.

As part of its growth strategy, CBIZ made a number of acquisitions in the space, including Philadelphia-based employee retirement, health and welfare benefits consultant Savitz. Fidelity National, Arthur J. Gallagher, Marsh & McLennan and Lockton also made acquisitions within the space through their employee benefits arms.

Staffing M&A and private equity activity

There was notable activity from both strategic and private equity buyers within the staffing segment during the year.

Adecco’s acquisition of UK-based Penna, strengthens its position as the world’s largest recruitment firm. In North America, Thomas H. Lee Partners acquired System One, one of the largest professional staffing firms in the US. The deal was followed by notable private equity (PE) M&A activity in various segments of Human Resources from leading investment firms like Blackstone Group, Atairos Group and CDPQ.



Figure 54 Human Resources M&A activity, annually (2007 to 2016)

Figure 55 Human Resources M&A Index, annually (2007 to 2016)

Table 19 Summary of M&A Activity (2007 to 2016)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals 264 243 141 157 185 229 198 227 236 228

Mean deal value ($m) 18.6 32.8 13.4 52.5 22.2 65.9 48.6 40.8 51.0 440.1


Rev. multiple (x) 0.7 0.5 0.3 0.8 0.3 0.4 0.5 0.4 0.4 0.5


2007 20122008 20132009 20142010 20152011 20160

150

100

50

200

250

300

350

Num

ber

of d


2016 vs. 2015


4%

3%

Num

ber

of d

eals

40

25

30

35

20

15

10

5

0

Jan

07

Jul

Jan

08 Jul

Jan

09 Jul

Jan

10 Jul

Jan

11 Jul

Jan

12 Jul

Jan

13 Jul

Jan

14 Jul

Jan

15

Jan

16Jul

Jul

2007 - 2016


Segment reviews


77


The mega merger between Towers Watson and Willis Group aside, M&A activity was dominated by smaller deals.

Around 95% of deals with disclosed values were below $500m, yet represented less than 10% of deal value. We typically observe that many smaller deals are consolidated through small mergers or team grabs, with little cash involved. The sweet-spot for privately owned Human Resources M&A, with a material cash component, is between $10m and $500m.


Pro

port

ion

of d

eals

don

e

Cum

ulat

ive

valu

e

45%

40%

35%

30%

25%

20%

15%

10%

5% 10%

0%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%$0-$5m $20-$50m$5-$10m $50-$100m$10-$20m $100-$500m Over $500m


42.9%

14.3%

9.5%

4.8%

14.3%

4.8%

9.5%



Regional review

M&A continues to be focused on North America, however deal activity increased substantially in Asia-Pacific and Europe.

Human Resources deal volumes fell in North America following declines in the period preceding the Presidential election. Despite the chatter about risk of a Brexit ‘talent block’ on professional migration, M&A activity in the UK and Europe was particularly strong. Deal activity was also robust in Asia-Pacific, with notable increases in the number of completed deals in Singapore.

Cross-border deal activity remained high demonstrating the global nature of buyers in this industry. In 2016 cross-border deal activity accounted for 27% of all deals, up from 22% in 2015.



North America

Deals:

111 (down 24%)

Deal size:

$15.5m

Rest of the World

Australasia

48% 39% 6%

3%4%

Deals:

7 (up 48%)

Deals:

9 (down 29%)

Europe

Deals:

88 (up 6%)

Deal size:

$6.6m

Asia-Pacific*

Deals:

13 (up 28%)

Deal size:

$13.5m

Deal size:

$3.9m Deal size:

$17.4m

Segment reviews

79


The Equiteq HR Share Price Index fell, although performance amongst the constituent listed players was mixed.

In contrast to rises in broader equity market indices, The Equiteq HR Share Price Index ended the year down 4%, following large declines in the first half of the year. The index declined sharply with the UK’s vote to Brexit, but recovered thereafter. In spite of its weak overall performance, there was notable increases in the share prices of Kelly Services (NasdaqGS:KELYA), Aon (NYSE:AON), Insperity (NYSE:NSP) and Groupe CRIT (ENXTPA:CEN).

The Equiteq HR Share Price Index is at a 6% premium to its ten-year average.

