IT Services, Cloud and Managed Services M&A Update Q2 2015

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1 Technology and Digital Media Investment Banking + M&A Advisory IT Services, Cloud and Managed Services M&A Update Q July 9, 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, managed services, hosting/data centers, VAR s and security 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 [email protected] Table of Contents: M&A Update Page 3 Average M&A Valuation Multiples, Q Page 5 Publicly Traded IT Services Firms, Valuation Tables Page 6-7 M&A Spotlight: Acxiom / Charlesbank and M/C Partners Page 8 M&A Spotlight: Capgemini / IGATE Page 9 Sources for our research and data include: Dealogic, Thompson Reuters, Company Websites, SEC Filings, Zephyr, MergerMarket 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 Update Global M&A Value Hits New High; Increases 8% to USD $2.713 Trillion The value of global mergers and acquisitions (M&A) in 1H 2015 climbed 8% from USD $2.504 trillion in 2H 2014 to USD $2.713 trillion, the highest recorded for the entire period under review, dating back to the start of By contrast, global M&A volume dropped 11% from 45,174 in 2H 2014 to 40,224, the lowest number of deals signed off in a six month period since 37,673 transactions in the first half of In spite of this decline in volume, a number of high value transactions ensured value was up; all of the month s top 20 deals were worth more than USD 10 billion and the two largest were valued at over USD 60 billion. Global M&A Deal Value and Volume Source: Zephyr Shareholders are not only encouraging, they are expecting companies to use bold M&A for growth in The mega-deals (>US$10bn) phenomenon continued at an even greater pace in 1H 2015 with 28 deals amounting to US$ billion, the highest value and deal count for any 1H period on record, and a giant 87.2% leap in value with twelve more announcements compared to H A digital and technology world results in multiple industries needing to acquire companies that will provide new technologies, or those able to help build them so they can advance. Telecommunications, Industrial & Chemicals and Consumer firms are hot Generation Equity Advisors, LLC Page 3

4 on the tail of Technology targets this year. As a result, Technology M&A is well on its way to reaching the highest annual value on record, with deals reaching USD $198.3 billion so far in 2015, just 10.7% from 2014 s record total (US $222.1 billion). Confidence within the US market is on a high, fuelled by low interest rates, stable economic growth and an abundance of corporate cash. 1H 2015 deal values mark the third first-half increase in a row, with USD $721.5 billion worth of deals reaching the highest 1H deal value since 2007, and a 20.7% increase compared to the same period in Mergers & acquisitions in the software, IT services and digital media sectors recorded healthy activity through the first half of 2015, with 1,126 transactions announced at a total value of $53.7 billion. Software & IT services led all sectors in number and value of transactions, with 708 deals valued at $28.4 billion for the first half of the year. Application software was the most active sub sector, accounting for one third of deal volume. IT services (18%) was the second most active sub sector, followed by mobility (11%), IT outsourcing (9%) and information management (8%). The software and IT services sector remained somewhat flat, but still very active, in terms of deal volume, with 708 transactions in the first half of 2015 vs. 707 in Deal value declined slightly from the 1H 2014, but still came in at a strong $28.4 billion in value. % of M&A Deals Announced by Sub-sector Info Mgmt, 8% IT Outsourcing, 9% Application Software, 33% Mobility, 11% IT Services, 18% Generation Equity Advisors, LLC Page 4

5 Average M&A Valuation Multiples, Q EV/LTM Revenue EV/EBITDA IT Services (ITS) 1.0x 9.9x Offshore IT Services 2.4x 14.8x Cloud and Hosting Services 2.2x 8.2x IT Staffing 0.4x 7.5x Transaction Processing 3.3x 14.2x Information Services 2.8x 14.3x Value Added Reseller (VAR) 0.2x 7.0x EV = Enterprise Value LTM = Latest Twelve Months Source: TM Capital Generation Equity Advisors, LLC Page 5

