2017 Market Update. The Global Consulting M&A Report

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1 Q Market Update The Global M&A Report

2 Equiteq s quarterly market updates provide an indicative guide to current M&A market conditions in the consulting industry. However, it should be noted that we typically observe large variations between quarterly M&A volumes, which are not always reflective of longer term trends. Mixed M&A activity after a strong first quarter M&A activity was mixed in the second quarter after a strong start to the year. Overall global deal activity in the consulting sector fell by 12% quarter-on-quarter. Deal volumes fell by just 2% on the same quarter last year. We expect robust deal flow in the second half of the year to be underpinned by strong balance sheets of prolific strategic and financial buyers, continued access to cheap debt, and the growth of highly acquisitive listed consulting buyers. Robust European deal activity, particularly in the UK Europe was one of the strongest performing regions, with deal volumes growing by 5% year-on-year. This robust activity appears to be driven by strong cross-border M&A from North American buyers, who are benefiting from favorable exchange rates. Although political and economic uncertainties remain from the UK s Brexit negotiations, M&A activity in the UK grew more than other developed European markets. Strong deal flow in IT, HR and Media, and highprofile deals across all sectors Deal activity remains robust in IT Services, as well as the Media sector. In the Human Resources segment, year-onyear growth in M&A volumes rose markedly. Although deal flow in the Management consulting and Engineering sectors has declined this year, there was a number of notable deals in these segments. Share prices continue to reach new highs The Equiteq Share Price Index rallied in the second quarter, achieving similar returns to the S&P 500, outperforming the FTSE 100, and reaching a new all-time high. The Engineering, Human Resources and IT Services sub-indices were the strongest performers. At a Glance (Q2 2017) Number of Deals: 611 (2)% Decrease YoY in # of deals vs. Q North America Europe APAC & Australia Median Deal Size: $8.8m (12)% Decrease QoQ in # of deals vs. Q Segment Review (Q2 2017) Management IT Services 271 Deals (Median deal size: $11.7m) 255 Deals (Median deal size: $5.3m) 65 Deals (Median deal size: $14.7m) Change YoY Change QoQ (14)% (23)% 12% 5% As we go to press, DXC Technology have announced a major acquisition in the Microsoft Dynamics space. Bloomberg also reported a potential sale of The Advisory Board s health division to UnitedHealth and education division to Vista Equity Partners. The current market conditions continue to remain favorable for sellers of sale ready consulting businesses. If you would like to discuss your strategic options in more detail, please get in touch. Best regards, David Jorgenson, CEO, Equiteq Media Engineering Human Resources 2% (4)% (39)% (39)% 45% (14)% 2

3 M&A deal overview Although global M&A activity declined in the second quarter, deal activity grew year-on-year in the Human Resources, IT Services, and Media space. Accenture was the most acquisitive IT Services buyer, acquiring 11 businesses, with notable deals in spaces like intelligent automation, Salesforce consulting, and agile transformation. These deals came as Accenture announced a $1.8b acquisition plan for the current financial year, which is believed to far surpass the recent spending of many of its biggest competitors combined. Other notable deals in the space included HTC Global s winning bid for Ciber s North American and Indian assets, and Clayton, Dubilier & Rice s acquisition of a majority stake in Capco. M&A Transaction Statistics by Segment Deal Volume Growth vs. Q % 45% 30% 12% 10% 2% (5)% Human Resources Media IT Services Number of deals of Q (14)% Management (20)% (39)% (40)% Engineering The Media space remains robust with strong M&A activity from prolific acquirers like Dentsu and WPP in niche digital media spaces. SNC-Lavalin acquired WS Atkins, which in combination with John Wood Group s acquisition of Amec Foster Wheeler in the first quarter, represents two material consolidations in the UK Engineering consulting market. This is in contrast to declining deal flow in the industry globally. Management consulting M&A declined although the segment still remains one of the largest for deal flow. A notable deal in Q2 was the sale of Aecus to The Hackett Group. New Mountain Capital s acquisition of OneDigital Health and Benefits is one of the largest deals in the Human Resources space this year, following Blackstone s acquisition of Aon Hewitt s technology-enabled benefits and cloud-based Human Resources platform earlier this year. The second quarter also ended with another major private equity investment, as Tata Motors and Tata Capital agreed to sell a stake in Tata Technologies to Warburg Pincus for $360m. Tata Technologies provides outsourced design, engineering, and research services to manufacturing companies. 3

