the knowledge economy global m&a report 2018 · the knowledge economy global m&a report...

© Equiteq Advisors Ltd. 2018Growing equity, realizing value

Market trends and key transactional insights for owners of consulting and technology firms. Management Consulting

IT Services

Media A

gencies

Engineering Consulting

Hum

an R

esou

rces

The Knowledge Economy Global M&A Report 2018

Nigel Povah, Behavioural assessment & development consulting.

Sold.

© Equiteq Advisors Ltd. 2018 3

Foreword 4

Key findings 6

Market overview 8

Overview of M&A activity 8

Segment review 11

Regional review 12

Equity market performance 13

Valuation multiples and trends 14

Strategic and private equity buyer trends 16

Segment reviews 21

Management Consulting 21

Key findings 21


Regional review 25

Overview of equity market performance 26



Selected transactions 30

IT Services 33

Key findings 33


Regional review 37





Media Agencies 45

Key findings 45


Regional review 49





Engineering Consulting 57

Key findings 57


Regional review 61





Human Resources 69

Key findings 69


Regional review 73





Tips 81

Appendix 84

Key definitions 84

A quick word on the data 85

About Equiteq 85

Further resources 86

Disclaimer 87

Contents

Contents


We are delighted to present the results of our eleventh annual review of M&A and equity market trends across the global knowledge economy.

2017 was a year of continued growth for Equiteq and further disruption of traditional business models, which is transforming the industry that we have been tracking for 15 years. The accelerating trend of technology-enabled innovation, underpinned by artificial intelligence and the proliferation of big data, is now being combined with deeply entrenched economic trends to permanently change the global economic landscape. Equiteq views this revolution as a rapid wave of disruption. There are enormous pressures on knowledge-intensive service providers and their clients operating within the disruption zone.

From a delivery model perspective, there is pressure on knowledge-intensive services firms to enhance their offering with advanced cloud-based tools and data analytics solutions, as well as managed services. Players operating within the disruption zone are also investing in innovation labs that spur creative thinking and enable testing of new ideas in a collaborative setting.

Furthermore, digital disruption across industries is driving client demands for ever more sophisticated advisory solutions from strategy through to execution. These solutions are now expected to incorporate a blend of creative and entrepreneurial skills, in combination with expertise in the latest technologies. This means knowledge-intensive services firms addressing disruption need a new array of skills, which is leading to fierce competition in a talent war with corporate entities.

The scarcity of new in-demand talent is one of the major drivers of strategic M&A and premium valuations in hot disruptive spaces across the industry. It is also leading to an increase in partnerships among complementary services and product firms.

Foreword

Given these market shifts, we are seeing a blurring of boundaries across all firms utilizing intellectual capital - not just consultancies, but also software and managed services companies. This can be seen through major restructuring and rebranding initiatives by traditional consulting players to better organize and articulate the broader set of solutions they now offer.

Equiteq have been monitoring these trends in the context of how we define the segments where we advise business owners on maximizing their equity value. The disruption of the traditional consulting model has led us to transition the definition of our industry coverage from consulting to the broader transforming knowledge economy.

There is an unparalleled opportunity for pioneering business owners and entrepreneurs to create value and make profitable exits within the disruption zone of the knowledge economy. We hope that this latest edition of The Knowledge Economy Global M&A Report gives you a taste of Equiteq’s deep insights into deal activity within this space.

If you would like to have a chat about your current sale journey as a business owner or acquisition strategy as an acquirer, please get in touch.

David Jorgenson, CEO Equiteq

Foreword

© Equiteq Advisors Ltd. 2018

Antonio Bonet, International development consulting.

Sold.


No. of transactions 2017 vs. 2016

Average deal values

2017 vs. 2016

5%5%

Average deal size

Median deal size

2008 20132009 20142010 20152011 20162012 2017

Deal volumes Revenue multipleEBITDA multiple

9.4x

0.9x

0.8x

9.2x

2,50

2 de

als

Share price index Revenue multipleEBITDA multiple

2008 20132009 20142010 20152011 20162012 2017

8.1x

11.2x

0.8x

1.0x

Jan 2008: 100

Dec 2017: 164

Overall M&A volumes dipped, with large variations in deal flow across the knowledge economy

The Equiteq Knowledge Economy Share Price Index and listed valuation multiples touch new highs

Key findings

Note: The Equiteq Knowledge Economy Share Price Index is the only published share price index which tracks the listed companies within the knowledge economy.

The average deal was structured with 61% of consideration paid upfront and the remainder structured as an earn-

out over 2.6 years.

$69.4m$12.1m

64%8%

index best performer (up 22%).

index second best performer

(up 20%).

8% 2012-2017 CAGR of average listed company cash balances and cheap debt is fueling M&A activity from listed buyers

IT HR

Share price return

2017 vs. 2008

Share price return

2017 vs. 2016

2.6 years earn-out

61%

Key findings


Digital acquisition demands dominate strategic and financial buyer M&A objectives

North America and Europe dominate global M&A; Cross-border M&A structurally higher in APAC

23%of buyers are listed strategic buyers

6%of buyers are financial buyers

41%of buyers are serial acquirers completing multiple deals over the last few years

Management Consulting IT Services Media

AgenciesEngineering Consulting

Human Resources

# deals 863 635 551 192 261

YoY change 5% -9% 1% -37% -1%

Mean deal size ($m) 99.7 81.9 28.6 39.2 14.2

Median deal size ($m) 19.0 13.9 9.4 20.8 7.1

Median revenue (x) 1.0 0.9 1.6 0.6 0.5

Median EBITDA (x) 11.6 9.1 8.1 9.9 6.8

Hot spaces across segments

Profiled serial buyers

Hackett

Huron

CBIZ

McKinsey & Co.

Ernst & Young

Accenture

CGI Group

Capgemini

KPMG

Atos

Accenture Interactive

Dentsu

WPP

Havas

Deloitte Digital

WSP Global

NV5

SOCOTEC

SGS

SNC-Lavalin

Hub International

Gallagher

OneDigital

Addison Group

Vaco

Key findings

Cross-border M&A accounted for 22% of all deals - notably higher in APAC and Europe and for deals above $10m in size.

1,193Deals

933Deals

187Deals

98Deals

91Deals

5% 8% 24% 14% 29%

North America Europe Asia-Pacific Australia & NZ Rest of the World

Healthcare consulting

Advanced data analytics

Artificial intelligence & robotics

Digital transformation

The Knowledge Economy Global M&A Report 20188 Market overview

Market overview

Overview of M&A activity

Solid global economic outlook and skill shortages supporting strong buyer demand

Deal flow was robust in 2017, underpinned by a strong global economic outlook, as well as continuing demand for growth and substantial capital available for deals across strategic buyers and private equity (PE) investors. As in-demand segments experience shortages of people with requisite skills, demand for acquisitions of niche capabilities at premium prices is rising, with more attractive deal structures being offered as compared with 2016.

Major upheaval of the consulting industry

The knowledge economy continues to be characterized by shifts that are challenging traditional definitions of a consulting firm. Digitization is one of these major trends disrupting every segment and sector vertical of the knowledge economy. As corporations are driven to transform their own businesses by leveraging (or responding to) digital, they are becoming more sophisticated consumers of consulting services and changing how they consume expertise. This is driving transformations in many traditional consulting firms’ business models, including the development of service enhancing tools and complementary managed services capabilities, as well as the broadening of digital transformation advisory offerings.

In the constrained talent market, this is resulting in new vertical and horizontal mergers that are redefining the consulting sector. Examples of such deals include Gartner’s acquisition of CEB, BCG’s acquisition of MAYA and in an example of exceptional divergence, Office Depot’s purchase of CompuCom.

Strong demand for M&A across cash-rich financial and strategic buyers is maintaining upward pressure on valuations in hot spaces of the knowledge economy. This includes digital transformation, predictive data analytics and consulting to highly-regulated industries such as healthcare.

David Jorgenson, CEO

5%

18%

5%

2,502 No. of transactions

$12.1m Median deal size

$69.4m Average deal size

9Market overview

Many cash-rich buyers of knowledge-intensive services companies are preparing strategic plans to penetrate new markets via acquisition in 2018. We are receiving rising demand for strategic advice from owners that have received recent unsolicited interest in their businesses, reflecting the positive market fundamentals for sellers. The global economic outlook for 2018 is strong and we expect these trends to continue over the next twelve months.

The Equiteq Crystal Ball: 3 things to watch out for over the medium to long-term horizon

1. Where digital technologies will cause the most disruption – The development of new digital technologies in spaces like automation, blockchain and augmented reality will have a major impact on business models across sectors over the long term. The pace of adoption of these technologies will dictate where we see the most M&A activity over the next few years.

2. The end of a low interest rate environment – The economic recovery is starting to create upward inflationary pressure, which is creating expectations of future gradual interest rate rises. A rise in interest rates will make interest bearing assets more attractive to investors. It will also increase borrowing costs for leveraged acquisitions, which may dampen overall M&A activity, particularly private equity deal flow.

3. Economic stimulus from US economic and political reforms – The latest tax reforms in the US, combined with the potential future requirements for the repatriation of offshore profits, will create a huge boost for the liquidity of North American buyers. This will place upward pressure on pricing and M&A. Additional post-tax earnings for corporates may also boost private investment and special dividends to shareholders, which will be expected to create a general economic stimulus supporting further deal activity.


APAC continues to be a focus of overall cross-border M&A

M&A transaction volume continues to be higher in North America and Europe, but cross-border M&A remains structurally higher in APAC, particularly within IT services and media agencies. While the knowledge economy in APAC is not as advanced as in Europe and North America, globalization, economic development and rising adoption of new technologies are driving international demand for specialist businesses in the region. At the same time many cash rich buyers, notably from Japan, Australia, but also China and India, are using M&A as a tool to expand internationally, reducing their dependence on local markets.

Notable acquisitions of healthcare consulting capabilities

There was a notable rise in the number of larger transactions within the healthcare consulting industry, however this was offset by a fall in smaller deals

within the space. Transformational deals continue to occur as the healthcare industry undergoes a transformation in most developed markets. There is convergence between service providers offering clinical research, commercialization, consulting and technology services. InVentiv Health’s merger with INC Research was the major deal at this intersection.

In the UK, there are a variety of issues facing the NHS such as increased demands from an aging population and calls for more modern personalized care options. This comes against a backdrop of years of tight public spending, along with the potential for regulatory and structural overhauls as part of Brexit. The growth opportunities for healthcare advisory firms arising from these issues is reflected in strong demand for relevant sizable acquisitions from a variety of buyers.

Across the globe, knowledge-intensive services firms are benefiting from the potential to help clients realize competitive advantages from using rapidly evolving technologies, including advanced data analytics solutions. In the healthcare sector, these can offer exciting ways for providers, payers and life-sciences companies to improve services and reduce costs.

The Knowledge Economy Global M&A Report 201810 Market overview

Figure 1 Knowledge economy M&A activity, 2008 to 2017

Figure 2 Average deal structures – % of up-front consideration on deals across segments, 2017 vs. 2016

Figure 3 Range of proportion of upfront consideration on 2017 deals

Note: Bubble size reflects comparative average deal size for the respective year. Monthly deal volumes are shown by the bars running along the bottom of the chart.

