amazon web services 4.8x* nm ltm revenue ltm ebitda ...€¦ · m&a activity and trends...
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Premium Valuations Being Paid for Cloud IT Services CompaniesOver the past several years, technology consulting firms thatspecialize and are highly active in the leading, rapidly growingtechnology / software ecosystems have achieved significantvaluation premiums in the M&A market versus more traditionalIT consulting firms. This is a trend we anticipate continuingthroughout the foreseeable future.
Amazon Web Services, Salesforce, ServiceNow, Sitecore andWorkday are examples of these aforementioned technologyecosystems. All of them drove significant revenue and market-share capture as a result of embracing the Cloud. Consultingand Managed Services firms that built expertise around theseecosystems are reaping the benefits.
IT services companies with the following characteristicsreceive strong M&A interest and valuations from both strategicbuyers and PE investors:
▪ Specialized skills in one of the technology / software areaswhere a majority of revenue is generated from onetechnology vendor
▪ Strong revenue growth greater than 50% as the companygains critical mass; sustained 20%+ growth at scale
▪ 40%+ gross margins due to focus on scarce / in-demandtalent
▪ Proprietary IP that automates and / or enhances ability todeliver projects and services more efficiently
Private Equity investors are particularly interested because ofthe scarce talent, constrained ecosystems and attractivemargin profiles. Strategic buyers rationalize paying premiumvaluations for the ability to scale or build on existing practiceareas and obtain scarce talent. Many strategic buyers also lackthe ability to develop the skills internally.
Whether your consulting company has the above mentionedcharacteristics or not, we would welcome a discussion aboutM&A opportunities in the IT & Professional Services sector.Please contact us to schedule a call. Our IT & ProfessionalServices team is also meeting with executives and investors atseveral conferences the rest of this year.
ITPS News & Trends High Growth IT Services M&A Multiples
IT & Professional Services InsightsOCTOBER 2018
Sources: S&P Capital IQ*AWS EV / LTM Revenue consists of net revenue
Components of a Premium Valuation
▪ Vertical / Geography – specialization in either a particular vertical or geography
▪ Growth – ability to maintain double digit growth for consecutive years
▪ Skills – unique skill set offerings (SFDC, SNOW, AWS, WDA)
Vertical / Geography
Skills
Growth
Enterprise ValueLTM Revenue LTM EBITDA
Amazon Web Services 4.8x* NM
Salesforce 2.6x 11.4x
ServiceNow 2.4x 16.4x
Sitecore 2.3x 15.5x
Workday 2.5x 16.7x
Average Cloud 2.9x 15.0x
Traditional IT Services 1.1x 8.4x
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Bowstring News
Upcoming Sector Conferences
Spotlight on Recent Bowstring ITPS Transaction
Bowstring Advisors served as the exclusive financial advisor to Winxnet, Inc. and K&RNetwork Solutions, Inc. who merged to form a coast-to-coast managed IT servicescompany prior to entering into a strategic investment partnership with The RiversideCompany.
“This merger brings together two world class managed service providers with entirelycomplementary proficiencies around IT management and delivery. Combined with theintellectual property and IT automation software that KRNS has developed, we are poisedto transform an industry, including fundamentally improving the overall client experiencewith IT,” said Chris Claudio, CEO, Winxnet.
“After a rigorous vetting process, we chose Bowstring due to their experience and proventrack record with Managed Service Providers and the IT industry as a whole. The Bowstringteam delivered as promised, demonstrating their industry prowess during all stages of theengagement, and we could not have been more pleased with the experience and outcome.”
Why the Name Change to Bowstring Advisors?
After 10 years as CHILDS Advisory Partners,we officially announced our new name inMay.
Our firm continues to grow rapidly in terms ofprofessionals and practice areas thus we felta “non-personal” name was more reflective ofour broader reach. Our goal is to be a top 10player in the U.S. and we feel our new name,Bowstring Advisors, supports that vision.
A bowstring joins two ends of a bow andlaunches an arrow toward its target. It isdesigned for a singular purpose – to propel.Like the bowstring, we exist to give guidanceand counsel to clients that propels them andtheir companies toward their goals.