Figure 58 Equiteq Human Resources Share Price Index

Table 20 Equiteq Human Resources Share Price Index

Q1 Q2 Q3 Q4 Annual

Human Resources (4%) (10%) (2%) 11% (4%)

S&P 500 1% 2% 5% 3% 11%

110

105

100

95

90

85

80






Figure 59 Equiteq Human Resources Share Price Index (2007 to 2016)

Table 21 Equiteq Human Resources Share Price Index ten-year share price returns

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 CAGR(2007-16)

Human Resources 2% (53%) 42% 22% (13%) 7% 38% 1% 13% (6%) 1%

S&P 500 4% (38%) 20% 11% (1%) 12% 26% 12% (1%) 11% 5%

120

140

160

180

100

80

60

40

20

0

S&P 500



HR consulting index

Jan

07

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

08

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Segment reviews

81




Segment reviews


0.2x 8.3x

0x 8.0x

0.4x 8.6x

0.6x 8.9x

0.8x 9.2x

1.8x 10.7x

1.0x 9.5x

2.0x 11.0x

1.2x 9.8x

2.2x 11.3x

1.4x 10.1x

2.4x 11.6x

1.6x 10.4x

2.6x 11.9x





In recent years, valuation multiples on transactions have been volatile, although valuation multiples on listed comparables have risen steadily. As publicly quoted valuation multiples and cash balances of listed companies rise, so does competition from this buyer group who are able to make earnings accretive acquisitions by paying a discount to their substantial earnings ratios.



LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0

16.0

0.6

0.8

1.0

0.5

0.7

0.9

0.4

12.0

0.3

10.0

0.2

8.0

0.1

6.0

4.0

2.0

0.0 0.0

Mar

07

Mar

12

Aug

07

Aug

12

Jan

08

Jan

13

Jun

08

Jun

13

Nov

08

Nov

13

Apr

09

Apr

14

Sep

09

Sep

14

Feb

10

Feb

15

Jul 1

0

Jul 1

5

Dec

10

Dec

15

May

11

May

16

Oct

11

Oct

16

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0

14.0

0.7

0.6

0.8

0.5

0.4

10.0

0.3

8.0

0.2

6.0

0.1

4.0

2.0


Segment reviews

83


There was notable M&A activity from prolific strategic buyers across insurance, risk management and staffing.


Arthur J. Gallagher

The growth of Arthur J. Gallagher continues to be fueled by an aggressive M&A strategy. It made almost 30 acquisitions in the year across various insurance product and risk management service lines globally. Within Human Resources this included acquisitions of businesses across the US with a combination of actuarial and benefits consulting capabilities. After an acquisitive year, the buyer reportedly intends to pursue smaller tuck-in M&A in 2017.

Randstad

Randstad was the most acquisitive buyer this year, acquiring 5 companies across its service lines and geographies. A notable deal was its $429m acquisition of job hunting portal Monster Worldwide, which followed its $100 million acquisition of US start-up RiseSmart in 2015. Following the acquisition of Monster, Randstad said it would reduce the pace of M&A, limiting acquisition spend in the medium term to around €100m, while focusing on integrating recent acquisitions.

OneDigital

Fidelity National made 4 acquisitions in the employee benefits space through its employee benefits-only agency, OneDigital. The acquisitions consisted of small regional firms, expanding the buyer’s national footprint across the US.

Outsourcing Inc.

Japanese listed recruitment company, Outsourcing Inc, continued its strategy of global expansion via acquisition. It acquired 4 businesses in 2016, including UK public sector BPO specialist Liberata for £43m, as well as staffing firms in the UK, Germany and Australia.

Vaco

US-based Vaco acquired 4 businesses in the year and was named in the 2016 Inc. 5000, marking its 10th consecutive appearance, following three-year sales growth of 65%. 2 of its acquisitions were acquired through Vaco Healthcare, the buyer’s healthcare IT division.

In 2016,

34% of all deals were by serial buyers (up from 32% in 2015)

In 2016,

5.2% of buyers were financial buyers

(down from 5.5% in 2015)




Acquirer: Heidrick & StrugglesDeal value: UndisclosedSeller: Decision Strategies International

Rationale: The combination will create compelling new business opportunities and provide each company’s clients with access to a broader suite of complementary service offerings.

Equiteq advised

Rationale: The deal reportedly will add c.30% to Randstad’s Continental European professionals business, which currently only provides recruitment services.

Acquirer: Randstad Deal value: $417.1m (1.0x LFY revenue)

Seller: Ausy


Rationale: The acquisition increases GP Strategies’ 2015 to 2016 maximum UK government funded contract values to $28m per annum and strengthens the buyer’s position as a major provider of skills training in England.

Acquirer: GP Strategies Deal value: UndisclosedSeller: Jencal Training

Rationale: The transaction expands CBIZ’s benefits outsourcing expertise within the municipal and Taft-Hartley markets and complements the firm’s recent actuarial acquisitions.

