the m&a engine - avendus
TRANSCRIPT
The M&A Engine
AUGUST 2020
2
FORECASTING M&A BY SEGMENT
ACCENTUREOVERVIEW
INORGANICSTRATEGY
HOW ACCENTURE HAS BECOME AN
ASPIRATIONAL BUYER
ANALYSIS OF M&A ACTIVITY
• Accenture is a bellwether stock in IT services
• With an Enterprise Value of >$100Bn, Accenture is one of the highest valued IT services company – in the last 5 years, it has more than doubled its value while peers such as TCS has only grown by ~50%
• Accenture is perceived as a high-end services provider due to its consulting background and forward-looking business mix, including the following segments:– Cloud SI - 16%– Digital Agency – 15%– Cyber Security – 9%
• Inorganic strategies include acquisitions, joint ventures, and investments through Accenture Ventures
• Compared to other top IT services companies, Accenture is the one of the biggest acquirer spending almost $1.2Bn on acquisitions. It has done 110 acquisitions over the last 5 years while the next closest acquirer only did ~25% of that number
• The tuck-in M&A strategy has supported value creation by –1. Higher growth (~2%
YoY)2. Accelerating the
business mix change
• Commercial Aspect:– Higher Valuation– Front loaded deal
structure – Upfront cash
payment– Higher salaries for
principals
• Intangible Aspect:– Speed– Certainty– Brand name
• By Rationale:– Capability Acquisition:
61%– Others: 39%
• By Segment:– Product Engineering:
16%– Marketing Services:
15%– Digital Agency: 15%– Others: 54%
• By Global Reach:– North America: 42%– Europe: 41%– Growth Markets: 17%
• Accenture is often the first mover to acquire the newer segments which is then followed by its peers
• Accelerating Segments – Cloud infrastructure – Cyber security – Digital marketing– Design agencies
• Sustaining Segments – Cloud SI – Analytics– Marketing services– Product engineering
Accenture Overview 03
Accenture Inorganic Strategy 08
M&A Analysis 16
Predicting Segments Through M&A Activity 21
01.Accenture Overview
4
AWARDS
• Fortune’s Global 500• Forbes’ Global 2000
OVERVIEW
• One of the leading global professional services company, providing a broad range of services in strategy and consulting, interactive, technology and operations, with digital capabilities across all of these services
• With experience and capabilities across more than 40 industries – the company is powered by one of world’s largest network of advanced technology and intelligent operations centers
SERVICES
1. Strategy and Consulting • One of the leaders in strategy,
industry experts, enterprise function practitioners, business intelligence professionals, designers, data scientists, and many other specialized skills are brought together to co-create clients’ unique path to transformation
2. Interactive• Accenture Interactive
reimagines business through experience
• From idea to execution, Accenture Interactive designs, builds, communicates and runs comprehensive experiences from start to finish
3. Technology• Accelerates enterprise
transformation through capabilities such as intelligent platform services, technology innovation, technology consulting, security, and industry X.O
4. Operations• Reinvents organization with
intelligent operating models enabled by SynOps - human-machine operating engine
• SynOps is powered by data, applied intelligence, digital technologies, and exceptional talent providing tangible business outcomes
INDUSTRY GROUPS
• Communication, Media & Technology• Financial Services• Health and Public Services• Products1
• Energy, Utilities and Resources
KEY HIGHLIGHTS