3
13.2x
10.1x 10.5x
14.7x
10.4x11.6x
15.6x
11.0x12.2x
IT Services Consulting Managed Services
Q4 2017 Q1 2018 Q2 2018
M&A Activity and Trends
Mid-Market M&A Transaction Volume
ITPS Public Market Valuations
▪ Middle-market transaction multiples across the ITPSspectrum remain close to all-time highs, and publicmarket companies in the industry are averaging 12.9xthrough Q2 2018
▪ Middle-market valuations were driven upward in 2016and 2017 due to increased competition and notablystrong interest from PE buyers
▪ Large strategic acquirers have strong balance sheetswith ample cash to put to work, and there is a continuedfocus on the U.S. market from international acquirerslooking to gain access to the significant opportunity inthis market
▪ Private equity funds raised a record amount of capital in2017 totaling $453B raising dry power to $1.7T
▪ Private equity-backed strategic acquirers continue tosearch for add-on acquisitions and have contributed24% of deal volume YTD 2018
▪ Positive macroeconomic tailwinds combined withfinancial performance and record amounts of drypowder and cash balances indicate 2018 to be anotherstrong year
(EV / EBITDA)
Sources: Bowstring proprietary database; Forrester; Gartner; McKinsey & Co. “Dry powder in private equity”; Pitchbook; Preqin Ltd. “Q4 2017 Fundraising Update”; S&P Capital IQ
Quarterly Trends in U.S. Middle-Market ITPS M&A Activity
53
88
51
91 9482 80
10187
6877
86 81 79 7587 81
89
16
14
12
18 16
20 20
24
10
129
1313 23
16 1119
13
5
1
2
1 2
2 4
2
3
31
44
2
65 3 2
3
2
12
2 1
2
1
2 1
22
4
3
1 33
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2014 2015 2016 2017 2018
Undisclosed Less than $100M $100M - $499M $501M - $1,000M
6,144 6,001 5,761 5,607
6,7506,277 6,481 6,482
6,748
5,9645,671
5,150
5,869
5,161 4,9924,716
3,830
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
1,600
3,200
4,800
6,400
8,000
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2014 2015 2016 2017 2018
Under $100M $100M-$250M $250M-$500M $500M-$1B Count
4
Notable Transactions - Consulting
IT consultancy offering implementation and optimization
of cloud based business processes and technology
Cybersecurity and compliance solutions provider specializing in
helping businesses navigate regulatory and business-driven security and compliance needs
IT, KPO and digital transformation company
providing integration, development and services
IT solutions company that provides managed and cloud
services for businesses
Australia’s leading enterprise technology agency offering
design, insights and strategic capabilities
Offers e-commerce solutions that comprise design and
development services
Pending
HAS ACQUIRED
Q3 2018
HAS ACQUIRED
Q3 2018
Q3 2018 Q3 2018
HAS ACQUIRED
Q3 2018
HAS ACQUIRED
Sources: Bowstrings' proprietary database; Pitchbook; S&P Capital IQ
HAS ACQUIRED
HAS ACQUIRED
A PORTFOLIO COMPANY OF
5
Notable Transactions – Managed Services
IT consultancy offering managed services, remote monitoring,
security, strategy and development
Remote database administrator offering a full range cloud and
remote services
IT consultancy offering managed services, cloud, security and
migration services
Internet software and services company offering data center
services in the U.S. and internationally
Provider of managed IT operations, application hosting and managed cloud services to
