IT Services, Cloud and Managed Services M&A Update Q1 2015

Transcription

1 Technology and Digital Media Investment Banking M&A Advisory IT Services, Cloud and Managed Services M&A Update Q April 3, 2015 Generation Equity Advisors, LLC 8560 W. Sunset Blvd, Suite 500 West Hollywood, CA (310) TechMediaMergers.com

2 Generation Equity Advisors is an independent investment banking and M&A advisory firm focused exclusively on the global Software, IT Services and Digital Media industry sectors. We cover the IT Services sector comprehensively including companies that provide cloud services, systems integrators, IT consultants, hosting/data centers, VAR s and managed services firms. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with software, IT services and digital media companies as well as leading private equity firms. Aaron Solganick, CEO Generation Equity Advisors 8560 West Sunset Blvd, Suite 500 West Hollywood, CA (310) x101 aaron@generationequityadvisors.com Table of Contents: M&A Update: M&A Mania Page 3 IT Services M&A Update: Q1 Transactions Page 4 Average M&A Valuation Multiples Page 7 IT Services Public Company Valuation Table Page 8 IPO Spotlight: GoDaddy Page 9 M&A Spotlight: All Covered/Preferred Networks Page 10 M&A Spotlight: Stefanini / IHM Page 11 M&A Spotlight: Ingram Micro/Tech Data Page 12 Sources for our research and data include: Dealogic, Thompson Reuters, Company Websites, SEC Filings DISCLAIMER The information contained herein is of a general nature and is not intended to address the circumstances of any particular company, individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We perform our own research and also use third party research. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. This is not an offer or recommendation to buy or sell securities nor is it a recommendation to merge, acquire, sell or exit a specific company or entity. We do not hold any equity or debt position in any of the securities listed herein as of the date of this report. Generation Equity Advisors, LLC Page 2

3 M&A Mania: Deal Activity Hits 8-year High Global merger activity is off to the best annual start since 2007 as deal making momentum has carried into this year. According to data from Dealogic, the first three months of 2015 got off to a strong start with $902.2 billion in announced M&A, the highest Q1 total since 2007 ($1.08 trillion). 14 deals with a value of $10 billion+ were announced ($267.4 billion), the most in a first quarter since 2006 (15 deals). Global M&A volume was up 23% in Q from the first quarter last year ($732.8 billion). According to the global M&A activity data for Q released by Thomson Reuters, the total number of announced deals also jumped from 8,237 in 2014 to 9,165 in Both these factors made Q the best first quarter for the M&A industry since 2007 in terms of announced deals. U.S. M&A activity had its largest first quarter since 2000 with $414.7 billion, and it was the best first quarter ever for Asia (non-japan) M&A with $199.7 billion. Cross-border M&A also performed well, reaching $315.2 billion - the highest first quarter volume since 2007 when activity reached $357.9 billion, according to Dealogic. Technology was the leading sector for cross-border activity (416 deals). NXP Semiconductors (Netherlands) $16.7 billion bid for Freescale Semiconductor, an exit for Blackstone, Carlyle, Permira, and TPG Capital, will be the largest cross border Technology deal involving a European buyer or target, on record. Volume from $1 billion+ deals reached $624.1 billion in Q1 2015, and accounted for 69% of M&A volume in all sectors. Average deal size for global M&A increased 22% year-on-year to $211 million in Q1 2015, up from $173 million in Q and the highest Q1 average since 2007 ($223 million). Average deal size for $1bn+ deals was $4.0bn, up 10% on 1Q 2014 ($3.6bn) and the highest 1Q average since 2009 ($6.1bn) Deals valued at $1bn or less totaled $278.1bn and were 31% share of total volume in 1Q 2015 and the highest 1Q volume since 2011 ($312.2bn) Cash only payments increased to $392.8 billion in Q1 2015, up 32% from $298.2 billion in Q Payment using only Common Shares totaled $115.9 billion in Q1 2015, down slightly from Q ($117.6 billion). One area that did see swift declines, however, was private equity. Dealogic noted $35.25 billion of PE-backed buyout activity in the first three months of 2015, compared to $63.78 billion in Q That s a dollar decline of 44.7%, while the number of deals fell by 7.3%.