• Holds a top position in the Technology Ecosystem via strategic relationships with alliance partners, including leading technology providers such as Microsoft, SAP, Oracle, Cisco, EMC, Salesforce
• 98 of Accenture’s top 100 clients have been with them for at least 10 years because it is committed to create innovative solutions for its clients
• Global Delivery Network
One Of The Leading Technology And Consulting Vendor To Global Enterprises
CLIENTS
• 91 of the Fortune Global 100
• More than three-quarters of the Fortune Global 500
1. Products include consumer goods, retail, & travel services, industrial and life science2. Source: Accenture Website
KEY EXECUTIVES
• Julie Sweet (CEO) • KC McClure (CFO)
# OF EMPLOYEES
• ~500,000
LOCATIONS
• HQ: Dublin, Ireland• Other Locations:
50+ countries
21%
21%
17%
23%
18% 21%
21%
17%
23%
18%
Source: CapitalIQ, Accenture FY10, FY15, FY16, FY17 ,FY18 and FY19 Annual Report 5
(FYE August; Fig in $Mn) FY10 FY15 FY16 FY17 FY18 FY19
Revenue 21,550 31,047 32,882 36,176 40,992 43,215
Revenue Growth % (over prior year) 0.1% 3.5% 5.9% 10.0% 13.3% 5.4%
Revenue (Digital, Cloud, and Security Services) NA NA NA 49.7% 56.1% 64.9%
Gross Profit 7,250 9,809 10,277 11,071 12,493 13,314
Gross Margin % 33.6% 31.6% 31.3% 30.6% 30.5% 30.8%
EBITDA 3,193 4,911 5,256 5,655 6,434 6,923
EBITDA Margin % 4.8% 15.8% 16.0% 15.6% 15.7% 16.0%
Revenue by Operating Group Revenue by Services Revenue by Geographic Region
FY10 FY19 54%46% FY10
56%44%
FY1944%
44%
12%
FY10 46%
34%
20%
FY19
Communication Media & Tech.
Financial Services
Health and Public Service
Products
Resources
Consulting
Outsourcing
North America
Europe
Growth Markets (APAC)
Accenture Has Doubled Revenue While Maintaining Mid Teens EBITDA Margins
1. EV is calculated with share price as of August 31st of the FY2. Source: CapitalIQ6
Valuation Matrix
Numbers in $Mn; as of July-10-2020 Amount
Market Cap 139,524
TEV 137,059
Debt 3,512
Cash 6,445
Particulars FY18 FY19 FY20
TEV1/Revenue 2.5x 2.6x 2.7x
TEV1/EBITDA 15.8x 16.3x 14.9x
P/E 26.7x 25.8x 25.3x
Share Price Growth SHARE PRICE
PERIOD %
1m 10.7%
3m 24.1%
6m 2.5%
1yr 15.9%
5yr 118.5%
10yr 435.9%
12 Months Fiscal Period, Numbers in $Mn
FY10 FY15 FY18 FY19 FY20
Dividend 710 1,276 1,671 1,861 1,526
Market Cap Has Increased By $72Bn Over The Last 10 Years, While Paying Out ~$12Bn in Dividends
-100
0
100
200
300
400
500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Accenture plc (NYSE:ACN) - Share Pricing
NASDAQ Composite Index (^COMP) - Index Value
S&P 500 (^SPX) - Index Value
2020
Sr No. Company $Mn
01. 76,536
02. 44,547
03. 21,230
04. 20,900
05. 19,577
06. 16,898
07. 15,980
08. 12,780
09. 9,936
10. 9,020
Source: CapitalIQ as of July-14-2020 7
Accenture Leads The Pack on Revenue, Market Cap and EV/EBITDA
By Revenue By Market Cap By EV/EBITDA
Sr No. Company $Mn
01. 160,455
02. 137,059
03. 110,816
04. 41,684
05. 29,000
06. 21,798
07. 21,253
08. 20,785
09. 19,331
10. 13,650
Sr No. Company Multiple
01. 19.1x
02. 16.7x
03. 13.0x
04. 11.3x
05. 9.1x
06. 8.9x
07. 8.4x
08. 8.2x
09. 8.1x
10. 7.8x
02.Accenture Inorganic Strategy
9
Accenture Has Three Inorganic Go-To-Market Levers
INVESTMENTS: ACCENTURE VENTURES• A branch of Accenture, invests into companies to form alliances and expand Accenture’s client pool as
well as geographical coverage• Is predominantly interested in investing into new business models such as Next-Gen Technologies,
Blockchain, and Cloud
MERGERS AND ACQUISITIONS• Accenture has acquired 160+ companies in a span of 10 years, making it a one of the leaders in
digital capabilities across the globe