Note: Average denotes the mean deal structure, which therefore differs from the median data point shown in bar below.

Note: The interquartile range is a measure of variability, based on showing the range of data in ascending order from the 25th percentile (1st quartile) result to the 75th percentile (3rd quartile) result.

2008 20132009 20142010 20152011 20162012 2017

3,000

2,250

1,500

3,750

Num

ber

of d

eals

2017 upfront consideration

2016 upfront consideration

2.6 years earn-out

3 years earn-out

300

200

100

0

400

The optimum size of a transaction will vary among buyers and the specific opportunity that they are considering. See Tip 1 in the back of the report for our perspectives on the relationship between business size and acquisition appetite.

In addition to running a competitive well-negotiated sale process, there are plenty of steps that owners can take to reduce risk in the eyes of a buyer which can make a material difference to their target deal structures. See Tip 2 in the back for our perspectives on the factors that influence deal structures.

61% 58%

Min

28%

1st quartile

40%

3rd quartile

80%

Median

63%

Max

100%

11

Management Consulting

IT Services

Media Agencies


Human Resources

Deals grew strongly, with M&A across

adjacent industries being a key theme

in the space.

M&A fell after strong deal flow in the prior year. There remains

considerable demand for consulting around

the latest digital technologies.

Contraction in activity from the struggling

leading agency networks was offset by an increase in activity

from PE firms and other strategic buyers, including those from adjacent industries.

Despite rising oil prices and an upbeat global

economic outlook, there was another year of

sharp declines in deal flow in the engineering

consulting sector.

Global M&A fell slightly, although there were

large regional variations in activity, with North American deal flow

rising strongly.

Figure 4 Volumes and growth by knowledge economy segment

Segment review Notable deals across increasingly converging segments; Top space for deal activity was the rapidly evolving management consulting segment.

5%

(5)%

2.5%

0

(2.5)%

7.5%

(7.5)%

(10)%

(35)%

(37.5)%

Dea

l vol

ume

grow

th Y

oY 2

017

vs.

20

16

M&A involving knowledge-intensive services firms with a focus on serving clients in the healthcare sector accounted for c.15% of all deals in 2017 (down from 16% in 2016)

M&A involving knowledge-intensive services firms with a digital component accounted for c.37% of all deals in 2017 (up from 35% in 2016)

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

Market overview© Equiteq Advisors Ltd. 2018

Buyers in adjacent industries may be willing to pay a strategic premium for an acquisition that enables expansion into a new space. See Tip 3 in the back for our perspectives on how to consider buyers across adjacent industries.

200 400 600 1000

200 400 600 800

800

1000

HumanResources

261

Media Agencies

551

ITServices

635

EngineeringConsulting

192

ManagementConsulting

863

The boundaries between

deals in each knowledge economy segment

and adjacent sectors

continues to blur with

industry convergence


Regional review Growth in M&A in North America, while deal flow in other regions fell; Cross-border deal flow as a proportion of M&A contracted but remains high in APAC, as well as Europe.

Figure 5 Regional M&A review

Note: Deal sizes and valuation multiples are median figures for the respective region.

North America Europe Asia Pacific (excl. Australia & NZ)

Australia & NZ Rest of the World

Revenue multiple: 0.9xEBITDA multiple: 10.4x





% Cross-border deals: 16%% Cross-border deals: 25%

% Cross-border deals: 29%



Robust growth in deal flow led by rises in human resources, management

consulting and media agencies M&A.

Deal flow fell after a year of significant political events in the region. Reductions in activity were led by falls in IT services, engineering consulting, human resources and media agencies M&A. In the UK deal volumes fell after a strong prior year of deal flow and particularly contracted

following the June election.

M&A contracted which may be partially attributed to reduced cross-border

deal flow with heightened political tensions between

the U.S. and various regions within APAC.

Deal flow dipped in the first half of the year, although M&A picked up toward

the end of the year.

Cross-border deal flow is structurally higher in APAC and Europe, highlighting the global nature of knowledge-intensive services M&A. Some knowledge-intensive services firms are looking to pivot their global businesses to a more local model,

as economic nationalism across the world rises. This was observed through a dip in cross-border M&A.

1,193 deals (up 5%)

933 deals (down 8%)

187 deals (down 24%)

98 deals (down 14%)

91 deals (down 29%)

$20.0m Deal size

$8.9m Deal size

$6.2m Deal size

$11.3m Deal size

$10.0m Deal size

Market overview

Cross-border deals accounted for 22% of all deals (down from 28% last year).The proportion of all deals above $10m in value that are cross-border rises markedly

High-profile cross-border acquisitions across the knowledge economy are common and enable foreign buyers to penetrate new markets, gain new clients and grow revenues with existing global accounts. See Tip 4 in the back for our perspectives on incorporating international buyers into your sale process.

48% 37%

7%

4%

4%


Equity market performanceThe Equiteq Knowledge Economy Share Price Index ended the year up 8% touching new highs; There were large variations in performance across segments.

Figure 6 Equiteq Knowledge Economy Share Price Index

Market overview

130

120

110

100

90

80

70Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

C. Sep 24: Angela Merkel wins fourth term in German elections.

D. Dec 19: Congress approves Republican tax plan in the US.

A. May 7: Estimations of the result of the French Presidential Election second round announced.

B. Jun 8: UK General Election ends in hung parliament.

• The Equiteq IT Services Share Price Index rose 22%, boosted by the stellar performance of a variety of players including Virtusa Corporation and Hexaware Technologies.

• The Equiteq Human Resources Share Price Index achieved strong gains of 20%. There were notable increases in the share prices of a range of players including Robert Walters and Manpower Group.

• The Equiteq Engineering Consulting Share Price Index increased by 5%. RPS Group and Arcadis were strong performers.

• The Equiteq Media Index contracted by 2%, with the major media networks - WPP, Publicis Groupe, Omnicom Group, The Interpublic Group and Dentsu - experiencing falling share prices.

• The Equiteq Management Consulting Index fell by 8% with large fluctuations in the share prices of major players like Huron and Navigant Consulting.

A B C D

Note: The Equiteq Knowledge Economy Share Price Index is the only published share price index which tracks the listed companies within the knowledge economy. 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 companies and to remove businesses that are no longer relevant in each quarter.

150

200

250

100

50

0

Global financial crisis

European debt crisis volatility

Jan

08

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

May

May

May

May

May

May

May

May

May

May

Jan

09

Jan

10

Jan

11

Jan

12

Jan

13

Jan

14

Jan

15

Jan

16

Jan

17

Jan

18Figure 7 Equiteq Knowledge Economy Share Price Index (2008 to 2017)

Management ConsultingIT ServicesMedia Agencies

Engineering ConsultingHuman ResourcesEquiteq Knowledge Economy Index

S&P 500

http://www.equiteq.com/equiteq-edge


Valuation multiples and trendsAverage historic revenue and EBITDA valuation multiples for both M&A transactions and listed companies remained broadly stable across most segments.

Average transaction revenue multiples were the highest in the media agencies segment, potentially 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 EV as a multiple of LFY unadjusted EBITDA

Figure 8 Enterprise Value (EV) as a multiple of Last Full Year (LFY) unadjusted revenue

Market overview

Note: The interquartile range is a measure of variability, based on showing the range of data in ascending order from the 25th percentile (Q1, 1st quartile) result to the 75th percentile (Q3, 3rd quartile) result.

When reviewing this section, please note the issues of interpretation, along with the wide range of company and deal specific factors that influence the valuation of a knowledge-intensive services business. The figures in this report are primarily a comparative guide and should not be used by sellers or buyers to value a business, for which we recommend you obtain independent financial advice.

See Tip 5 in the back on the key considerations when interpreting valuation metrics.

M&A transactions Listed consultants Interquartile range Median



IT Services

Human Resources

Media Agencies

Overall

1.0x

0.6x

0.9x

0.5x

1.6x

0.9x

1.0x

1.0x

1.2x

0.6x

0.9x

1.0x

Q1

Q1

Q1

Q1

Q1

Q1

Q3

Q3

Q3

Q3

Q3

Q3

0.8x 2.4x

0.6x 1.3x

0.5x

0.5x

0.7x

1.4x

0.5x

0.2x

0.8x

0.6x

0.8x

0.4x

0.4x

0.5x

1.7x

0.7x

1.9x

1.5x

1.6x

1.1x

1.4x

1.4x




IT Services

Human Resources

Media Agencies

Overall

11.6x

9.9x

9.1x

6.8x

8.1x

9.2x

11.4x

11.7x

12.0x

11.4x

9.4x

11.2x

Q1 Q1 Q1

Q1 Q1 Q1

Q3 Q3 Q3

Q3 Q3 Q3

8.6x

8.4x

7.4x

5.7x

7.4x

7.5x

10.7x

9.0x

9.5x

8.5x

7.8x

8.7x

15.3x

15.0x

12.0x

9.5x

11.2x

12.6x

11.9x

13.1x

14.8x

13.6x

11.3x

13.7x


Figure 10 Valuation metrics moving average, 2008 to 2017 (M&A transactions)

Market overview

The company valuation multiples of cash-rich publicly listed players have been rising over the last five years.

Strong and stable pricing for listed businesses across the knowledge economy is being supported by low interest rates and substantial access to capital for

both PE investors and corporate buyers. The Equiteq Knowledge Economy Share Price Index grew in line with quoted EBITDA valuation multiples, suggesting that the growth in equity prices is in line with rises in earnings. In 2017, revenue multiples and EBITDA multiples on M&A transactions moved broadly in line with each other throughout the period. This indicates that operating margins on new acquisitions remained stable during the period.

As their quoted valuation metrics and cash balances rise, so does competition for assets from listed 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 ratio. See Tip 6 in the back for our perspectives on what rising share prices implies for listed buyers.

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)

EBITDA multiple (LHS) Revenue multiple (RHS)

14.0 1.6

1.4

1.0

1.2

0.8

12.0

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.02008 201720162015201420132012201120102009

Figure 11 Valuation metrics over time, 2008 to 2017 (listed companies)

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


12.0 1.2

1.0

0.8

0.6

10.0

0.4

8.0

0.2

6.0

4.0

2.0

0.0 0.02008 201720162015201420132012201120102009


Table 1 Buyer statistics by segment

Strategic and private equity buyer trends Prolific serial acquirers comprised of cash-rich listed buyers and accounting networks acquiring niche capabilities.

Serial buyers of knowledge-intensive services firms, that have made multiple acquisitions over the last three years, were responsible for 41%1 of all deals in 2017, representing a drop from 46% in 2016. Accenture was the most acquisitive strategic buyer across global segments, announcing a $1.8bn budget for M&A for the year through August 2018. The budget has been allocated toward deals that enhances its niche capabilities across management consulting, technology services and creative media. Across segments, deal flow continues to be dominated by a variety of listed strategic buyers, with substantial cash balances available for M&A, who in aggregate increased their deal flow on 2016.

Note 1: Regular buyer proportion across the knowledge economy is higher than for each respective segment given that it considers those buyers that serially buy businesses across different segments.


IT Services

Media Agencies


Human Resources

Serial strategic buyers

The Hackett Group

Huron

CBIZ

McKinsey & Co.