4 IT Services M&A Update Q is off to a strong start in terms of deals announced within the IT Services industry sector. The following were announced M&A transactions for the first quarter: January All Covered, a division of Konica Minolta Business Solutions U.S.A., Inc. (Konica Minolta) and one of the nation s leading IT Services companies, has acquired the assets of Preferred Networks Corporation of Atlanta. The company s clients will now be serviced by the All Covered IT Services division of KMBS, giving All Covered a stronger foothold in the greater Atlanta area. The acquisition became official January 1, Terms of the deal were undisclosed. January SMS Systems Maintenance Services, a portfolio company of Thomas H. Lee Partners and Summit Partners, acquired Prob-Solve Group, which provides managed IT support and solutions, to deepen its presence in the European market. January KPMG acquired Trusteq Oy to strengthen its IT security services capabilities in Finland; this is KPMG's third recent IT security acquisition following Quibera and P3 Consulting. January Datapipe acquired GoGrid as part of a strategic initiative to enable enterprise clients to better architect, deploy and manage multi-cloud hybrid IT solutions. GoGrid Provides cloud computing and Infrastructure-as-a-Service for businesses around the globe. January Tech Mahindra augments its core banking expertise, acquires banking IT services firm SOFGEN Holdings Ltd. for an undisclosed amount. Tech Mahindra Ltd. a specialist in digital transformation, consulting and business re-engineering announced that it has signed a definitive agreement to acquire SOFGEN Holdings Limited (SOFGEN), a niche consulting and services company with worldwide presence specializing in Private Wealth, Commercial and Retail Banking solutions. The transaction is expected to close by March 2015, subject to regulatory approvals. SOFGEN has 450+ employees with 20+ Tier 1 client relationships. Delivering solutions in and around core banking the company has the 2nd largest pool of Avaloq consultants in the world and is Temenos most prolific partner. With this acquisition, Tech Mahindra will have the capability to offer a unique combination of Change the Bank and Run the Bank services to Retail banking, Private Banking and Wealth Management customers globally. January Matchtech Group announced its intent to acquire Networkers International Plc for $99 million to expand its geographic footprint and strengthen its IT specialty. Networkers International PLC sources, recruits, and supplies IT personnel across various industries in the United Kingdom and internationally. It represents a multiple of 0.4x EV/LTM Revenues and 9.1x EV/LTM EBITDA. January The Aldridge Company acquired TWIST Solutions to quickly scale its operations and better serve the SME market. Twist Solutions provides managed IT and cloud services to small to mid-sized businesses/organizations. Generation Equity Advisors, LLC Page 4

5 January DLT Solutions, a leading value-added reseller in government information technology (IT) software and services, today announced that it has been acquired by private equity firm Millstein & Co. January Cal Net acquired Velocity Network Solutions to strengthen its market position on the West Coast and bolster its service offering through Velocity's managed services portfolio. Velocity Network Solutions offers managed IT services that range from help desk support to strategic guidance to offsite backup and disaster recovery. January Potomac Equity Partners invested in Orion Systems to augment its portfolio of technology companies and provide capital to enable the Company to capitalize on the adoption of cloud-based solutions. Orion Systems Integrators provides IT services and systems integration services, such as program management, solution architecture, implementation and Oracle, MSFT and SAP solutions. February Hitachi Systems agreed to acquire Cosmic Blue to expand its presence in Europe, marking the Company's seventh acquisition in twelve months. Offers IT services which includes system design and construction, cloud services and data center services. Hitachi Data Systems also announced the acquisition of oxya SAS to bolster its managed services portfolio and add SAP expertise to its capabilities. oxya provides IT deployment, administration, and management services for SAP solutions. February Brazil based Stefanini IT Solutions merged with IHM Engenharia. Stefanini currently operates in 34 countries and generates approximately 40% of its combined revenues. In 2014, the group announced revenues of 2.35bn reais (US$870mn), up 11% year-on-year. Similar growth is expected for this year. February Cognizant Technology Solutions signed a partnership agreement to take over CNO IT Services to bolster its presence in India. Cognizant will receive over 600 IT professionals from CNO. CNO IT Services is an India-based subsidiary of CNO Financial Group, a publicly-traded life and health insurance company based in the US. February Telicity Group, a UK-based data center provider, has agreed to acquire Interxion for $2.6 billion to capitalize on increased demand for data services and storage fueled by cloud computing and mobile. Interxion Holding NV provides carrier-neutral colocation data center services and managed services comprising systems monitoring, systems management, engineering support and storage services. February Zayo Group, a provider of infrastructure solutions, agreed to acquire Latisys for $675 million from Great Hill Partners to strengthen its infrastructure services and expand its datacenter portfolio to 45 facilities. February Intellinet, a provider of management consulting and Microsoft-centric services, entered an agreement to acquire Innovative Computer Systems to enhance its managed services portfolio. Innovative Computer Systems provides IT consulting services and managed services such as server, SQL, backup and virtual server maintenance and monitoring services. Generation Equity Advisors, LLC Page 5