enterprises in the U.S. and internationally
Q3 2018 Q2 2018
HAS ACQUIRED
Q2 2018
HAS ACQUIRED
Q1 2018
HAS ACQUIRED HAS ACQUIRED
Q2 2018
HAS ACQUIRED
HAS ACQUIRED
Sources: Bowstrings' proprietary database; Pitchbook; S&P Capital IQ
AWS-focused IT consultancy offering cloud strategy, cloud migration and implementation
Pending
6
Public Trading Statistics
IT Services
Managed Services
Consulting
Source: S&P Capital IQ* Denotes figure excluded from mean / median calculation
Market Data Operating Statistics EV as a Multiple of: GrowthStock Price LTM LTM CY2018 16 - '17
Company Name 8/31/18 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA GrowthAverage
Accenture plc $169.07 99.5% $108,331.3 $104,783.4 $38,573.6 $6,276.1 16.3% 2.7x 16.7x 2.66x 15.2x 6.0% 7.6%
FTI Consulting, Inc. $76.22 93.1% $2,826.0 $3,081.1 $1,926.5 $252.5 13.1% 1.6x 12.2x 1.57x 12.9x (0.1%) 3.1%
Exponent, Inc. $52.35 98.1% $2,724.2 $2,530.9 $345.7 $87.4 25.3% 7.3x 29.0x 7.02x 3.1x 10.2% 5.4%
Navigant Consulting, Inc. $23.89 92.4% $1,075.2 $1,211.0 $950.5 $124.1 13.1% 1.3x 9.8x 1.66x 14.1x 0.1% 5.2%
Resources Connection, Inc. $16.55 92.2% $528.3 $534.9 $654.1 $51.0 7.8% 0.8x 10.5x 0.82x 11.5x (2.5%) 3.5%
CRA International, Inc. $57.16 97.3% $461.8 $473.9 $393.4 $28.2 7.2% 1.2x 16.8x 1.15x NA * 13.9% 8.7%
Mean 95.4% $7,140.7 $1,136.6 13.8% 1.9x 15.8x 1.9x 11.4x 4.6% 5.6%
Median 95.2% $802.3 $105.8 13.1% 1.0x 11.3x 1.0x 11.5x 3.0% 5.3%
3 Year Rev CAGR
% of 52Week High
Market Cap.Enterprise
Value
Market Data Operating Statistics EV as a Multiple of: GrowthStock Price LTM LTM CY2018 16 - '17
Company Name 8/31/18 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA GrowthAverage
Infosys Limited $720.55 99.1% $3,147,638.4 $2,913,779.2 $11,119.0 $2,977.0 26.8% 3.8x 14.3x 3.4x 13.0x 7.4% 8.0%
Wipro Limited $301.25 90.2% $1,364,678.8 $1,160,509.8 $548,387.0 $101,576.0 18.5% 2.1x 11.4x 1.9x 10.4x 7.4% 4.5%
Tech Mahindra Limited $765.80 99.6% $751,018.8 $673,848.8 $317,130.8 $50,544.8 15.9% 2.1x 13.4x 1.8x 10.4x 10.0% 10.1%
Cognizant Technology Solutions Corporation$78.43 92.2% $45,507.7 $42,009.7 $15,512.0 $3,203.0 20.6% 2.7x 13.1x 2.4x 10.9x 9.8% 11.1%
EPAM Systems, Inc. $142.93 99.1% $7,687.1 $7,128.0 $1,646.6 $244.4 14.8% 4.3x 29.2x 3.2x 17.7x 25.0% 26.5%
Syntel, Inc. $40.74 99.6% $3,381.0 $3,520.0 $966.2 $264.3 27.4% 3.6x 13.3x 3.5x 13.9x (4.4%) 1.5%
Globant S.A. $64.88 97.7% $2,320.6 $2,268.9 $472.7 $71.9 15.2% 4.8x 31.5x * 3.7x 20.6x 28.1% 28.6%
ICF International, Inc. $81.65 99.5% $1,539.9 $1,777.3 $1,253.6 $111.2 8.9% 1.4x 16.0x 1.3x 12.9x 3.7% 4.3%
TTEC Holdings, Inc. $26.20 59.9% $1,209.7 $1,435.3 $1,510.8 $178.6 11.8% 1.0x 8.0x 0.9x 6.7x 15.8% 5.7%
Huron Consulting Group Inc. $49.50 98.2% $1,066.4 $1,408.6 $753.5 $90.3 12.0% 1.9x 15.6x 1.8x 13.2x 0.9% 11.3%
Perficient, Inc. $28.73 99.7% $1,000.1 $1,045.7 $487.6 $57.0 11.7% 2.1x 18.4x 2.0x 12.3x 0.9% 3.1%
Mean 94.1% $81,749.1 $14,483.5 16.7% 2.7x 15.3x 2.3x 12.9x 9.5% 10.4%
Median 99.1% $1,510.8 $244.4 15.2% 2.1x 13.8x 2.0x 12.9x 7.4% 8.0%
% of 52Week High
Market Cap.Enterprise
Value3 Year Rev
CAGR
Market Data Operating Statistics EV as a Multiple of: GrowthStock Price LTM LTM CY2018 16 - '17
Company Name 8/31/18 Revenue EBITDA % Margin Revenue EBITDA Revenue EBITDA Growth