Ernst & Young

Accenture

CGI Group

Capgemini

KPMG

Atos

Accenture Interactive

Dentsu

WPP

Havas

Deloitte Digital

WSP Global

NV5

SOCOTEC

SGS

SNC-Lavalin

Hub International

Gallagher

OneDigital

Addison Group

Vaco

% of deals by serial buyers 36% 34% 39% 36% 32%

% of deals by listed buyers 24% 26% 21% 21% 20%

% of deals by financial buyers 6% 6% 5% 12% 4%

Market overview

© Equiteq Advisors Ltd. 2018 17Market overview

Apart from PwC and BDO, the major accounting networks stepped up their deal flow in 2017. Accounting buyers continue to develop their business advisory offerings, while investing in new service-enhancing tools that counter falling profitability from their core assurance businesses. A more recent emerging trend has been the acquisition of creative media shops to build out buyers’ digital media capabilities, while gaining a larger share of the increasing digital transformation consulting market. Deloitte’s acquisition of Market Gravity, PwC’s acquisition of Pond and EY’s acquisition of etventure were notable deals in this space.

Figure 12 Global accounting buyers, reported knowledge economy acquisitions (2013 to 2017)

Note: This analysis only includes reported knowledge-intensive services acquisitions that we are aware of. According to the global annual reviews of some of the leading professional services buyers, actual acquisition activity can be significantly higher, with many smaller deals not being reported.

2013 2014 2015 2016 2017

5

10

15

20

25

0PwCDeloitte KPMG Ernst & Young

Num

ber

of t

rans

acti

ons

BDOGrant Thornton

Accounting buyers are highly acquisitive and typically consider acquisitions on a territory basis with non-cash consideration being a key component of deal structures. See Tip 7 for the key considerations when selling to an accounting firm.


Private equity remains highly active, with record levels of dry powder for acquisitions.

PE investors continue to be actively pursuing acquisitions across the knowledge economy at competitive prices. This is being fuelled by attractive industry dynamics, which present strong opportunities for acquiring high-growth investments. It is also being driven by record levels of capital available for acquisitions and cheap debt. In 2017 we saw financial buyer activity remain consistent

as a proportion of overall M&A, but grow as a proportion of deals above $10m in size. The year saw more landmark deals and profitable exits from leading financial buyers, which is expected to reaffirm confidence in the industry from this buyer group. There was strong financial buyer participation within the engineering consulting segment, despite a fall in overall deal activity in the space. The most notable transaction in the space would have been Warburg Pincus’ acquisition of Tata Technologies before it was scrapped in early 2018 due to postponements in gaining regulatory approvals.

Market overview

Private equity are acquisitive and offer additional options for sellers of knowledge-intensive services businesses. See Tip 8 for our perspectives on the key considerations when selling to a private equity firm.

Figure 13 Proportion of deals by private equity at various sizes (2008 to 2017)

Over $10m


Human Resources

IT Services


Media Agencies

Under $10m

6%

% o

f dea

ls b

y pr

ivat

e eq

uity

4%

2%

8%

10%

12%

16%

14%

0%20092008 2010 2011 20172012 2013 2014 2015 2016

15%

7%

26%34%

18%

© Equiteq Advisors Ltd. 2018 19Market overview

Selected landmark deals

Target: Aon’s human resources outsourcing business

Description: Technology-enabled benefits and cloud-based HR service platform.

Date of announcement: Feb 2017

Deal value: $4.8bn (2.1x LFY revenue)

Target: Capco

Description: Management consultancy with focus in financial services.

Date of announcement: May 2017

Deal value: $477m

Target: OneDigital Health & Benefits

Description: Employee benefits provider.

Date of announcement: May 2017

Deal value: $560m (3.8x LFY revenue)

Target: ThoughtWorks

Description: Software development and technology consulting.

Date of announcement: Aug 2017


Target: The Advisory Board (Education)

Description: Advisory Board’s education consulting business.

Date of announcement: Aug 2017

Deal value: $1.6bn

Target: Duff & Phelps

Description: Valuation, corporate finance, disputes and investigations consultancy.

Date of announcement: Nov 2017


Buyer: The Blackstone Group Buyer: Clayton, Dubilier & Rice

Buyer: New Mountain Capital

Buyer: Apax

Buyer: Vista Equity Partners

Buyer: Permira

Note: Some transaction details rely on third party information sources that have not been verified. LFY = Last Full Year.

The Knowledge Economy Global M&A Report 201820 Segment Reviews | Management Consulting

Bob Hendicott, Management consulting.

Sold.

21Segment Reviews | Management Consulting

Segment reviewsManagement Consulting


M&A activity

Share price performance

Profiled active buyers:

The Hackett Group Huron CBIZ McKinsey & Co. Ernst & Young

Median deal value

Average deal size

Cross-border transactions

Serial buyers

Financial buyers

Annual increase in deal volumes

Annual decrease in share-price index

$19m

$100m

24%

36%

6%

5%

8%

Key findings


2008 20132009 20142010 20152011 20162012 2017

1.1x 11.6x

10.0x1.0x

863

dea

ls


2008 20132009 20142010 20152011 20162012 2017

9.0x

11.4x1.2x

1.0x

Jan 2008: 100

Dec 2017: 92

22 Segment Reviews | Management Consulting The Knowledge Economy Global M&A Report 2018


Global political events continue to present opportunities and challenges

2017 saw the formal commencement of the UK’s Brexit negotiations with the EU and a major government transition in the US, as well as important elections across Europe. These events have created demand for relevant strategy, regulatory, organizational redesign and workforce management consulting services.

Private equity (PE) buyer Permira’s acquisition of corporate finance adviser Duff & Phelps was a major buyout of a firm expected to capitalize on growing US demand for advisory services related to regulatory pressure on corporate practices. These practices are expected to be disrupted further from regulatory overhauls under the new administration.

Leading consultancies benefit from advising on issues related to Brexit

Since its creation, the Department for Exiting the EU has worked with various consultancies, including the Big Four, McKinsey, BCG and Accenture. It was reported that McKinsey was awarded a contract worth £1.5m to organize over 700 government plans relating to Brexit.

In the UK, we advised project and programme manager P2 Consulting on their sale to PE buyer Lonsdale Capital Partners. P2 is well positioned to take advantage of increasing demand from governmental, regulatory, market and business change, as well as Brexit.

Strong demand for strategy and analytics capabilities for healthcare clients

Advisory services to the healthcare sector is a space with notable buyer interest. In the US, management consultants are benefiting from regulatory changes that are disrupting life science, payers and providers. This is driving investments in digital technologies, including predictive data analytics solutions, that enhance services and reduce costs.

A major related deal was by UnitedHealth’s Optum. It acquired Advisory Board’s healthcare business, in a deal that split the consulting firm’s healthcare business from its education unit. Optum and Advisory Board have developed expertise in transitioning clients to value-based care models. Optum’s technologies and data analytics tools are expected to enhance the Advisory Board’s tools and research services.

Huron’s acquisition of UK-based Pope Woodhead was another notable deal focused on the high-growth area of strategic consulting to life-sciences companies. Clients in this space are under pressure to defend the value of their innovations.

23Segment Reviews | Management Consulting© Equiteq Advisors Ltd. 2018

We expect 2018 to be another year of exciting developments for major players within the management consulting industry. Interesting niche and adjacent acquisitions will continue to be a key component of these strategic shifts across major players in the industry. The rapid industry developments underpinning deal flow are combined with a solid global economic outlook for 2018 across most developed economies.

Notable interest in firms advising on disruption to the financial services industry

Despite low interest rates and tight profit margins, financial services institutions are continuing to invest in risk & regulatory consulting and disruptive technologies. These latter investments are often being made with the aim of protecting against the competitive threat from innovative fintech start-ups and challenger banks.

Financial buyer Clayton Dubilier & Rice (CD&R) acquired a majority stake in UK-based Capco from FIS. This was a major cross-border PE deal in the consulting to the financial services space. With CD&R’s backing, Capco will be investing in new business consulting and digital capabilities to help financial services clients transform their businesses.

Over the year there was a notable rise in interest in cryptocurrencies and blockchain technology. Many consultants reported facing a talent shortage as they looked to expand in this promising area.

Accenture acquired First Annapolis, a payment consulting firm with expertise in emerging technologies like blockchain and mobile wallets.

Advancements in robotics has the potential to disrupt major players

The leading management consulting players continue to invest organically and via acquisition in new digital capabilities. In 2017, the digital trend that appeared to be of increasing interest among prolific buyers of consulting firms was robotics and artificial intelligence (AI). This interest was from the perspective of developing associated consulting capabilities and in using AI tools to enhance existing service offerings.

In the first half of the year, The Hackett Group acquired Aecus, a European consultancy that helps clients optimize BPO, IT outsourcing and robotic process automation (RPA) through benchmarking and implementation consulting. Hackett highlighted that improving its ability to support clients’ efforts in RPA was an important element of the deal.

McKinsey invested in the latest round of funding for its partner Afiniti, which uses AI to help companies more efficiently link their sales personnel with customers. In North America, Deloitte announced plans to launch Auvenir Audit Smarter platform, which leverages AI to assist with audit work.


Industry trends

Hot spaces


Digital consulting


Risk & regulatory consulting

Financial services consulting

Artificial intelligence & robotics

Digital transformation consulting

Areas of industry convergence

Organizational redesign

Management consulting

HR consultingIT services Management

consultingMedia

agencies




Figure 14 Management consulting M&A activity, annually (2008 to 2017)

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

2008 20132009 20142010 20152011 20162012 2017

800

1,000

400

600

200

0

1,200

Num

ber

of d

eals


Regional reviewM&A activity accelerated in Europe, while growth was maintained in North America. Cross-border deal activity remained strong.

Figure 15 Regional M&A review

48% 37%

7%

4%4%



North America



415 deals (up 5%)

$53.8m Deal size

Rest of the World

Revenue multiple: 0.4xEBITDA multiple: N/A


30 deals (down 29%)

$86.1m Deal size

Australia & NZ



34 deals (down 15%)

$22.3m Deal size

Europe



322 deals (up 14%)

$11.2m Deal size

Asia Pacific (excl. Australia & NZ)



62 deals (down 10%)

$8.1m Deal size

Cross-border deals accounted for 24% of all deals


Overview of equity market performance The Equiteq Management Consulting Share Price Index contracted after a strong prior year.

Figure 16 Equiteq Management Consulting Share Price Index

Figure 17 Equiteq Management Consulting Share Price Index (2008 to 2017)

130

120

110

100

90

80


Management Consulting A. May 7: Estimations of the result of the French Presidential Election second round announced.

B. Jun 8: UK General Election ends in hung parliament.C. Sep 24: Angela Merkel wins fourth term in German elections.


S&P 500

A B C D

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Note: The Equiteq Management Consulting Share Price Index is the only published share price index which tracks the listed companies within the management 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 companies and to remove businesses that are no longer relevant in each quarter.

Management Consulting S&P 500



Valuation multiples and trendsValuation multiples for both M&A transactions and publicly traded companies are strong.