JOINT VENTURES• Joint Ventures have been used to further enhance key relationships• Accenture has entered into joint ventures with strategically important partners such as Microsoft
InorganicGo-to-market Strategy
01
02
03
*as of 01 - July - 2020 Source: CapitalIQ, Merger Market, Accenture Website10
Investments Through Accenture Ventures
• Launched in 2015, Accenture Ventures acts as a bridge to the global innovation ecosystem by bringing Accenture’s clients together with best-in-class, enterprise-relevant startups to unlock their growth potential and accelerate digital transformation
• Accenture Ventures is a corporate venture capital arm of Accenture that prefers to invest in growth-stage firms that create innovative enterprise technologies using an open innovation approach
• Accenture Ventures has 50+ partners, 30+ start-up investments, and is engaged in 5000+ start ups
Key Capabilities Acquired By Accenture Ventures
Key Investments
Company Country Value($Mn) Segment Description
Canada 17 Technology Services
Enhances Accenture’s capabilities in financial services innovations, modernization and transformation
USA 60 Technology Services
Innovates solutions for banks, brokerages and infrastructure providers
USA NA SoftwareBoosts personalization services to global clients as customer experiences grows worldwide
China NA Analytics - AI
Extends Accenture’s computer vision and product recognition capabilities and accelerates growth in China
UK NA Analytics - AI
Using data analytics, this deal helps Accenture prepare its clients for global security challenges
AI +Big Data
Blockchain
Intelligent Automation
Cybersecurity
Industry X.0
Future Work Force
Health Tech
Amount Invested ($Mn)* Geographical Split
42278
897
Asia / Pacific Europe NorthAmerica
6%
25%
69%
Asia / PacificEuropeNorth America
Accenture Ventures Is The Venture Capital Arm Of Accenture
Source: CapitalIQ11
JV Company Holding Segment Description Key Metrics
NA Technology ServicesA Microsoft-focused IT services company, enhances Accenture’s capabilities in financial services innovations, modernization and transformation
• 3,900 employees• ~700Mn Revenue
$196MnAccenture: 40% ;
Apax Partners: 60%Cloud Infra
The joint venture accelerates the development of Duck Creek products and technologies, leveraging advanced digital and cloud technology
• 1,200 employees• ~25Mn Revenue
Accenture Back office and Administration Services SPA NA Vertical Specific -
Financial ServicesThe JV will support UniCredit’s accounts-receivable, accounts-payable and asset-management functions • 79 employees
Alliances Are Created To Enhance Accenture’s Core Competencies And Strategic Relationships
1. Net of estimated overlap2. Source: Accenture FY 19 Earnings Report, Merger Market12
Accenture’s Acquisition Strategy Focuses To Do Three Things
SCALE GROWING AREAS IN THE MARKET
Accenture builds new capabilities that tap into large addressable markets. For
example, in 2019 Accenture did about six acquisitions in technology, three of them around the Intelligent Platform Services
ADD NEW CAPABILITIES
Accenture made ~20 acquisitions in the Digital, Cloud, and Security Services space (The New) in
2019 alone, demonstrating the company’s commitment to become a one of the market-leaders in these new capabilities (Revenues from “The New” approximated to $28Bn1 -approximately 65% of the new bookings in
2019)
DEEPEN INDUSTRY AND FUNCTIONAL EXPERTISE
Accenture is constantly looking to further expand in areas that the company has
historically been strong at. For example, Accenture made 4 financial services-related