Akamai Technologies, Inc. $75.14 90.4% $12,736.6 $12,409.6 $2,628.4 $671.1 25.5% 4.7x 18.5x 4.2x 10.6x 7.0% 7.7%
Zayo Group Holdings, Inc. $34.66 87.4% $8,548.6 $14,120.5 $2,604.0 $1,190.9 45.7% 5.4x 11.9x 5.3x 10.4x 27.8% 24.6%
j2 Global, Inc. $82.57 90.2% $4,066.0 $4,716.3 $1,158.5 $421.8 36.4% 4.1x 11.3x 3.6x 8.7x 27.9% 20.8%
Endurance International Group Holdings, Inc.$9.65 88.1% $1,384.9 $3,167.4 $1,168.6 $306.2 26.2% 2.7x 10.3x 2.8x 10.0x 5.9% ND
Web.com Group, Inc. $27.95 98.6% $1,352.1 $1,965.2 $750.8 $142.0 18.9% 2.6x 13.8x 2.6x 10.1x 5.5% ND
CSG Systems International, Inc. $37.35 76.5% $1,251.6 $1,426.6 $819.1 $139.9 17.1% 1.7x 10.2x 1.6x 7.3x 3.8% ND
ConvergeOne Holdings, Inc. $9.14 91.9% $698.3 $1,380.5 $1,242.0 $94.7 7.6% 1.1x 14.6x 0.9x 8.0x 12.7% ND
Internap Corporation $13.42 60.0% $270.7 $921.6 $295.1 $87.3 29.6% 3.1x 10.4x 2.7x 7.4x (5.9%) (3.7%)
Mean 85.4% $1,333.3 $381.7 25.9% 3.2x 12.6x 3.0x 10.7x 18.0% 22.5%
Median 89.1% $1,759.1 $224.1 18.0% 2.9x 11.6x 2.7x 9.3x 19.3% 25.0%
% of 52Week High
Market Cap.Enterprise
Value3 Year Rev
CAGR
7
-
4.0x
8.0x
12.0x
16.0x
20.0x
IT Services Consulting Managed Services
-
20
40
60
80
100
120
140
160
180
200
IT Services Consulting Managed Services S&P 500
Stock Market FundamentalsSector Indices vs. S&P 500
Valuation Trend Data (EV / LTM EBITDA)Source: S&P Capital IQ
Source: S&P Capital IQ
3 mos. 12 mos. 3 yrsIT Services 6.3% 29.8% 25.5%Consulting 8.4% 32.4% 79.5%
Managed Services 0.9% 25.3% 9.2%S&P500 7.2% 18.0% 47.1%
3 mos. 12 mos. 3 yrsIT Services (0.4%) 9.9% 9.8%Consulting 5.8% 8.6% 13.3%Managed Services 6.2% 1.2% 1.0%
We are the next generation middle-market investment bank. We combine sector intelligence with a client-focused approach to realize your company’s true value.
Quick Facts
▪ 40 professionals across three offices in U.S. with headquarters in Atlanta
▪ 86 transactions closed since 2014
▪ Named U.S. Boutique Investment Bank of the Year by The M&A Advisor
▪ Nationwide coverage provides access to strategic buyers, financial sponsors and family offices
Service Offerings
Mergers & Acquisitions
Capital Raises
Financial & Strategic Advisory
Bowstring Core Coverage
Human Capital Management
▪ Staffing / Recruiting
▪ Education & Training
▪ HR Services
▪ BPO / Professional Services
Healthcare Services
▪ Provider Services
▪ Practice Management
▪ Pharma Services
▪ Alternate Site Care
IT & Professional Services
▪ Consulting
▪ Managed Services
▪ Tech-Enabled Services
▪ Solution Providers
Industrial Services
▪ Facility
▪ Distribution / Supply Chain
▪ Environmental
▪ Infrastructure
Software
▪ Human Resources
▪ Marketing
▪ Product / Supply Chain Management
▪ Vertical SaaS
▪ Data & Analytics
ATLANTA BOSTON LOS ANGELES
Bowstring Advisors 3550 Lenox Road NE, Three Alliance Center, Suite 1200, Atlanta, GA 30326 Phone: 404.461.4600 bowstringadvisors.com
IT & Professional Services Team
Ross DeDeyn
Managing DirectorTom Donahue
Managing DirectorDon Holbrook
Managing DirectorScott Rhodes
Managing Director
Steve Carr
Vice PresidentJustin Bentley
DirectorSteve Dyott
DirectorNoah Anderson
Vice President
Jack Fay
AssociateTaylor Knox
AssociateR.B. McCutcheon
Vice President
Chris McGanity
AssociateJonathan Ung
AssociateCharlie Lockwood
Associate
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Bowstring Recent Technology Transactions