Figure 18 Enterprise Value (EV) as a multiple of Last Full Year (LFY) unadjusted revenue and EBITDA



Q1 Q1Q3 Q3

LFY Revenue (x) LFY EBITDA (x)

1.0x 11.6x

1.0x 11.4x

0.8x 8.6x2.4x 15.3x

0.6x 10.7x1.3x 11.9x


Figure 20 Valuation metrics, 2008 to 2017 (listed companies)

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0 1.4

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10.0

0.4

8.0

0.2

6.0

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2.0

0.0 0.02008 201720162015201420132012201120102009

Figure 19 Valuation metrics, 2008 to 2017 (M&A transactions)

LFY

EBIT

DA

mul

tipl

e (x

)

LFY

Rev

enue

mul

tipl

e (x

)


14.0 1.4

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8.0

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0.0 0.02008 201720162015201420132012201120102009

Note: Multiples represent the moving average over the last four quarters.


Strategic and private equity buyer trends Management consultants with growing digital offerings dominated the list of serial buyers in the industry.

36% of all deals were by serial buyers (down from 40% in 2016).

24% of all deals were by listed buyers (up from 22% in 2016).

6% of buyers were financial buyers (down from 7% in 2016).

Ernst & Young As part of its FY17 global annual review, EY announced that it made 13 strategic acquisitions expanding its capabilities in areas like RPA, digital, cyber, analytics, supply chain and strategy. The Big Four buyer also announced 6 new global alliances to meet demand for niche capabilities. This deal flow combined with strong organic growth supported the expansion of its global advisory business, which saw revenues increase over 10% during the year.

McKinsey & Co. McKinsey made two acquisitions in 2017, which was in line with its deal flow for 2016. In April, the firm acquired Elixir Management Consultancy expanding its operations in Saudi Arabia. This was followed with an acquisition of Malaysian digital engineering and design services consultancy VLT Labs by its Digital Labs business. The acquirer also made a growth investment in applied AI and advanced analytics partner Afiniti.

The Hackett Group The listed consulting buyer is strategically focusing its business on emerging cloud applications, RPA, enterprise analytics and what it calls “Intellectual Property as a Service”. As part of its expansion in these areas, it acquired two businesses at the intersection of business and technology consulting. In addition to its acquisition of Aecus, the acquirer purchased Jibe Consulting, an implementer of Oracle ERP and HCM solutions.

CBIZCBIZ announced strong financial results and achieved solid share price performance throughout the year. The buyer continued its acquisitive streak with a number of reported acquisitions. This included its acquisition of CMF Associates, as well as two acquisitions adjacent to its core accounting services. As part of its third quarter results, the buyer indicated a desire for further M&A focused on expanding its core services in high growth industries.

HuronDespite its volatile share price performance, Huron continued its acquisition streak in 2017. In its third quarter financial results, the buyer announced increasing demand for its healthcare offerings, particularly its performance improvement solution. In the UK, it acquired Pope Woodhead & Associates, a provider of market access capabilities to assist life sciences clients. The firm also acquired Innosight Consulting, a growth strategy firm focused on assisting clients with disruptive change and enabling innovation.

Selected serial strategic buyers


Selected transactions

Q1

Q2

Note: Deals shown in the quarter that they were announced. Some transaction details rely on third party information sources that have not been verified. LFY = Last Full Year.

Equiteq advised

Equiteq advised

Equiteq advised

Target: C1 Consulting Life sciences strategy consulting

Buyer: Charles River Associates

Deal value: $16.2m

Target: RAS & AssociatesStrategy, operations and business process optimization

Buyer: Perficient

Deal value: $10.9m (1.2x LFY revenue)

Target: Innosight Growth strategy consulting

Buyer: Huron

Deal value: $135m

Target: CapcoFinancial services consulting

Buyer: Clayton Dubilier & Rice

Deal value: $477m

Target: Elixir Management ConsultancyManagement consulting

Buyer: McKinsey & Co.

Deal value: Undisclosed

Target: Pope WoodheadLife sciences strategy consulting

Buyer: Huron


Target: First Annapolis Consulting Consulting and digital capabilities in the payments sector

Buyer: Accenture


Target: Jibe ConsultingBusiness consulting and Oracle implementation

Buyer: The Hackett Group


Target: McKinney RogersStrategy-through-implementation results driven consulting

Buyer: GP Strategies


Target: AecusBPO, ITO and RPA consulting

Buyer: The Hackett Group


Target: CMF AssociatesPrivate equity consulting

Buyer: CBIZ



Q3

Q4

Equiteq advised

Equiteq advised

Equiteq advised

Equiteq advised

Target: MAYA DesignDigital design and innovation lab

Buyer: Boston Consulting Group


Target: The Advisory Board (Education)Education research, technology and consulting

Buyer: Vista Equity Partners

Deal value: $1.6bn

Target: Etventure Digital consulting

Buyer: Ernst & Young


Target: Quorum Consulting Commercial readiness, reimbursement strategy and market access to life sciences

Buyer: Navigant


Target: The Advisory Board (Healthcare) Healthcare research, technology and consulting

Buyer: Optum


Target: The Townsend Group Investment management and advisory primarily focused on real estate and real assets

Buyer: Aon

Deal value: $475m

Target: OC&C Strategy Consultants (France)Strategy consulting

Buyer: EY-Parthenon (Ernst & Young)


Target: Duff & PhelpsValuation and corporate finance advisor

Buyer: Permira


Target: NyrasAviation consulting

Buyer: PA Consulting


Target: Certeco Business change advisory

Buyer: P2 Consulting

Deal value: UndisclosedTarget: GNC Group Consulting Retail and consumer product focused management consulting

Buyer: Grant Thornton Australia


Target: ShiftINStrategy consulting

Buyer: Sia Partners


Target: The Biotech Quality GroupPerformance management and regulatory compliance for life sciences

Buyer: Assystem


32 Segment Reviews | IT Services The Knowledge Economy Global M&A Report 2018

Helen Sandom, Brand agency.

Sold.

33Segment Reviews | IT Services

Segment reviewsIT Services


M&A activity


Profiled active buyers:

Accenture CGI Group Capgemini KPMG Atos

Median deal value

Average deal size


Serial buyers

Financial buyers

Annual decrease in deal volumes

Annual increase in share-price index

$14m

$82m

21%

34%

6%

9%

22%

Key findings


2008 20132009 20142010 20152011 20162012 2017

0.9x

9.1x

9.5x

0.9x

635

deal

s


2008 20132009 20142010 20152011 20162012 2017

8.4x

12.0x

0.8x

1.2x

Jan 2008: 100

Dec 2017: 208



Demand for cloud services capabilities remains strong

Deal flow in cloud services remains robust, but growth in M&A within the space is maturing. In 2017, the proportion of IT services acquisitions involving target businesses with cloud services capabilities was broadly in line with 2016.

Accenture acquired two consulting partners of ServiceNow, which continues to expand from ITSM into new areas like HCM and customer service management. The deals were part of a strategic growth plan to strengthen Accenture’s position as a leading provider of ServiceNow services and cloud implementations globally after completing relevant deals in 2015 and 2016.

An interesting deal that exemplified the convergence of customer-focused cloud computing with marketing, was the acquisition of Pierry by WPP-owned Wunderman. Pierry is a US-based specialist in optimizing campaigns in Salesforce Marketing Cloud. The deal provides the media agency with technology consulting expertise that complements its marketing services and better positions it against the competitive threat from technology and consulting players like Accenture, IBM and Deloitte.

Shortage of cyber security professionals and capabilities across the data value-chain

Buyers continue to tell us about shortages of data scientists and cyber security professionals, which is driving investment in these spaces at premium prices. There is notable interest from acquirers in firms that help businesses convert unstructured big data into smart data that is securely accessible in the right places within an organization.

The continued growth of cloud solutions and connected devices is expanding the big data that is available to businesses. Advancements in artificial intelligence (AI) is leading to the development of advanced analytical tools that can convert this information into actionable data sets.

Network Related Services (Orange) acquired Business & Decision, a leading player in Business Intelligence and CRM with strong capabilities in data governance and data analysis. The deal is part of the buyer’s strategy to become a global player across the entire data services value-chain. Business & Decision will benefit from offering its clients a broader set of digital transformation capabilities across adjacencies like connected systems, cloud computing and cyber-security.

35Segment Reviews | IT Services© Equiteq Advisors Ltd. 2018

Over the next year, we anticipate a continued rise in deal flow related to companies that advise on utilizing the latest advanced technologies. We expect buyers to look for opportunities to build functional and sector-specific RPA skills organically and via acquisition. The prevalence of digital disruption across industries and functions will continue to attract interest in technology services from a diverse set of strategic buyers. Furthermore, the attractive growth prospects in the space will also support strong financial buyer activity.

Rising buyer demand for AI and robotic process automation solutions

Through the year there was rising buyer demand for skills related to the assessment and implementation of robotic process automation (RPA) tools. The promise for clients is efficiency gains that will create competitive advantages. Machine learning models are also being considered to predict and identify cyber-attacks, the threat of which will rise with the proliferation of data across the organization.

Accenture acquired UK-based Genfour, a pure-play automation consulting firm focused on assessing, implementing and managing automation solutions. The deal was followed shortly after with an investment and partnership by Accenture in labor automation platform WorkMarket. Later in the year, IBM and NTT Data announced partnerships with Automation Anywhere, which uses its RPA platform to develop software bots that handle repetitive work functions.


Figure 21 IT services M&A activity, annually (2008 to 2017)


2008 20132009 20142010 20152011 20162012 2017

500

0

1,000

Num

ber

of d

eals

Industry trends

Digital transformation consulting


IT servicesManagement consulting

Media agencies


Hot spaces


Digital transformation


Cloud computing

Cyber security

Connected systems

Advanced building information modeling

IT services Engineering consulting

HR analytics

IT services Human resources




Regional reviewM&A activity in Australia & NZ rose; Dips in other regions.

Figure 22 Regional review

45% 40%

8%

3%4%



North America



283 deals (down 2%)

$23.9m Deal size

Rest of the World

Revenue multiple: N/AEBITDA multiple: N/A


26 deals (down 33%)

$9.3m Deal size

Australia & NZ



22 deals (up 6%)

$3.0m Deal size

Europe




$8.2m Deal size




49 deals (down 26%)

$7.5m Deal size



Overview of equity market performance The Equiteq IT Consulting Share Price Index touched new ten-year highs.

Figure 23 Equiteq IT Consulting Share Price Index

Figure 24 Equiteq IT Consulting Share Price Index (2008 to 2017)

130

120

110

100

90

80


IT Services A. May 7: Estimations of the result of the French Presidential Election second round announced.



S&P 500

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Note: The Equiteq IT Services Share Price Index is the only published share price index which tracks the listed companies within the IT services 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 companies and to remove businesses that are no longer relevant in each quarter.

IT Services S&P 500



Valuation multiples and trendsValuation multiples for both M&A transactions and publicly traded companies are robust.





M&A transactions Listed consultants Interquartile range

Q1 Q1Q3 Q3

Median


0.9x 9.1x

1.2x 12.0x


0.5x 7.4x1.7x 12.0x

0.8x 9.5x1.6x 14.8x



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enue

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0.0 0.02008 201720162015201420132012201120102009


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Rev

enue

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tipl

e (x

)


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0.2

6.0

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0.0 0.02008 201720162015201420132012201120102009



Strategic and private equity buyer trends Listed technology consultants with innovative digital capabilities dominated the list of serial buyers.