6 Publicly Traded IT Services Firms Valuation Table (as of June 30, 2015) 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 Accenture ACN B Cap Gemini CAP.PA B CIBER CBR M CGI Group GIB B Edgewater Technology EDGW M Hackett Group HCKT M Perficient PRFT M Average All data and stock prices as of market close June 30, 2015 Source: Capital IQ, Yahoo! Finance Generation Equity Advisors, LLC Page 6

7 Publicly Traded IT Services Firms Valuation Table (as of June 30, 2015) OUTSOURCING Ticker Stock Price Market Cap EV/Revenue EV/EBITDA Accenture ACN B ATOS ATO.PA B Computer Services Corp. CSC B HP HP B IBM IBM B igate Corp. IGTE B Unisys UIS M 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 Average All data and stock prices as of market close June 30, 2015 Source: Capital IQ, Yahoo! Finance Generation Equity Advisors, LLC Page 7

8 M&A Spotlight Acxiom Sells Its IT Infrastructure Management Outsourcing Business to Charlesbank and M/C Partners May 20, Acxiom Corporation (Nasdaq: ACXM), an enterprise data, analytics and software-as-a-service company, announced that it has entered into a definitive agreement to sell its IT Infrastructure Management business (Acxiom IT) to Charlesbank Capital Partners (Charlesbank) and M/C Partners for total cash consideration of up to $190 million. Acxiom Corp. announced that it is getting out of the IT services business as the Little Rock, Arkansas technology company continues to streamline its operations to focus on its core marketing and data services business. Under the terms of the agreement, total potential cash consideration is approximately $190 million, comprised of $140 million in cash at closing and up to $50 million in contingent payments subject to certain performance metrics. In addition, Acxiom will receive a five percent profits interest in the go-forward Company. The sale is expected to close in the second quarter of fiscal 2016, following the satisfaction of regulatory requirements and other customary closing conditions. Acxiom will report ITO as a component of discontinued operations beginning in the first quarter of fiscal Acxiom will use proceeds from the sale to pay down debt and to fund the expansion of its share repurchase program. Generation Equity Advisors, LLC Page 8

9 M&A Spotlight Capgemini to Acquire IGATE April 27, Capgemini and IGATE announced that they have entered into a definitive merger agreement under which Capgemini will acquire IGATE for a cash consideration of $48 per share. The transaction will amount to $4.0 billion and is expected to be immediately accretive to Capgemini s normalized Earnings Per Share (EPS)1. The merger agreement has been approved unanimously by both Capgemini s and IGATE s Board of Directors. The transaction has also been approved by the written consent of shareholders holding a majority of IGATE s shares. IGATE is a prominent US-listed technology and services company headquartered in New Jersey with 2014 revenues of $1.3 billion, double-digit growth and a 19% operating margin2. North America is IGATE s largest market representing 79% of revenues in 2014 followed by Europe (14%) and Asia-Pacific (7%). IGATE strengthens Capgemini s key businesses in application and infrastructure services as well as BPO and engineering services. Moreover, the transaction enriches Capgemini s portfolio with new flagship clients such as General Electric and Royal Bank of Canada. This transaction would lead to a group with an estimated combined revenue of 12.5 billion in 2015, an operating margin above 10% and around 190,000 employees. The combined Group will pass the 100,000 employees landmark in its Rightshore delivery centers in This transaction fulfills one of the essential components of Capgemini s strategy in expanding its presence in the North American market. The contemplated transaction will consist in a one-step cash merger between IGATE Corporation and a subsidiary of Capgemini North America Inc. The merger has been approved by the written consent of IGATE Corporation shareholders representing approximately 54% of the capital (subject to a 30-day fiduciary out period during which IGATE Corporation could accept a superior proposal). The merger is subject to the customary closing conditions, including regulatory approvals. The transaction is expected to close in the second half of This transaction will be financed through a combination of: Current cash Equity portion translating into a dilution not to exceed 6% of Capgemini share capital Straight debt for the remaining portion. Multiple: 3.07x EV/Revenue

10 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 10