acquisitions in 2019, a sector that the company already has a strong foothold in
01 02 03
Revenue of “The NEW”The New includes Digital, Cloud and Security Services
# of Acquisitions v/s Headcount Investment in Acquisitions
Segment Revenue ($Bn) % of Revenue
Digital
Cloud
Security
21
11
2.5
49%
25%
6%
M&A Is The Center Of Accenture’s Inorganic Growth
Year Block # of Acquisitions Headcount
Block 1 (FY10 - FY13)
Block 2 (FY14 - FY16)
Block 3 (FY17-FY20)
26
45
93
5,372
3,590
10,241
Total (FY10 – FY20) 164 19,203
Year Amount ($Mn)
FY19
FY18
FY17
1,200
658
1,700
Total 3,558
Source: Merger MarketOthers include NTT Data, CGI, Tech Mahindra, Wipro, HCL, Capgemini, Infosys and TCS13
The Closest Competitor Has Only Completed ~25% Of Accenture’s Number Of Acquisitions
110
27 2521
1613 11 11 10 9 9
3
Accenture Cognizant DXCTechnologies
IBM NTTData
CGI TechMahindra
Wipro HCL Capgemini Infosys TCS
42%
10%9%
8%
31%
Accenture
Cognizant
DXC technologies
IBM
Others
# of Acquisitions
14
Particulars
Founded 1989 1968 1967
# of Employees ~500,000 448,464 ~270,000
FY15 FY20 ∆ FY15 FY20 ∆ FY14 FY19 ∆
Market Cap1 (USD Mn) 56,098 133,711 138.4% 79,268 113,973 43.8% 11,429 20,439 78.8%
Total Enterprise Value1 (USD Mn) 52,185 131,713 152.4% 77,497 107,036 38.1% 11,305 23,464 107.6%
Revenue Growth (over prior year) 3.5% 4.4% 0.9% 15.7% 7.2% (8.5%) 4.8% 7.0% 2.2%
Revenue CAGR (Last 5 FY) 7.6% 7.6% 0 25.7% 10.6% (15.1%) 4.8% 6.0% 1.2%
Gross Margin % 31.6% 31.4% (0.2%) 27.5% 44.0% 16.5% 24.7% 27.3% 2.6%
Return on Equity (ROE) 50.6% 32.8% (17.8%) 39.5% 37.2% (2.3%) 12% 10.7% (1.3%)
Cash 4,363 6,130 40.5% 2,650 4,723 78.2% 2,400 2,758 14.9%
Dividend per share 8.7% 9.6% 0.9% 21.9% 10.0% (11.9%) 9.1% 11.8% 2.7%
TEV/ Revenue (as of 30th June, 2020) 2.6x 4.4x 1.1x
TEV/ EBITDA (as of 30th June, 2020) 14.6x 16.6x 7.9x
Last 5 years Cumulative Dividend (USD Mn) 7,680 6,971 1,147
# of Acquisitions (2015 - 2020) 132 4 12
Forward Thinking Tuck-In Acquisition Strategy Has Been Behind Accenture’s Strong Value Creation
These three companies abide to different acquisition strategies - Accenture follows Tuck-In Acquisition strategy, TCS follows a Non-Acquisitive strategy, and Capgemini follows a Transformational M&A strategy. A comparison between their growth shows that Accenture’s strategy is helping it create value.
1- Market data taken as of December of the respective fiscal yearsSource: CapitalIQ
15
Key Tangible & Intangible Aspects Make Accenture The Ideal Buyer
COMMERCIAL ASPECTS
ACCENTURE IS VALUED BY MARKET AS AN ASPIRATIONAL
BUYER
INTANGIBLE ASPECTS
BETTER DEAL TERMS
• Higher Valuation• Front loaded deal structure• Cash payout
SPEED
• The Accenture M&A team can work very quickly – often getting deals done in 2 months from LOI to closing
CERTAINTY
• Accenture only submit offers after getting multiple approvals –giving sellers comfort that the path to closure has higher visibility
BRAND NAME
• Known to be a professional organization
• Being a global company with local teams, the cultural fit already exists for new employees
HIGHER SALARIES FOR
PRINCIPALS
• For founders who are looking to stay with the business post-transaction, Accenture offers market-leading salaries –allowing future upside
SIGNIFICANT SYNERGIES
• Accenture has CXO-level relationships at many of the top companies worldwide
• With a seat at every table, cross-selling allows for potential upside
Accenture’s strong M&A track record and history of successfully integrating acquisitions into the larger platform are over-arching key differentiators