AtosAtos announced 8 acquisitions in 2017, which included the acquisition of three healthcare consulting businesses. The three acquisitions bring Atos expertise within technology adoption, project management, electronic health record implementation and optimization capabilities, and population health and analytics. The deals follow Atos’ acquisition of Anthelio Healthcare Solutions in 2016. Around 400 healthcare consultants will join Atos as part of its recent acquisitions and the firm now expects to generate over €1bn in revenue annually in the healthcare sector. The year ended with Atos unsuccessfully attempting to acquire Gemalto, a significant global player in the production of chips for mobile phones and credit cards for $5bn.

KPMGAfter only making a limited number of reported acquisitions in 2016, KPMG boosted its deal flow with 11 reported acquisitions in 2017. These included several interesting technology deals in blockchain, fintech services and Oracle EPM. As part of its full year financial results, KPMG announced that it’s continuing its multi-year global investment program and this year invested over $1bn in new services, technology solutions, alliances and M&A, with a focus on data & analytics, strategy, cyber security, digital labour and audit.

Accenture Accenture continues to be the most active buyer across consulting, reporting c.30 acquisitions in 2017. This included acquisitions of technology and consulting firms, as well as design and marketing capabilities. Some industry analysts have suggested that Accenture or Capgemini may be potential acquirers for one of the leading media networks, although Accenture CEO Pierre Nanterme gave a strong signal on a recent quarterly earnings call that he is not interested in large-scale M&A and remains focused on tuck-ins with very specific and differentiated capabilities.

CapgeminiCapgemini started the year with a major push into the North American digital consulting space, acquiring a digital strategy & design consultancy and a managed services provider to the insurance industry. The acquisitions were followed with the purchase of an eCommerce business in France and a digital media business based in Chicago. CEO Paul Hermelin told French newspaper Le Figaro that the business could be pressured into a takeover in the advertising sector if rival Accenture made a major acquisition in the space.

CGI GroupCanadian IT services buyer CGI Group rapidly increased its activity in 2017 reporting 6 acquisitions. Its most notable acquisition was of Affecto, a Nordic data analytics and business intelligence services firm, that significantly expanded the buyer’s operations in Northern Europe. Over Summer, CGI reported a very active M&A pipeline and notable growth in its US commercial and federal businesses. In September, equity analysts at Canaccord Genuity said that the buyer will remain active on M&A with larger transformational M&A being a strategic priority.




6% of buyers were financial buyers (in line with 6% in 2016).



Q1

Q2


Equiteq advised

Target: TCube SolutionsProperty and casualty insurance software and services

Buyer: Capgemini


Target: Focus Group EuropeServiceNow consulting services provider and software reseller

Buyer: Accenture


Target: Business & DecisionBusiness intelligence & CRM consulting

Buyer: Network Related Services (Orange)

Deal value: €40m (0.3x LFY revenue)

Target: EccellaData management and analytics consulting

Buyer: NGDATA


Target: ToMont SolutionsOracle EPM and OBIEE consulting services

Buyer: KPMG


Target: Company85Data centre, workspace, cloud, security and network services

Buyer: Telstra


Target: GenfourAssessing, implementing and managing automation solutions

Buyer: Accenture


Target: Day1 SolutionsCloud consulting firm with an advanced set of analytic and cognitive capabilities

Buyer: Deloitte


Target: CJS Solution Group (d.b.a. HCI Group) Healthcare IT services

Buyer: Tech Mahindra


Target: EmantrasDigital education

Buyer: GP Strategies


Target: OneCloud ConsultingCloud and software-defined infrastructure services

Buyer: ePlus


Target: ITPM ConsultingTransformative infrastructure services to banking & finance, insurance and shipping sectors

Buyer: YASH Technologies


Target: Ciber (North American and Indian assets) IT consulting, services and outsourcing

Buyer: HTC Global Services


Target: AcutestSoftware testing provider

Buyer: Capita



Q3

Q4

Equiteq advised

Equiteq advised

Equiteq advised

Target: BitvisDesign center for FPGA and embedded software development

Buyer: Acando


Target: Cloud Technology PartnersCloud services

Buyer: Hewlett Packard Enterprise (HPE)


Target: Pursuit Healthcare AdvisorsHealthcare IT consulting

Buyer: Atos


Target: JKVinePerformance engineering and testing for business systems

Buyer: Deloitte


Target: CompuCom SystemsEnd-to-end managed services, technology and consulting

Buyer: Office Depot

Deal value: $1bn (0.9x LFY revenue)

Target: cDecisionsSalesforce CRM implementation specializing in serving financial services clients

Buyer: PwC


Target: Affecto Business intelligence and enterprise information management solutions and services

Buyer: CGI Group

Deal value: €98m (0.9x LFY revenue)

Target: Pierry Marketing software integration and solutions specializing in Salesforce Marketing Cloud

Buyer: Wunderman (WPP)


Target: MorphickManaged detection and response (MDR) services

Buyer: Booz Allen Hamilton


Target: Logicalis SMCTechnology-enabled solutions for service management

Buyer: DXC Technology


Target: AricentDigital design and engineering services

Buyer: Altran

Deal value: $2bn (3.1x LFY revenue)

Target: AFON IT services firm with expertise in delivering ERP solutions

Buyer: EOH


Target: NAIT Consulting Premium Consulting Partner of Salesforce, certified in Sales & Service Cloud, Developer and Pardot

Buyer: VISEO


Target: InvestitInvestment management analytics and benchmarking

Buyer: Accenture


44 Segment Reviews | Media Agencies The Knowledge Economy Global M&A Report 2018

Nick Kent, Management consulting.

Sold.

45Segment Reviews | Media Agencies

Segment reviewsMedia Agencies


M&A activity


Profiled active buyers:Accenture Interactive Dentsu WPP Havas Deloitte Digital

Median deal value

Average deal size


Serial buyers

Financial buyers

Annual increase in deal volumes

Annual decrease in share-price index

$9m

$29m

23%

39%

5%

1%

2%

Key findings


2008 20132009 20142010 20152011 20162012 2017

0.7x8.1x

11.0x

1.6x55

1 de

als


2008 20132009 20142010 20152011 20162012 2017

8.7x9.4x

0.7x

0.9x

Jan 2008: 100

Dec 2017: 165



M&A from leading media players under pressure

M&A from the major media networks - WPP, Publicis, Omnicom, Interpublic Group and Dentsu - fell in 2017, contrasting an overall increase in deal flow in the media agencies space. The share prices of these companies have also declined over the year.

These falls have come with reports of drops in digital marketing spending from some of the world’s largest consumer products companies including Unilever and Procter & Gamble, with other large brand names reviewing major ad-placement contracts. The drop in spending is considered to reflect the demand from clients for more transparency from media agencies and other advertising partners, as well as the role of activist investors and consultants in encouraging cost cutting across these clients.

This industry turbulence is leading to speculation of consolidation among the leading networks or a large acquisition by one of the growing adjacent technology consulting firms. Capgemini and Accenture have been named as potential acquirers, although Accenture recently dismissed the possibility of making a sizable acquisition of this nature.

Companies increasingly working directly with digital advertising platforms

The major media agencies have strong partnerships with the likes of Facebook, Google and Amazon, but are increasingly being threatened by clients working directly with these advertising platforms. Although Amazon has a small portion of the US advertising market, its growing more rapidly in the space than Facebook and Google. Amazon was therefore highlighted by WPP CEO Martin Sorrell as the greater potential threat to their business during an earnings call at the beginning of 2017.

Shortly after the earnings call, WPP’s POSSIBLE announced its strategic acquisition of Marketplace Ignition in a deal that industry analysts estimated to be between $10m and $40m in value. The Seattle-based consulting firm was one of the first to be certified as an Amazon partner and is now believed to be one of the largest in the network.

Competition from adjacent sectors, as agencies and consulting converge

At the beginning of 2017, AdAge announced that for the first time 4 consultancies were listed in its ranking of the 10 largest agency companies in the world. The likes of Accenture, IBM and The Big Four are using their strategic, technology and data analytics capabilities to solve a broader range of issues facing CMOs.

Salesforce acquired Sequence, a design agency based in San Francisco and New York that works with several leading brands. Accenture made an array of acquisitions in the creative media space. Interesting deals also occurred from other non-traditional buyers including Infosys, Capgemini, Cognizant, Deloitte, BCG and IBM. In response to these trends, we also noted WPP-owned Wunderman’s acquisition of Salesforce consulting player Pierry.

47Segment Reviews | Media Agencies© Equiteq Advisors Ltd. 2018

The next twelve months are likely to see further shifts in the media agencies space. Media networks are likely to acquire new capabilities in response to a changing competitive environment. We will continue to see non-traditional buyers acquire creative capabilities as they broaden their digital transformation skills and try to compete against the leading media players for larger customer contracts.

Within digital media, we are watching exciting innovations that are being developed in the space of virtual reality and augmented reality, as they broaden their applicability from gaming and entertainment to use in engaging customers. The space is of interest to buyers and as we go to press Accenture has announced a noteworthy acquisition within the space.

Notable deals continue to be focused on cutting-edge digital media capabilities

With the latest developments in connected systems, there is strong demand for digital media capabilities related to mobility, social media and advanced data analytics.

In March, Cognizant acquired Japan-based Brilliant Service, a products and solutions company that specializes in customer experience digital strategy, product design and engineering, IoT and enterprise mobility. This deal was followed by Accenture’s acquisition of Boston-based mobile design and development firm Intrepid in June.


Figure 28 Media M&A activity, annually (2008 to 2017)


2008 20132009 20142010 20152011 20162012 2017

400

300

200

100

500

0

700

600

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ber

of d

eals

Industry trends

Customer-focused digital transformation


IT servicesManagement

consulting

Media agencies

Software solutions


Hot spaces

Digital consulting


Mobility consulting

Social media

Virtual Reality (VR) & Augmented Reality (AR)

Healthcare communications




Regional reviewThere was strong growth in North America and Australia & New Zealand.


45% 38%

8%

4%5%



North America



246 deals (up 9%)

$9.0m Deal size

Rest of the World



27 deals (up 6%)

$6.5m Deal size

Australia & NZ



23 deals (up 23%)

$8.4m Deal size

Europe



210 deals (down 2%)

$8.7m Deal size




45 deals (down 28%)

$18.1m Deal size



Overview of equity market performance The Equiteq Media Agencies Share Price Index contracted slightly; Mixed performance across constituent listed media players.

Figure 30 Equiteq Media Agencies Share Price Index

Figure 31 Equiteq Media Agencies Share Price Index (2008 to 2017)

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Media Agencies A. May 7: Estimations of the result of the French Presidential Election second round announced.



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Note: The Equiteq Media Agencies Share Price Index is the only published share price index which tracks the listed companies within the media agencies 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 companies and to remove businesses that are no longer relevant in each quarter.

Media Agencies S&P 500



Valuation multiples and trendsRevenue multiples for M&A transactions remain very strong.







Q1 Q1Q3 Q3


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Strategic and private equity buyer trends IT services and consulting firms are now serial acquirers in the space.

Havas After replacing their global creative CEO at the beginning of the year, Havas had a strong year of deal flow. This included making acquisitions across digital strategy, public relations and social media. The year also saw Vivendi acquire a c.60% stake in the business from Bolloré Group for c. €2.3bn ($2.5 bn). Vivendi is the parent company of Universal Music Group and Canal Plus Group and the deal is considered a landmark in their drive to become a leader in content, media, and communication.