Acquirer: CBIZ Deal value: UndisclosedSeller: Savitz

Rationale: The buyer highlighted Orb’s strong culture, similar business model and commitment to high professional standards as drivers behind the acquisition.

Acquirer: Arthur J. Gallagher & Co.

Deal value: UndisclosedSeller: Orb Employee Benefits

Rationale: The businesses have an established relationship of working together. Penna expands the breadth and depth of the buyer’s services and also offers significant expansion for Adecco in the UK.

Acquirer: Adecco Group Deal value: $149.5m (1.2x LFY revenue)

Seller: Penna

Rationale: This acquisition expands Mercer’s existing Workday practice, while providing a broader service offering and a global distribution channel for CPSG.

Acquirer: Mercer Deal value: UndisclosedSeller: CPSG

Rationale: The combination of strong brands, people, geographic reach, and a vastly expanded set of capabilities across professional services and insurance, will better position the business to service its clients.

Acquirer: Willis Group HoldingsDeal value: $8.5bn (2.3x TTM revenue)

Seller: Towers Watson Rationale: The deal will create a unique offering by combining strong research capabilities, advanced analytics technology, broad human capital solutions and global scale.

Acquirer: Aon Deal value: UndisclosedSeller: Modern Survey

Rationale: The deal will help Mercer to better serve increasing client challenges posed by an ageing workforce.

Acquirer: Mercer Deal value: UndisclosedSeller: The Positive Ageing Co.

Rationale: iNostix expands Deloitte’s capabilities in predictive HR analytics to better position it to help clients navigate broader organizational and people-related challenges.

Acquirer: Deloitte Deal value: UndisclosedSeller: iNostix

Segment reviews

85

Rationale: The buyer recognized Argentis as having strong expertise and partnerships, and offering a high-quality service within the financial planning and employee benefits consulting space.

Acquirer: Arthur J. Gallagher & Co.

Deal value: UndisclosedSeller: Argentis Financial Management

Rationale: The private equity buyer recognizes the potential of third-party insurance and employee benefits claims administration. Sedgwick was recognized as having performed well in this segment and its management as having a strong track record.

Acquirer: CDPQ Deal value: $500mSeller: Sedgwick

Rationale: The Atairos investment is viewed as underscoring the success and future growth potential of TriNet as a full-service human resources solutions for small and midsize businesses.

Acquirer: Atairos Group Deal value: $440mSeller: TriNet Group

Rationale: The deal follows the acquisition of Ciber’s Dutch business to complement the growth of ManpowerGroup’s professional resourcing and project-based workforce solutions business, Experis, and will meet growing demand within the IT space.

Acquirer: ManpowerGroup Deal value: $7mSeller: Ciber Norway

Rationale: The private equity investor was attracted by System One’s excellent track record of growth, becoming one of the largest professional staffing firms in the U.S., as well as its attractive end markets and strong customer relationships.

Acquirer: Thomas H. Lee Partners Deal value: $410.0m (0.8x LFY revenue)

Seller: System One

Rationale: The deal is expected to help the US hospital staffing company better cope with pricing pressure and the desire to offer a broader array of services to hospitals following the Affordable Care Act.

Acquirer: Blackstone Deal value: $5.1bn (1.2x TTM revenue)

Seller: Team Health

Rationale: The buyer enhanced its brand in the UK by acquiring one of the country’s leading Board and CEO recruiting boutiques.

Acquirer: Heidrick & Struggles Deal value: UndisclosedSeller: JCA Group

Rationale: The deal extends GP Strategies’ ability to deliver ERP systems training to its healthcare customer base, while enabling it to expand into the higher education segment.

Acquirer: GP Strategies Deal value: UndisclosedSeller: Maverick Solutions


Marc Jantzen, Performance Improvement.

Sold.


Key definitions Equiteq segments the consulting sector into five key segments, which span a broad array of knowledge-intensive services. These sub-sectors are defined further below:

Appendix

Management ConsultingFirms engaged in strategic or operationally focused business advisory services.

IT ServicesFirms focused on IT architecture or strategy, IT implementation and maintenance.

Media AgenciesFirms in this space cover all the main disciplines relating to advertising and marketing process.

EngineeringFirms involved in professional services relating to engineering and construction.

Human ResourcesFirms engaged in human capital management or related technology consulting, leadership consulting, training and recruitment.