6 February Marco, a provider of business IT consulting services and AV and document management services, acquired Solbrekk to augment its managed IT services division and expand its hosted and cloud service offerings. February Ernst & Young entered an agreement to acquire C3 Business Solutions to expand its service offering to include the delivery of hosted cloud solutions and infrastructure managed services. C3 Business Solutions provides information management, analytics, and business intelligence consulting services. February Aon Hewitt acquired Kloud Ltd. to meet increased foreign demand for Workday consulting services. Through the acquisition of Kloud, Aon Hewitt is the largest provider of Workday services in Europe. February MegaPath sells its managed services business to GTT Communications MegaPath Corporation, one of the leading providers of voice, data, security and cloud services in North America, today announces that the company is selling its managed services business division to GTT Communications, Inc. (NYSE: GTT), a leading global cloud networking provider to multinational clients. The parties expect to close on April 1, 2015, after obtaining regulatory approvals. GTT will pay $144.8 million in cash and $7.5 million in GTT common stock to acquire MegaPath s Managed Services division, which provides private networking, access services, and managed security services to over 500 large enterprise clients. March Denovo, a leading provider of Oracle JD Edwards ERP cloud hosting, consulting and managed services, announced that M/C Partners, a private equity firm based in Boston, has invested in and acquired a majority interest in Denovo. The financing will enable Denovo to make acquisitions and invest in the development of its cloud and managed services offerings while providing liquidity for its founders. The terms of the transaction were not disclosed. March 2015 PCM, Inc. (PCMI) announced that it has completed its acquisition of certain assets of En Pointe Technologies Sales, Inc. ( En Pointe ), one of the nation's largest independent IT solutions providers, headquartered in Southern California. PCM announced on March 16, 2015 that it had entered into an agreement to acquire the assets of En Pointe s IT solutions provider business, excluding current tangible assets, such as accounts receivable and inventory. Under the terms of the agreement, PCM paid an initial purchase price of $15 million in cash and will pay certain contingent earn-out consideration over a three year period. The assets were acquired by an indirect whollyowned subsidiary of PCM, which subsidiary now operates under the En Pointe brand. March Arrow Electronics (NYSE:ARW), a global solution provider with $22.8B annual revenue, announced today that it was acquiring value-added distributor immixgroup for an undisclosed amount. immixgroup, #37 on the CRN SP500 list, was reported by the Washington Business Journal to have posted $920 million in revenue for Once the transaction is closed in Q2, immixgroup will retain its focus on the government market and operate as subsidiary of Arrow. According to USAspending.gov, immixgroup had $418.3 million in federal sales in FY2014. Arrow expects the acquisition to be $0.10 to $0.14 accretive to EPS, excluding the impact of amortization. Generation Equity Advisors, LLC Page 6

7 March Ingram Micro Inc. (NYSE: IM) announced the acquisition of Tech Data's Peruvian and Chilean Businesses to expand its reach in fast-growing, high-value Latin America market. The acquisition, which closed March 16th, is expected to add more than $270 million annually to Ingram Micro's revenue and be slightly accretive to 2015 consolidated non-gaap earnings per diluted share. The acquisition complements Ingram Micro's existing operations in Peru and Chile and immediately delivers increased reach and scale in the region, which has consistently been a top performer for the company. In addition to delivering cost synergies through merger and integration of the two businesses in each country, the acquisition is expected to drive further strong growth in Technology Solutions, while increasing penetration into additional service opportunities in Mobility, Supply Chain Solutions and Cloud. Average M&A Valuation Multiples as of Q IT Services Cloud, Managed and Hosting Services VAR Enterprise Value/Revenue (ttm) Enterprise Value/EBITDA (ttm) 0.4x to 1.4x 1.1x 2.5x 0.2x - 0.4x 6.4x to 13.4x 8.4x x 6.8x 8.3x Generation Equity Advisors, LLC Page 7