Deloitte DigitalIn 2017, Deloitte Digital increased its global revenue by 32% through a mixture of organic growth and acquisitions that built on a strong prior year. Deloitte Digital acquired US-based Web Decisions with expertise in data management. The buyer also acquired Acne, a creative agency in Sweden. In the UK, it acquired Market Gravity, which strengthened its specialist design capabilities in the region.

Accenture Interactive This year Accenture moved further into the media space with 5 acquisitions over the year. This included notable acquisitions like SinnerSchrader, The Monkeys and Wire Stone. Its digital subsidiary, Accenture Interactive, has been growing rapidly over the last few years through a mixture of M&A and organic growth. The business projected revenue of $6bn in 2017 and now ranks as one of the largest advertising services providers globally according to Bloomberg.

DentsuDentsu reduced its M&A activity through 2017, following an aggressive year of deal flow in 2016. Over the year it acquired a number of digital media agencies through its international arm Dentsu Aegis Network. These deals added capabilities across mobility and data-driven marketing. The transactions reinforce Dentsu Aegis’ ambitions to become a 100% digital economy business by 2020.

WPPWPP reduced its acquisitions in 2017 but remained a leading serial acquirer and provider of venture capital to a variety of companies. This included traditional advertising and marketing communications companies, as well as technology firms in spaces like HR SaaS, digital publishing and mobility. In recent interviews, CEO Martin Sorrell has dismissed concerns of the growth of consultancies in the creative media space but recognized the potential threats from the growth of Amazon.


39% of all deals were by serial buyers (up from 37% in 2016).


5% of buyers were financial buyers (up from 4% in 2016).



Q1

Q2

Q3

Target: SequenceDesign strategy firm connecting brands and consumers

Buyer: Salesforce

Deal value: $26.0m

Target: Marketplace Ignitione-Commerce agency focused on Amazon and other online marketplaces

Buyer: POSSIBLE (WPP)


Target: Wire StoneMarketing agency at intersection of technology and creativity

Buyer: Accenture


Target: The MonkeysCreative advertising agency focused on brand strategy and creative talent

Buyer: Accenture Interactive (Accenture)


Target: SokratiData analytics and performance marketing

Buyer: Dentsu Aegis Network (Denstu)


Target: Brilliant ServiceDigital strategy, product design and engineering, the Internet of Things (IoT), and enterprise mobility

Buyer: Cognizant


Target: Web DecisionsOmni-channel data management and marketing services

Buyer: Deloitte Digital


Target: Extrême-SensioFull-service digital agency

Buyer: Grey (WPP)


Target: IntrepidMobile design and development

Buyer: Accenture


Target: Brilliant BasicsProduct design and customer experience innovator

Buyer: Infosys

Deal value: c. $9.7m


Target: Lyons Consulting GroupDigital and global commerce services with expertise in Salesforce Commerce Cloud

Buyer: Capgemini


Target: Elvis Communications Integrated digital agency with a focus on consumer brands

Buyer: Next 15

Deal value: £5.5m (1.2x LFY revenue)

Target: The 88 Digital media agency with expertise in social media platforms: Instagram and Snapchat

Buyer: Havas


Equiteq advised

Target: NumberOneInsightCustomer experience consultancy providing evaluation and experience insights

Buyer: DBM Consultants



Q4

Target: ZoneFull-service digital agency focused on customer experience, digital strategy, technology and content creation

Buyer: Cognizant


Target: VivantBoutique digital and innovation agency

Buyer: IBM


Target: CooperInteraction design, UX and professional design education

Buyer: Wipro Digital (Wipro)


Target: Forward3D GroupDigital marketing campaigns across search, content, display and social

Buyer: The Stagwell Group


Target: atom42 Full-service online marketing agency

Buyer: Iris Worldwide


Target: David&Goliath Creative agency helping challenger brands outperform the competition

Buyer: Innocean Worldwide (Hyundai)


Target: Beyond VigilantStrategy consulting, experience design, and platform engineering, using technologies including Episerver, Sitecore, and Adobe

Buyer: Hero Digital


Target: YARDMedia, event creation, marketing and insight into urban DNA

Buyer: Sid Lee


Target: ImmerseDigital agency primarily specializing in strategic creative consultancy and digital marketing solutions

Buyer: Havas


Target: ARBA Digital design and software engineering services focused on sales acceleration and customer experience

Buyer: Ogilvy & Mather (WPP)


Target: SwirlFull-service creative agency focused on digital advertising and social media marketing

Buyer: Dentsu Aegis Network (Dentsu)


56 Segment Reviews | Engineering Consulting The Knowledge Economy Global M&A Report 2018

Christine Parry, Leadership development consultancy.

Sold.

57Segment Reviews | Engineering Consulting

Segment reviewsEngineering Consulting


M&A activity


Profiled active buyers:WSP Global NV5 SOCOTEC SGS SNC-Lavalin

Median deal value

Average deal size


Serial buyers

Financial buyers



$21m

$39m

23%

36%

12%

37%

5%

Key findings


2008 20132009 20142010 20152011 20162012 2017

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9.9x

6.4x0.6x

192

deal

s


2008 20132009 20142010 20152011 20162012 2017

11.0x

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Jan 2008: 100

Dec 2017: 204



Declining cross-border M&A in a year of global political volatility

There was a fall in cross-border M&A, which accounted for 23% of M&A in 2017, down from 28% in 2016. This came during a year that saw rising geopolitical tensions and an increase in economic nationalism across many developed countries. Despite this trend, some notable cross-territory deals occurred over the period.

SNC-Lavalin’s transformative acquisition of UK-based WS Atkins creates one of the leading global integrated professional services and project management players, with capabilities across capital investment, consulting, design and engineering & construction. The deal followed rumours of SNC-Lavalin making a bid for UK-based John Wood Group in 2016.

Weak global infrastructure investment in Europe and North America

After a strong prior year of deal flow in Europe, M&A in the region declined sharply in 2017, with notable falls in activity within the UK. The year has been marked by major elections across Europe and the formal commencement of the UK’s Brexit negotiations. In its annual report, the European Investment Bank (EIB) said that although business investment was recovering, European government investment on infrastructure remained at a 20-year low. The bank’s president also cautioned that Brexit would harm its capacity to fund infrastructure and it was foreseeable that lending to the UK would decline from current levels of c.£7bn a year.

M&A activity in North America continued to experience significant falls in 2017. Although there were talks about developing an infrastructure-improvement program over the year, the government prioritized other political initiatives, including the recent tax reforms. As such, the value of US privately financed infrastructure projects are expected to have dropped by almost a half.

Rising oil & gas M&A as commodity prices rallied

There was a sustained rally in oil prices during the second half of the year and oil & gas related engineering deals rose markedly. M&A in the sector has remained subdued over the last few years, as the industry recovers from the sharp falls in commodity prices over 2014 and 2015.

The major deal of 2017 was John Wood Group’s acquisition of rival energy services firm Amec Foster Wheeler. The deal marks the buyer’s largest acquisition and is expected to strengthen its services related to downstream energy, environment and infrastructure. The latter segments offer strong growth opportunities for the buyer and is expected to reduce its overall exposure to oil and gas.

59Segment Reviews | Engineering Consulting© Equiteq Advisors Ltd. 2018

Deal flow over the next twelve months will be correlated with the strength of infrastructure spending and commodity prices. In the US, the former is expected to be impacted by the success of the administration’s plan to increase infrastructure spending by over $1tn. In the UK, the critical impacting factors will be the potential ramifications from the recent collapse of Carillion and the progress of Brexit negotiations over 2018. We expect continued strong interest in capabilities related to new technologies that enhance services and improve efficiencies for clients.

Predictive engineering analytics and immersive technologies have disruptive potential

Buyers remain interested in technological advancements that enable efficiency gains for clients. Advances in BIM (Building Information Modeling) are improving AEC professionals’ ability to efficiently design and manage constructions.

WSP Global invested in BIM One to grow its BIM Track software solution - an innovative web-based BIM tool. Accenture also made a notable investment in their North American utilities industry practice by acquiring Davies Consulting. The target provides consulting services to clients in the utilities space by helping them manage energy through the integration of technology analytics and processes.

Large engineering services firms are also increasingly looking at the potential of enhancing BIM with the latest visualization technologies. Virtual reality technologies enable architects to accurately design complex projects with customers before they go into production. Augmented reality then permits clients to preview and experience their designs in real-world spaces.

Real estate services business CBRE acquired 3D technology developer Floored. The business has developed technologies to help property professionals and clients visualize real estate space. Floored CEO will head the buyer’s digital enablement and technology efforts, which may point to further investments in CBRE’s digital business in the future.


Figure 35 Engineering consulting M&A activity, annually (2008 to 2017)


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Industry trends


Hot spaces

Oil & gas consulting

Predictive engineering analytics

Building information modeling

Advanced building information modeling and predictive engineering analytics


IT services Engineering consulting

Software solutions




Regional reviewContractions in M&A across regions, with notable falls in Europe and Asia Pacific.


58% 30%

6%

4%2%



North America




$21.8m Deal size

Rest of the World



4 deals (down 62%)

$33.1m Deal size

Australia & NZ



8 deals (down 56%)

$29.6m Deal size

Europe



58 deals (down 40%)

$12.0m Deal size




11 deals (down 66%)

$4.2m Deal size



Overview of equity market performance The Equiteq Engineering Consulting Share Price Index experienced overall gains but dipped in the final quarter.

Figure 37 Equiteq Engineering Consulting Share Price Index

Figure 38 Equiteq Engineering Consulting Share Price Index (2008 to 2017)

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Engineering Consulting A. May 7: Estimations of the result of the French Presidential Election second round announced.



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Note: The Equiteq Engineering Consulting Share Price Index is the only published share price index which tracks the listed companies within the engineering 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 companies and to remove businesses that are no longer relevant in each quarter.

Engineering Consulting S&P 500



Valuation multiples and trendsEBITDA valuation metrics were strong in the year.







Q1 Q1Q3 Q3


0.6x 9.9x

1.0x 11.7x

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Strategic and private equity buyer trends Rising participation of private equity buyers and continued strong deal activity from serial acquirers.

SNC-LavalinIn addition to its transformational acquisition of Atkins, SNC-Lavalin made another acquisition and agreed 2 JVs in Canada and Switzerland. The acquisition of Atkins boosts the Canadian engineering and construction firm’s international revenue as it emerges from its freeze on acquisitions in 2015.

SGSIn 2017 SGS made 12 acquisitions, which was a drop in its deal flow from the prior year. The business is expanding its global TIC business and adding other complementary service and technology capabilities. In its 2017 annual report, SGS stated that it would remain focused on companies that enable it to realize synergies while building scale, addressing geographic gaps and improving financial metrics.

WSP Global WSP Global continued to grow through acquisition in 2017. Two deals in the year materially expanded its international revenue. Its acquisition of New Zealand-based Opus International Consultants is expected to markedly increase its exposure to the APAC region. At the end of the year, it acquired Columbia-based Consultoría Colombiana, increasing its Latin American business. CEO L’Heureux highlighted M&A as being a part of WSP’s growth strategy for 2018 along with a variety of organic growth initiatives.