4 Selected M&A transactions Acquirer: The Hackett Group Seller: Aecus Equiteq advised Rationale: The buyer expects to significantly enhance its offering with award-winning capabilities that help businesses optimize business process outsourcing, IT outsourcing, and robotic process automation through benchmarking and implementation consulting. Acquirer: Accenture Seller: Genfour Rationale: The seller has a strong track record of creating flexible, scalable automation solutions. These capabilities will be used by the buyer in transformation engagements using intelligent automation focused on clients business processes. Acquirer: New Mountain Capital Deal Value: $560m Seller: OneDigital Health & Benefits Rationale: OneDigital is considered to be a unique platform within the insurance distribution space, with a strong culture and talent base, as well as innovative technology. Acquirer: WPP Seller: Marketplace Ignition Rationale: The seller is considered to be a leading consultancy focused on Amazon, which is considered to be a huge growth area for the buyer. Acquirer: SNC-Lavalin Implied Enterprise Value: $4.3b (1.7x LFY revenue) Seller: WS Atkins Rationale: The acquisition boosts the Canadian engineering and construction firm s European revenue as it emerges from a self-imposed freeze on acquisitions in The deal is expected to expand SNC s projects outside the energy industry, while oil prices continue to remain significantly below their 2014 levels. Acquirer: Teneo Seller: Ryan Communications Rationale: The acquisition enables the buyer to expand into China with one of Asia s leading strategic communications advisors working with an impressive list of global clients. Acquirer: eplus Seller: OneCloud Rationale: The seller s skills and expertise strengthens the buyer s hybrid IT capabilities, particularly in DevOps, OpenStack, and other emerging cloud technologies. April May Note: Acquisitions highlighted are those announced in the quarter. Transaction details and deal values rely on information from various third party sources and, in some instances, rumoured estimates. LFY = Last Full Year. 4

5 Selected M&A transactions (cont d) Equiteq advised Acquirer: CBIZ Seller: CMF Associates Acquirer: Clayton, Dubilier, & Rice Rationale: The transaction is considered a strategic step in establishing CBIZ as an industry leader of professional services to middle-market focused private equity clients. Deal Value: $477m Seller: Capco Rationale: The investment is expected to enhance the seller s ability to grow and enter new service offerings, while strengthening its position as a leading financial services-focused consulting firm. Acquirer: Accenture Seller: Phase One Rationale: The acquisition is Accenture s seventh in the Salesforce space and expands its capabilities, technology, and skills to help federal clients with their digital transformation initiatives. Acquirer: Dentsu Aegis Network Seller: The Customer Framework Rationale: Dentsu will acquire the seller s proprietary SCHEMA methodology, used for managing the dialogue process with consumers, and enabling the buyer to better support management teams in planning their digital transformation initiatives. Acquirer: Verisk Analytics Seller: MAKE Rationale: The deal strengthens Verisk Analytics Wood Mackenzie team, with wind market intelligence capabilities, as offshore wind expands and steady growth is experienced in onshore wind. Acquirer: PSI Services Seller: Assessment & Development Consultants Equiteq advised Rationale: The seller s assessment and development products will enhance the buyer s industry leading portfolio even further, placing disruptive and experiential assessment tools at the fingertips of HR professionals worldwide. Acquirer: HTC Global Deal Value: $93m (c.0.3x Revenue*) Seller: Ciber (North American and Indian assets) Rationale: Ciber s recent declines led to it filing for bankruptcy protections in April. HTC won the auction, exceeding the $50m floor price set by Capgemini. The acquisition strengthens HTC s global footprint and capabilities related to cuttingedge technologies. Acquirer: WSP Seller: YR&G Rationale: The deal enables the buyer to expand and deepen its expertise in design of high performance buildings and strategic consulting. May (cont d) * Based on revenue estimates from court documents. June 5