8 Publicly Traded IT Services Firms Valuation Table CONSULTING Ticker Stock Price Market Cap EV/Revenue EV/EBITDA Advisory Board Co. ABCO B Charles River Associates Intl CRAI M FTI Consulting FCN B Hackett Group HCKT M Huron Consulting Group HURN B Information Services Group III M Navigant Consulting NCI M Resources Connection RECN M Average SYSTEMS INTEGRATORS Ticker Stock Price Market Cap EV/Revenue EV/EBITDA Cap Gemini CAP.PA B CIBER CBR M CGI Group GIB B Edgewater Technology EDGW M Hackett Group HCKT M Perficient PRFT M Average OUTSOURCING Ticker Stock Price Market Cap EV/Revenue EV/EBITDA Accenture ACN ATOS ATO.PA B Computer Services Corp. CSC B HP HP B IBM IBM B igate Corp. IGTE B Unisys UIS B Average OFFSHORE Ticker Stock Price Market Cap EV/Revenue EV/EBITDA Cognizant Technology Solutions CTSH B igate Corp. IGTE B Infosys INFY B Syntel SYNT B Virtusa VRTU B Wipro WIT B Average VAR Ticker Stock Price Market Cap EV/Revenue EV/EBITDA CDW CDW B eplus PLUS M Insight Enterprises NSIT B Systemax SYX M Note: Stock Prices and Market Data as of March 31, 2015 Average Generation Equity Advisors, LLC Page 8

9 IPO Spotlight GoDaddy IPO values company at $4.5 billion Web hosting company GoDaddy Inc. has priced its initial public offering at $20 per share, above its previously indicated $17 to $19 per share range, valuing it at around $4.5 billion, including debt, according to underwriting sources. At this price, the IPO would raise $440 million. A GoDaddy spokesman did not immediately respond to a request for comment. Shares in GoDaddy started trading on Wednesday and listed on the New York Stock Exchange under the symbol "GDDY." GoDaddy, whose Super Bowl commercials once featured race car driver Danica Patrick and super model Bar Rafaeli but have since been toned down its advertising, added more than 1.1 million customers last year. The company was founded in 1997 and in 2011 was acquired by a private equity consortium led by KKR & Co LP and Silver Lake Partners LP for $2.25 billion, including debt. It has since expanded from its roots in internet domains to provide services to small and mediumsized businesses such as website building and web hosting. GoDaddy's revenue has risen about 52 percent in last three years to about $1.4 billion and net loss has narrowed to $143.3 million in 2014, from $279 million in The company had about $1.3 billion in long term debt on an adjusted basis, as of Dec. 31. It competes with Endurance, United Internet, Web.com and companies like Amazon.com Inc, Google Inc and Microsoft Corp, which have recently entered the domain name registration business. GoDaddy filed for an IPO in 2006 and later withdrew it, citing unfavorable market conditions, the same year Google Inc launched its free web hosting service, Google Page Creator. Morgan Stanley, JP Morgan Securities and Citigroup were lead underwriters to the IPO. Source: Reuters Generation Equity Advisors, LLC Page 9

10 M&A Spotlight All Covered Acquires IT Services Firm Preferred Networks Corporation Foster City, Calif. and Ramsey, New Jersey - January 30, All Covered, a division of Konica Minolta Business Solutions U.S.A., Inc. (Konica Minolta) and one of the nation s leading IT Services companies, has acquired the assets of Preferred Networks Corporation of Atlanta. The company s clients will now be serviced by the All Covered IT Services division of KMBS, giving All Covered a stronger foothold in the greater Atlanta area. The acquisition became official January 1, Terms of the deal were undisclosed. "We are excited to begin 2015 with news of this acquisition," says Todd Croteau, president of All Covered. "Preferred Networks Corporation has developed an outstanding model of delivering cloud technologies, data backup solutions and managed IT services to its customers in the Atlanta area. The company s mission and services align perfectly with All Covered s commitment to providing unmatched IT services to organizations across all industries. In addition to gaining Preferred Networks Corporation s clients, All Covered also expands their capabilities with a talented group of IT services professionals that understand the wide range of technology demands facing businesses today. All of Preferred Networks Corporation s employees were retained in the acquisition, including David Webster, the company s founder and president. Since its inception in 2007, Preferred Networks Corporation has built a reputation locally for delivering top-of-the-line IT services to customers in the greater Atlanta area. Beginning with contract-based managed IT services as its core offering, Preferred Networks Corporation added cloud and desktop services in The company s Infrastructure-as-a-Service (IaaS) cloud offering focuses on hosted applications, backup and disaster recovery services, and Citrix XenApp virtual apps that allow companies to reduce or eliminate large investments on IT infrastructure and allow them to access data from anywhere in the world. For more information, please go to: Generation Equity Advisors, LLC Page 10