NV5 At the beginning of 2017, NV5 stated that it would exceed its published goal of reaching $300m in annual revenues and set a new goal to reach $600m in annual revenues by 2020. After 2016 marked its most acquisitive year to date, NV5 had another year of substantive deal flow reporting 7 acquisitions in areas such as technical engineering and environmental services. The buyer also acquired Skyscene, an advanced technology aerial imaging company.

SOCOTECSOCOTEC expanded its core project management and Testing Inspection and Certification (TIC) services with 3 acquisitions. Its acquisition of ZPP and Environmental Scientifics Group (ESG) expanded its international non-French revenue. UK-based ESG is the country’s leading provider of TIC services in the construction and infrastructure sectors and was acquired from private equity investor 3i. SOCOTEC will be using its recent deals to further its aim of generating €800m in revenue by 2020.



21% of all deals were by listed buyers (down from 23% in 2016).

12% of buyers were financial buyers (up from 7% in 2016).



Q1

Q2


Target: Aquenta ConsultingProvider of integrated project services to public and private sector clients

Buyer: Jacobs Engineering Group


Target: Ortech ConsultingSpecialist in Green House Gas reporting, air quality testing, emission testing and renewable energy consulting

Buyer: Kontrol Energy Corporation

Deal value: CAD$4.6m (0.7x LFY revenue)

Target: Amec Foster Wheeler Designs, delivers and maintains strategic and complex assets across global energy and related sectors

Buyer: John Wood Group

Deal value: £2.2bn (0.5x LFY revenue)

Target: WS AtkinsDesign, engineering and project management consulting

Buyer: SNC-Lavalin Group

Deal value: £2.1bn (1.0x LFY revenue)

Target: Bock & ClarkAmerican Land Title Association surveying, commercial zoning, and environmental services

Buyer: NV5 Global


Target: Earth ExplorationGeotechnical, materials, construction, exploration, laboratory, and associated services

Buyer: Terracon


Target: Exova GroupLaboratory-based materials testing

Buyer: Element Materials Technology


Target: FlooredSaaS solutions including 3D graphics technology for commercial real estate

Buyer: CBRE Group


Target: Davies ConsultingUtility asset management, risk management, grid and pipeline network modernization and emergency management services

Buyer: Accenture


Target: Envirosuite (Consulting Practice)Environmental and sustainability consulting

Buyer: ERM

Deal value: A$15.0m

Target: River City EngineeringEnvironmental and engineering capabilities including water and wastewater services

Buyer: Trihydro Corporation


Target: MAKE ConsultingResearch and advisory focused on wind power

Buyer: Verisk Analytics

Deal value: $16.9m

Target: YR&GSustainable consulting, education and analysis

Buyer: WSP



Q3

Q4Equiteq advised

Equiteq advised

Target: Dente EngineeringGeotechnical, geohydrologic, and construction materials engineering and testing services

Buyer: Terracon


Target: CTR Consulting Testing ResearchConventional and advanced non-destructive testing services

Buyer: SGS


Target: North State ResourcesResolves technical and regulatory issues for infrastructure and management of natural resources

Buyer: Stantec


Target: Wakefield Beasley & AssociatesArchitectural design services

Buyer: NELSON


Target: Marine + Earth Geosciences (MEG Consulting) Geotechnical and marine engineering

Buyer: Tetra Tech


Target: CLD Consulting Engineers Highway and bridge design, transportation services, municipal engineering and private development

Buyer: Fuss & O’Neill


Target: Joyce EngineeringConsulting to solid waste industry

Buyer: LaBella Associates


Target: Consultoría Colombiana (ConCol)Consulting to power, transport, oil & gas, environment, and project management

Buyer: WSP


Target: Polaris ConsultingTechnical consultancy across defence and security, with additional activity in energy and transportation

Buyer: TP Group


Target: ZPP IngenieureProject management and inspection for transport and energy infrastructure

Buyer: SOCOTEC


Target: MBC Group (McBains Cooper)Design, architecture, planning, engineering, construction, project management and sustainability

Buyer: RSBG


Target: TSA ManagementProject management consulting firm

Buyer: Livingbridge


68 Segment Reviews | Human Resources The Knowledge Economy Global M&A Report 2018

Dom Moorhouse, Management consultancy.

Sold.

69Segment Reviews | Human Resources

Segment reviewsHuman Resources


M&A activity


Profiled active buyers:Hub International Gallagher OneDigital Addison Group Vaco

Median deal value

Average deal size


Serial buyers

Financial buyers



$7m

$14m

14%

32%

4%

1%

20%

Key findings


2008 20132009 20142010 20152011 20162012 2017

0.5x0.5x

6.5x 6.8x26

1 de

als


2008 20132009 20142010 20152011 20162012 2017

6.7x

11.4x

0.5x

0.6x

Jan 2008: 100

Dec 2017: 153



Strong deal flow and buyer demand in North America supported by robust industry tailwinds

Global M&A activity was broadly stable in 2017, but there were large increases in domestic deal activity in North America. The economic outlook in the region is strong. According to data from the Bureau of Labor Statistics, by the end of the year US unemployment was approaching its lowest level since early 2001. This is being reflected by rising rates of hiring and staff turnover within organizations. Consultants are therefore benefiting from increasing client demand for new strategies to recruit and retain talent.

Other dynamics that are benefiting the industry include tightening visa regulations. These changes are driving demand for global mobility advice, as well as local hiring and training initiatives. Regulatory changes by the new administration are also driving demand for assistance in the organizational redesign of federal agencies. These regional trends and the digital transformation of the HR function continue to drive mergers across industries, as players broaden their global service offering to meet changing client demands.

Reductions in European M&A, despite strong market fundamentals

Although the economic backdrop in Europe was solid, there were falls in deal flow in the region. Staffing shortages in certain sectors and drops in EU migration to the UK are key drivers of demand for consulting. There is also the potential for an increase in work related to the organizational redesign of government functions due to Brexit.

Xafinity’s acquisition of Punter Southall’s pensions and investment consulting businesses was a major deal in the UK. The deal is set to be the first major acquisition in the region’s investment advisory industry since the Financial Conduct Authority (FCA) referred the industry to the UK’s competition regulator. The FCA referral is expected to result in new rules that distribute clients of the big three (Aon, Mercer and Willis Towers Watson), while driving consolidation among smaller advisers.

© Equiteq Advisors Ltd. 2018 71Segment Reviews | Human Resources

We expect strong deal flow to remain as the global economy continues to improve. Labor shortages will drive demand for innovative recruitment, training and retention solutions. Technological disruption of the human resources function will also drive M&A across adjacent industries, as well as interest from cash-rich private equity investors.

Digital technologies continue to disrupt the industry and drive private equity interest

Human resources departments and the role of the CHRO continues to transform with the emergence of new SaaS based applications for HCM. These new solutions are automating some aspects of administration and shifting the role of HR professionals toward human capital analytics and other value-adding activities. The potential growth opportunities from these digital trends is attracting private equity investment.

Private equity investor Blackstone acquired Aon’s human resources technology-enabled outsourcing business after prevailing over financial buyer Clayton Dubilier & Rice (CD&R) in an auction for the business. The Aon unit processes work benefits for 15% of the US population and is a provider for cloud-based human resources management systems. The transaction is expected to enable Aon to focus on areas like cybersecurity and health insurance, while using part of the proceeds to buy back shares. The other major private equity investment in a technology-enabled player was New Mountain Capital’s acquisition of OneDigital Health and Benefits. The business is the US’ largest provider of employee benefits services and offers employers a combination of strategic advisory, analytics, compliance support, HR capital management tools and comprehensive insurance offerings.


Figure 42 Human resources M&A activity, annually (2008 to 2017)


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Industry trends


Leadership consulting

HR analytics


IT servicesStrategy consulting

Operational consulting

Software solutions

HR consulting

Hot spaces

Global mobility

Organizational transformation

Cloud-based HCM

Healthcare staffing

Employee analytics

Leadership consulting




Regional reviewM&A continues to be focused on North America; There was also strong growth in deal flow in APAC.


57% 30%

8%

4%1%



North America



148 deals (up 37%)

$7.0m Deal size

Rest of the World



4 deals (down 58%)

N/A Deal size

Australia & NZ



11 deals (down 29%)

$11.2m Deal size

Europe



78 deals (down 30%)

$7.7m Deal size




20 deals (up 18%)

$1.2m Deal size



Overview of equity market performance The Equiteq Human Resources Share Price Index achieved strong gains and is approaching an all-time high.

Figure 44 Equiteq Human Resources Share Price Index

Figure 45 Equiteq Human Resources Share Price Index (2008 to 2017)

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Human Resources A. May 7: Estimations of the result of the French Presidential Election second round announced.



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Note: The Equiteq Human Resources Share Price Index is the only published share price index which tracks the listed companies within the human resources 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 companies and to remove businesses that are no longer relevant in each quarter.

Human Resources S&P 500



Valuation multiples and trendsRevenue multiples for M&A transactions were broadly flat; Publicly traded company valuations rose.







Q1 Q1Q3 Q3


0.5x 6.8x

0.6x 11.4x

0.2x 5.7x0.7x 9.5x

0.4x 8.5x1.1x 13.6x



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Strategic and private equity buyer trends There was notable M&A activity from prolific strategic buyers across insurance, risk management and staffing.

VacoThe buyer continued its M&A streak with 2 acquisitions in the year. At the end of the year, Vaco was acquired by private equity investor Olympus Partners. The executive search firm was previously backed by Quad-C Management in 2014. It has since experienced significant growth, which has partly been fueled by strong M&A. It has completed 7 acquisitions since its 2014 investment, which expanded its healthcare IT capabilities and enabled international expansion. Its new investment will enable it to continue with the next phase of its growth plan.

OneDigital Health and BenefitsOneDigital was sold by FIS to New Mountain Capital. OneDigital continued its strong M&A activity in the employee benefits space, acquiring 8 companies over the year. At the end of the year, the buyer announced a partnership with Zenefits, a provider of cloud-based SaaS to help companies with managing their human resources, in particular health insurance coverage.

Addison GroupAddison Group was acquired by Odyssey Investment Partners through an LBO at the end of 2016. In 2017, the staffing buyer acquired 2 businesses, breaking a pause in deal activity over the preceding two years. The acquirer purchased AIM Consulting, an IT consulting firm with strengths across application development, data analytics, infrastructure and cloud. Addison Group also acquired Texas-based management consulting firm Bridgepoint Consulting. The deal provided Addison with a range of finance, technology, risk and compliance consulting capabilities.

Hub International Hub International stepped up its deal flow in 2017, acquiring companies across its core insurance business and in adjacent industries like employee benefits consulting. Over the Summer, Reuters reported that Hellman & Friedman, who invested in the company in 2013, were exploring the sale of a stake in the business in a deal that could value it at between $6bn and $7bn.

Gallagher Gallagher, which rebranded from Arthur J. Gallagher, continued its strategy of buying smaller consulting firms, employee benefits and insurance brokers. In the Summer, the buyer acquired Total Reward Group, a consultancy offering remuneration support, executive search, interim placement and corporate training for compensation professionals. The acquisition was followed with the purchase of Canadian consulting firm DiBrina Group, a workforce, employee benefits, wealth management, and insurance consultancy. Gallagher has publicly stressed that the focus of its acquisition due diligence is on a target’s cultural fit with its business.