Appendix

89

A quick word on the dataTransaction data, share price data, company information and valuation multiples are taken from various sources, including the S&P Capital IQ and PitchBook databases, which have not been verified by us. The valuation multiples reflect a measure of aggregated deal values and historic financial performances where these were disclosed by the buyer and sellers. Many factors influence value which are not disclosed such as current year earnings, growth potential, synergies, non-recurring items and so on. Therefore the findings in this report should not be used by any party to value a business, for which we recommend you obtain independent financial advice.

Appendix

For the purposes of this report we have broken down buyers into three groups, defined further below:

Private equity or financial buyers are investment firms investing private capital into businesses, which are typically held and exited after a hold-period.

Strategic or corporate buyers are non-private equity investors who have existing businesses which will typically make acquisitions which form part of their existing operations.

Serial buyers are those buyers that have made multiple acquisitions over the last three years.

Private equity (PE) buyers differ from trade buyers in that the former acquire strictly to realize a cash return on their invested equity, usually after 3 to 5 years. Strategic buyers typically acquire to realize long-term strategic value. As a result, PE buyers will look for specific traits in a consulting acquisition and selling to a PE buyer will have different implications as compared with selling to a trade buyer.



About Equiteq

Equiteq is the global leader in providing strategic advisory and Mergers & Acquisition services to consulting and IT Services firms.

We focus 100% on helping owners fulfil their exit goals. We do this by achieving successful sales that deliver maximum value for firm owners and by providing strategic advice on what will best yield value growth and shareholder returns against their objectives.

With offices in New York, London, Singapore and Sydney, we offer our clients true global reach.

Further resourcesJoin Equiteq Edge, our free source of information, advice and insight to help you prepare for sale and sell your consulting firm. Equiteq Edge gives you access to the findings of unique research conducted amongst buyers of consulting firms from around the world, insight from those who have sold their consulting firms and expert advice.

Join Equiteq Edge at equiteq.com/equiteq-edge

Appendix

Request a Strategy SessionBenefit from our insights on your value, market position and attractiveness to buyers, together with recommended actions which, if implemented, will transform value prior to an exit.

We specialize in working with owners of consulting, IT Services, agency and intellectual property enabled BPO businesses throughout their growth to exit journey. We are deeply invested in our knowledge of the buyer market and what counts in terms of acquisition attractiveness, value and transaction readiness. An Equiteq strategic review is more than a current analysis, it is the beginning of a journey together to maximize your firm’s potential value where we will provide the roadmap that best suits achieving your stated objectives.

Operational as well as financial, a review will typically cover:

• Operational assessment of the factors enhancing your value and dragging it down, together with how your firm compares to best practice.

• The buyer groups who will be attracted to your firm, how they approach transactions and current value.

• Recommended change program to enhance value and saleability of your firm and the potential future value if change is implemented.

• Your options, routes to exit and how shareholder alignment can be achieved.

If you would like to learn more, please get in touch for a confidential discussion by phone or email us at [email protected].

© Equiteq Advisors Ltd. 2017 91

Disclaimer Equiteq is an M&A and strategic advisory firm that exists to provide you, the owners of consulting and IT Services firms, with the best possible information, advice and experience to help you make decisions about selling your firm and preparing it for sale.

What follows is a legal disclaimer to ensure that you are aware that if you act on this advice, Equiteq cannot be held liable for the results of your decisions.

We have obtained the information provided in this report from sources which we believe to be reliable, and we have made reasonable efforts to ensure that it is accurate. However, the information is not intended to provide tax, legal or investment advice. We make no representations or warranties in regard to the contents of or materials provided in this report, and exclude all representations, conditions and warranties, express or implied arising by operation of law or otherwise, to the extent that these may not be excluded by law.

We shall not be liable in contract, tort (including negligence) or otherwise for indirect, special, incidental, punitive or consequential losses or damages, or loss of profits, revenue, goodwill or anticipated savings, or for any financial loss whatsoever, regardless of whether any such loss or damage would arise in the ordinary course of events or otherwise, or is reasonably foreseeable or is otherwise in the contemplation of the parties in connection with this report. No liability is excluded to the extent such liability may not be excluded or limited by law. Nothing in this statement shall limit or exclude our liability for death or personal injury caused by our negligence.

Appendix

Contact usIf you would like more information on our Global Consulting

M&A Report 2017, our company or the various services we offer please don’t hesitate to get in touch.

Email: [email protected]

Website: equiteq.com

Equiteq has global reach through its offices in New York, London, Singapore and Sydney.

equiteqedge.com

@consultingmanda

© 2017 Equiteq Advisors Ltd. April 2017

Documents

The Global Consulting M&A Report 2017 - equiteq.com · Robust private equity activity High profile exits and acquisitions by some of the largest global private equity (PE) investors