03.M&A Analysis
Source: Merger Market, Accenture Annual Reports17
Deal Volume & Value Over The Last 5 Years Have Increased Significantly Compared To The Previous 5 Years
# OF ACQUISITIONS AVERAGE ACQUISITION SIZE (MN$) INVESTMENT IN ACQUISITION (MN$)
7
4 5
10
6
22
17
29
19
29
16
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
YTD
77
35
52
123
39
55 59
3541
2011
2012
2013
2014
2015
2016
2017
2018
2019
306174
521
740850
930
1,700
658
1,200
2011
2012
2013
2014
2015
2016
2017
2018
2019
18
100%
25%
80%
60%
83%73%
47%55%
63%55% 56%
25%
25%
20%
14%
29% 17%
21%28% 31%
25% 20% 20% 17% 14%24% 28%
16% 17% 13%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Capability Acquisition Captive Acquisition Geography Vertical Specific
Capability Acquisition Is The Driving Force
Source: Merger Market
7 4 5 10 6 22 17 29 19 29 16# OF DEALS
Analysis by Rationale
61%
1%
20%
18%
164 Deals
20% 17%5% 6% 3% 5% 7%
13%
20%
20%
33%
18% 17%
3%
21% 14%13%
14%
10%
23%12%
10%
5%3%
12%
9%17%
10%7%
18%20%
10%
27%24%
18% 5% 6%
6%
15%
10%
5%6%
14% 32%21%
6%
57%
100%
20%50%
33%
9% 18%
28% 11%
14%
19%
14%20% 17%
5%14%
21%28%
13%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Analytics Cloud SI Consulting Cyber Security Digital Agency Marketing Services Others Product Engineering
Analysis by Segment
Key Deals: Bow and Arrow Limited (A digital Agency playing a key role in bolstering Accenture’s Communications, Media and Technologies sector), Marianne Kaplan AB and IMJ Corporation
19 Source: Merger Market
Digital Technologies Is Accenture’s New Big Thing7 4 5 10 6 22 17 29 19 29 16# OF DEALS
16%
15%
15%16%
11%
9%
7%
11%
164 Deals
43%50%
40%50%
17%
41%29%
66%
42%31%
38%
14%
50%
40% 20% 83% 41%
47%
28%
42%52%
50%
43%
20%30%
18% 24%
7%16% 17% 13%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
North America Europe Growth Markets
USA Remains Accenture’s Safety Net With Europe Becoming Its Target Market
20
Analysis by Geography
Key Deals: PrimeQ, Australia’s top Oracle Software as a Service (SaaS) Cloud implementation service providers was acquired for a deal value of $22Mn.
Key geographies within -1. North America:
USA - 93%2. Europe:
UK - 28%, Germany - 18%, France - 13% 3. Growth Markets:
Australia - 44%, Brazil - 22%, China - 11%
164 Deals
Source: Merger Market
7 4 5 10 6 22 17 29 19 29 16# OF DEALS
42%
41%
17%
04.Predicting Segments Through M&A Activity
22
Accenture’s First Moves To Acquire In New Sub-Sectors Are Often Followed Closely By Competitors
Source: CapitalIQ
2010 2012 2013 2015 2017 2018 2019 2020
Procurement
Digital Marketing
DesignAgency
Cloud SI
Cloud Infra
Cyber Security
2016
SEGMENTS SEGMENTS SEGMENTS
On-prem ERP
BPM
Cloud SI
Product Engineering
Marketing Services
Analytics
Design Agency
Cloud Infra
Cyber Security
Digital Manufacturing
Digital Marketing
1. Multiple global majors are keen on investing in Australia, and limited impact of Covid-19 on Australian economy validates that it is poised for expansion23
Key Trends Highlighted By Accenture’s Shifting M&A Activity
ACCELERATINGSUSTAININGDECLINING
GEOGRAPHY GEOGRAPHY
USAUK Western Europe Australia1
24
To Reach Out To The Authors Of The Report, Please Contact Either Of The Following
Puneet Shivam Executive Director,
Co-Head Enterprise Technology& Services Vertical
EMAIL:[email protected]
MOB:+1 917 554 7030
Abhinav GoelDirector
EMAIL:[email protected]
MOB: +1 929 239 7136
Vedanti MehtaSummer Intern
EMAIL:[email protected]
MOB: +1 732 997 5501
Wei Shen NgAssociate
EMAIL:[email protected]
MOB: +1 917 588 9002
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