6 Stock market review 115 The Equiteq Share Price Index has had a strong start to the year. Equiteq Segment Share Price Indices Jun 14: The Fed raises its benchmark interest rate by a quarter-point Share price index, 1 st April = May 7: Estimations of the result of the French Presidential Election second round announced Jun 8: UK general election ends in hung parliament 7.4% 5.5% 5.1% 2.8% 2.5% 80 1-Apr Apr-17 1-May May May Jun Jun-17 (8.3)% Equiteq Stock Market Indices Management Management Media Agencies Human Resources IT Services Engineering Equiteq Index EV / LFY Revenue (x) EV / LFY EBITDA (x) P/E (x) Apr 1 st Jun 30 th Apr 1 st Jun 30 th Apr 1 st Jun 30 th 1.1x 1.1x 9.5x 10.4x 21.0x 20.9x IT Services 1.1x 1.1x 10.6x 11.0x 19.3x 18.8x Media 0.9x 0.9x 9.6x 9.7x 18.0x 18.2x Engineering consulting 0.9x 0.9x 10.6x 10.0x 28.3x 24.5x Human Resources 0.6x 0.5x 9.8x 9.8x 18.5x 19.9x The Equiteq Engineering Share Price Index was the best performing segment. Its rally was supported by notable increases in the share price of WS Atkins (LON: ATK), which rose substantially after SNC- Lavalin announced their takeover of the business. There was also strong performance in the Human Resources segment, which has experienced considerable rises since the U.S. Presidential election result. There were strong gains in the share price of Outsourcing Inc (TSE:2427), one of the leading acquirers in the space last year. Aon (NYSE: AON) also experienced strong share price increases since completing its restructuring in May. The IT Services segment continues to perform robustly. We have seen notable rises in the share price of Cognizant Technology Solutions (NasdaqGS:CTSH), Genpact (NYSE:G), NTT Data (TSE:9613), and Information Services Group (NasdaqGM:III). There has been mixed performance amongst listed players that comprise Equiteq s Media Share Price Index. There were notable falls in the share prices of some of the leading marcoms, as many equity analysts attributed these declines to industry shifts and an influx of new competition from management consultancies, technology players, and accounting networks. This analyst commentary came with notable restructurings and consolidations in the space, including WPP (LON:WPP) combining its ad-buying agencies MEC and Maxus in June. The Equiteq Management Share Price Index has declined throughout much of the first half of the year after a stellar performance in However, The Advisory Board Company (NasdaqGS:ABCO) experienced robust share price rises after there were reports from Reuters that it was exploring a merger with Evolent Health (NYSE: EVH). Note: The Equiteq Share Price Index is the only published share price index which tracks the listed companies within the consulting industry. You will be able to receive further information on the index and its performance by joining Equiteq Edge at equiteq.com/equiteq-edge. The Index is continually revised to consider new listed consultants and to remove businesses that are no longer focused on consulting in a given quarter. 6

7 Taking a longer-term perspective The Equiteq Share Price Index reached new highs. Deal volumes dipped, but remain well above long-term averages. Q to Q2 2017: Equiteq Share Price Index and M&A Deal Volumes Average Quarterly Deal Volumes: 557 Average Share Price Index: Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 0 Share Price Index (LHS) Deal Volumes (RHS) The Equiteq Share Price Index continues to show record highs as investor confidence in the sector remains buoyant. The index is at a significant premium of c.45% as compared with its ten-year average. The index has achieved strong growth in the first half of the year along with many major global share price indices. The total number of deals announced in the second quarter fell after five strong preceding quarters. However, deal volumes in the second quarter still remain c.10% above the average achieved over the last ten years. Note: The Equiteq Share Price Index reviewed on a ten-year basis only includes those listed consultants that traded continuously throughout this period. 7

8 About Equiteq Equiteq is the global leader in providing strategic advisory and Merger & Acquisition advisory services to owners of knowledge-rich, often people-dependent businesses. There are unique challenges to value growth and equity realization for shareholders and investors in this space. We help owners transform equity value and then realize maximum value through global sale processes. Selected Recent Equiteq Transactions : Financial consulting Behavioural assessment & development Management consulting Market Research Acquired preparation and sale Advised on the acquisition Management IT Services Project Management MBO led by Digital Transformation Received investment from Advised on the MBO Advised on the investment Further Resources Join 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 Important disclaimer This report has been compiled using: our proprietary news feeds utilizing various third party information sources, third party data services, and our daily activities in the market with buyers and sellers that provide us with unique intelligence. The analysis and synthesis of the data was undertaken by our dedicated Buyer Coverage and Research & Analysis teams within Equiteq who produce the insights and data required for serving the interests of our clients wishing to maximize valuations in the sale of their firms. Despite our diligence in compiling this information we can t be responsible for how you use it. Remember, a sale is only achieved when a willing buyer meets a willing seller and they both agree to terms. 8

9 Contact your regional office UK: +44(0) USA: +1(212) Singapore: Australia: If you would like more information on our company or the various services we offer please don t hesitate to get in touch. info@equiteq.com Website: equiteq.com Equiteq has global reach through its offices in New York, London, Singapore and Sydney Equiteq Ltd. July 2017