20% of all deals were by listed buyers (in line with 20% in 2016).

4% of buyers were financial buyers (down from 5% in 2016).



Q1

Q2


Equiteq advised

Target: Tradesmen InternationalProvides outsourced skilled craftsmen to non-residential construction and industrial contractors

Buyer: The Blackstone Group


Target: Aon’s human resources outsourcing businessBenefits administration and cloud-based HR services

Buyer: The Blackstone Group

Deal value: $4.8bn (2.1x LFY revenue)Target: BCI GroupEmployee and retirement benefits, life insurance and business consulting

Buyer: Hub International


Target: Mayfair Consultancy Services Health and benefits brokerage portfolio

Buyer: Aon


Target: OneDigital Health & BenefitsEmployee benefits provider

Buyer: New Mountain Capital


Target: SNI CompaniesProfessional staffing and recruitment

Buyer: GEE Group


Target: Ciber (Spain) IT staffing solutions

Buyer: ManpowerGroup


Target: iaCONSULTINGEmployee benefits consulting

Buyer: Marsh & McLennan Agency


Target: Corporate One Benefits AgencyEmployee benefits services

Buyer: First Defiance


Target: Medical SolutionsHealthcare staffing solutions for hospitals

Buyer: TPG Growth (TPG)


Target: 3 Degrees ConsultingStrategic consulting on performance and reward to senior executives

Buyer: KPMG


Target: Total Reward GroupRemuneration support, executive search, interim placement and corporate training for reward professionals

Buyer: Gallagher


Target: Assessment & Development Consultants (a&dc) Behavioral assessment and development consulting with products that enhance recruitment and development

Buyer: PSI Services



Q3

Q4

Target: Portus Consulting Employee benefits services

Buyer: Aon


Target: CDI CorporationEngineering, information technology and staffing solutions

Buyer: AE Industrial Partners


Target: Ballard Benefit WorksEmployee benefit and healthcare finance brokerage and consulting services

Buyer: Gallagher


Target: David M. Banet & Associates Benefits consulting and administration, HCM, insurance brokerage and consulting

Buyer: USI Insurance Services


Target: DiBrina GroupHR, employee benefits, wealth management and life insurance consulting, and brokerage services

Buyer: Gallagher


Target: Tikia Consulting GroupEmployee benefits brokerage and consultancy

Buyer: Risk Strategies Company


Target: VacoConsulting, permanent placement, executive search and strategic staffing

Buyer: Olympus Partners


Target: MillsonJames Advising brokers and employers on HR and benefits technology

Buyer: Hub International


Target: Taylor Winfield Executive search firm

Buyer: Focus Search Partners (Vaco)


Target: PAT Management Personal assessments, leadership training and executive team development

Buyer: Harvey Nash Group

Deal value: c. $4.5m (2.7x LFY revenue)

Target: Punter Southall businessesActuarial, pensions administration and investment consulting

Buyer: Xafinity

Deal value: £153m (3.0x LFY revenue)

Target: Ruggieri ConsultingDesign, pricing, communication, implementation and administration of health, welfare benefit and defined contribution retirement programs

Buyer: OneDigital Health & Benefits


The Knowledge Economy Global M&A Report 201880 Segment Reviews | Management Consulting

John Sandom, Brand agency.

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© Equiteq Advisors Ltd. 2018 81Tips

Tips

Tip 1: The relationship between business size and acquisition appetiteAlthough landmark deals grab headlines, there is notable deal flow at smaller transaction sizes, as highlighted by the large difference between mean and median deal sizes across segments each year. Nevertheless, we typically find that serial buyers do not focus on smaller deals below certain revenue thresholds, unless they offer exceptional synergy or intellectual property or are part of a team hire with limited cash consideration being paid. Buyers may also pay a premium for larger businesses with an established brand, attractive client relationships, embedded intellectual property and the investment in infrastructure that will enable future growth. The importance of revenue size to many buyers, highlights the benefits of setting a clear growth plan and a target scale at exit.

Tip 2: The factors that can influence a deal structureA knowledge-intensive services acquisition can be structured in a variety of ways, but typically involves some mixture of upfront cash element, fixed deferred cash and an earn-out. The earn-out typically lasts 2 to 4 years and offers additional compensation in the future if the business achieves certain financial goals. There are many factors which influence deal structure, however those features which tend to drive more significant earn-out elements include:

• Owners’ desire to share in synergy benefit and access to the buyers’ 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;

The following tips relate to some of the strategic issues that business owners on a sale journey should consider while reviewing the data analysis and findings within the report.

• Nature of the buyer;

• Nature of the sale process; and

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

There are a variety of steps that owners can take to reduce transaction risk for a buyer, which can improve target deal structures. Furthermore, we find that deal structures can be improved upon in well-managed competitive negotiations.

Tip 3: Considering buyers across adjacent industriesConvergence is a continuing trend in both operational and M&A growth for large players across the knowledge economy. Buyers in adjacent segments are often willing to pay premium prices that reflect the considerable synergy opportunity of cross-selling a broader set of complementary services among existing and new clients. Sellers should be aware that the highest price could therefore come from a strategic buyer outside of your core industry. Considering appropriate buyers across adjacent segments and appropriately positioning the synergy opportunity with these buyers is crucial to effectively managing a broad sale process.

Tip 4: Considering international buyers Acquiring in desirable regions enables strategic buyers to gain quick access to lucrative markets, brands, intellectual property, local market knowledge, new clients and specific local expertise. As a result of this, overseas buyers may pay a premium to gain a market foothold.

It is therefore important to consider a range of appropriate international buyers in a broad sale process. To attract these buyers to the local market, it is important to demonstrate the attractiveness of the market and its position. It is also key to articulate why the acquisition will be less risky and deliver a faster return than opening an office and recruiting local talent.

The Knowledge Economy Global M&A Report 201882 Tips

Tip 5: Key considerations when interpreting valuation metrics

The typical metrics used by a buyer to value a knowledge-intensive services business are Enterprise Value (EV) as a multiple of a seller’s last full year (LFY) of revenue and EV as a multiple of a seller’s LFY of EBITDA (referred to as “valuation multiples”). A buyer will typically consider reported valuation multiples on comparable M&A transactions, although only a small proportion of deals in the knowledge economy report revenue multiples and an even lower proportion report EBITDA multiples.

On larger transactions, buyers may also consider the valuation multiples of large global listed companies that are tracked within the Equiteq Knowledge Economy Share Price Index. Their valuation multiples are quoted publicly on a stock exchange at a given point in time and are therefore useful benchmarks of valuation based on current market sentiment.

It should be noted that to directly compare publicly quoted valuation multiples with transaction multiples requires the application of a strategic control premium and a liquidity discount, which can vary between company and equity market. Furthermore, valuation multiples for both transactions and listed companies typically relate to historic unadjusted financials. These issues with interpretation are compounded for EBITDA valuation metrics, where companies may under-report profits and not account for adjustments with respect to one-off items and equity components within salary expenses. These variables can contrive to increase a reported unadjusted EBITDA multiple figure.

Given these issues of interpretation, along with the wide range of company and deal specific factors that influence the valuation of a knowledge-intensive services business, valuation multiples will vary widely. The figures in this report are therefore primarily a comparative guide and to show trends year on year. They should not be used by sellers or buyers to value a business, for which we recommend you obtain independent financial advice.

Tip 6: What rising share prices means for listed buyersAs the publicly quoted valuation multiples and cash balances of listed buyers rise, so does competition for assets from this buyer group. Listed companies that are growing will be looking for new avenues of growth to meet shareholder expectations, and acquisitions quickly enables them to achieve this.

Earnings per share is a key metric that is tracked by public company shareholders to consider the dividend potential of the business. Earnings accretive acquisitions are often a key target of listed businesses. An accretive acquisition will increase a listed buyer’s earnings per share and can be quickly

achieved by paying a forward EBITDA multiple that is at a discount to a buyer’s own quoted EBITDA ratio. Therefore, premium and rising publicly quoted earnings ratios offers a buyer more scope to make earnings accretive acquisitions at higher prices.

With respect to deal structuring, some of these buyers will also be able to offer equity components to target companies. Listed equity is increasingly valuable as share prices rise and can be used to create more compelling offers over private acquirers.

Tip 7: Key considerations when selling to an accounting firmProfessional services buyers are looking to further expand their “Channel 2” (non-assurance) advisory services, which are considered a high growth segment for this buyer group and offers significant cross-selling opportunities with their assurance / tax client base. This buyer group is acquisitive and transaction structures typically involve non-cash components such as partnership in the accounting network. Buyers tend to operate on a territory model so have an aversion to acquiring diversely spread multi-territory businesses.

Tip 8: Key considerations when selling to a private equity firmPrivate equity (PE) buyers differ from strategic 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 an acquisition and selling to a PE buyer will have different implications as compared with selling to a trade buyer.

To make a return on their invested equity, PE buyers look for a company that has value enhancement potential and acquire it at a favorable price with financing. With knowledge-intensive services businesses, they are attracted by the relatively high profit margins compared to other industries, high levels of profit to cash conversion, the potential for high growth if a business is in a hot sector and the barriers to entry that can be maintained if proprietary expertise is retained and leveraged through intellectual property.


Marc Jantzen, Performance Improvement.

Sold.


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

Appendix

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

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

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

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

Engineering consultingFirms involved in professional services relating to engineering and construction.

Human resourcesFirms engaged in human capital management or related technology consulting, employee benefit services, leadership consulting, training and recruitment.

Appendix

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 that form part of their existing operations.

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

Listed buyers are those buyers whose equity is publicly traded on a stock exchange.


A quick word on the dataThis report has been compiled through the utilization of multiple data sources including proprietary news feeds, various third-party information sources, and data services. Additionally, our daily activities in the M&A marketplace with buyers and sellers provide unique insights as to emerging trends and informs our research report’s point of view.

It is important to note that financial data, including transaction valuation multiples, are derived from various sources including S&P Capital IQ and PitchBook information databases, combined with our daily activities in the market with buyers and sellers that we utilize on an anonymized basis. M&A volumes (the number of transactions completed) for the current year being analyzed are estimated based on actual deal volumes and the application of an adjustment factor to account for transactions announced, but not immediately captured in our databases. Due to refinements in data and market definitions, historic figures may vary between our reports.

Appendix

Equiteq is the global leader in providing strategic advisory and Mergers and Acquisitions (M&A) 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.

About Equiteq

The Knowledge Economy Global M&A Report 201886 Appendix

Join Equiteq Edge, our free source of information, advice and insight to help you prepare for sale and sell your knowledge-intensive services firm. Equiteq Edge gives you access to thefindings of unique research conducted amongst buyers ofknowledge-intensive services firms from around the world,insight from those who have sold their businesses and other expert advice.

Join Equiteq Edge at equiteq.com/equiteq-edge

Further resources

Equiteq has offices in New York, London, Singapore and Sydney. To contact us, either email [email protected] or call your regional office on:

UK: +44 (0) 203 651 0600North America: +1 (212) 256 1120Asia-Pacific: +65 6352 7482Australia and New Zealand: +61 2 9051 9007

Get in contact


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© Equiteq Advisors Ltd. 2018 87Appendix

Disclaimer Equiteq is an M&A and strategic advisory firm that exists to provide you, the owners of knowledge-intensive services businesses, 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.


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