11 M&A Spotlight Stefanini IT Solutions announces merger with IHM Engenharia February 3, Brazilian IT services multinational Stefanini has started off 2015 with its engines on full-throttle. The company announced it is merging its operations with IHM Engenharia, a Brazil-based multi-sector engineering services firm, according to a Stefanini statement. The merger is aimed at increasing Stefanini's footprint in the industrial segment and follows the company's credo of joining forces with or acquiring companies whose portfolio complements that of Stefanini. Transaction consideration was not disclosed. The transaction is still subject to regulatory approvals. At a year-end press conference in December, CEO Marco Stefanini underlined that during 2015 the company would be resuming the previous year's rate of mergers and acquisitions, both in Brazil and abroad. Founded in 1994, IHM Engineering operates in the segments of mining, metals, chemicals, paper, agribusiness, food, automotive, power, and oil & gas, among others. Initially, the focus will be on areas where the two companies have direct operations and offices in Brazil. The partnership will then be successively extended to Latin America and other regions. For IHM, the deal allows it to take advantage of Stefanini's comprehensive international clout in order to expand outside Brazil. For more than two years, Stefanini has been ranked by Brazilian think-tank Fundação Dom Cabral as the most "globalized" Brazilian IT company and is the fourth most "international" IT company in the country, according to the latest ranking. Stefanini currently operates in 34 countries which generate some 40% of its revenues. In 2014, the group collected revenues of 2.35bn reais (US$870mn), up 11% year-on-year. Similar growth is expected for this year. For more information, go to: and Generation Equity Advisors, LLC has advised Stefanini for buy-side M&A services in a previous transaction.

12 M&A Spotlight March 18, Ingram Micro Inc. (NYSE: IM) announced that it is further expanding its reach in the fast-growing and high-value Latin American market with the acquisition of Tech Data's Peruvian and Chilean businesses. The acquisition, which closed March 16th, is expected to add more than $270 million annually to Ingram Micro's revenue and be slightly accretive to 2015 consolidated non-gaap earnings per diluted share. The acquisition complements Ingram Micro's existing operations in Peru and Chile and immediately delivers increased reach and scale in the region, which has consistently been a top performer for the company. In addition to delivering cost synergies through merger and integration of the two businesses in each country, the acquisition is expected to drive further strong growth in Technology Solutions, while increasing penetration into additional service opportunities in Mobility, Supply Chain Solutions and Cloud. "This acquisition is an excellent complement to our existing operations in Latin America," said Alain Monié, Ingram Micro CEO. "Latin America is consistently one of our top performing regions and the addition of these businesses to our current operations in Peru and Chile further reinforces to our customers and vendors Ingram Micro's established position and commitment to providing world class, supply-chain and technology services in emerging markets." For more information, go to: Generation Equity Advisors, LLC Page 12

13 Generation Equity Advisors, LLC is an independent investment bank and M&A advisory firm focused exclusively on the global Software, IT Services, Internet and Digital Media industry sectors. We advise buyers and sellers of companies and efficiently execute transactions to increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current relationships globally with companies as well as leading private equity firms. Please contact for information regarding this report or to inquire about an M&A transaction: Aaron Solganick, CEO Generation Equity Advisors, LLC 8560 W. Sunset Blvd, Suite 500 West Hollywood, CA (310) TechMediaMergers.com Follow Us on Twitter: TechMediaMerger Generation Equity Advisors, LLC Page 13