uarterly update - bowstring advisors · 5/7/15 childs hosts the 6th annual childs conference in...

1

QUARTERLY UPDATE

INSIDE THIS ISSUE:The First Word: Continued Momentum in 2015

It is hard to believe we are already a third of the way through 2015! From amacroeconomic perspective, the strong momentum established in 2014 has continuedinto 2015. Private equity firms continue to be active as both buyers and sellers ofbusinesses. At the same time, strategic buyers are becoming more aggressive in thiseconomic cycle. As a result, valuations continue to be excellent for both capital raisesand sell-side transactions.

CHILDS recently represented Solstice Mobile in its sale to St Ives Group. Solstice Mobileis a leading mobile application development consulting firm, and St Ives Group is aninternational marketing services firm based in the U.K. This transaction is indicative ofseveral trends that we are observing:

The continued charge into mobile

The convergence of IT services with digital media and advertising

Foreign buyers making acquisitions in the United States

With smartphones playing an ever increasing role in technology, there is no doubt thatthe Internet world is moving to mobile at a fast pace. Just weeks ago, Googleannounced that its search engine optimization ranking criteria would be largely drivenon the “mobile-friendliness” of websites. Some market analysts estimate that half ofthe current top 100 websites in the world would lose their rankings based on this newcriteria. Therefore, it is easy to see why mobile app/web development is going to be ahot sector for the foreseeable future.

It is interesting that St Ives Group was the ultimate buyer of Solstice Mobile;traditionally considered an IT services transaction, this deal demonstrates the collisionof IT services and digital media. Gartner estimates that 50% of IT spend will becontrolled by marketing departments in Fortune 1000 companies over the next severalyears. This has significant M&A and strategic implications for IT services andmarketing agencies as the two increasingly compete with one another.

Finally, with the U.S. economy showing no signs of slowing, foreign buyers in Europe,the Middle East, and Asia continue to look to here for acquisitions. This is anotherexcellent trend for domestic business owners.

Key takeaways from these trends as they relate to M&A advisory are: in order to besuccessful, advisors need to be sector focused, aware of multiple buyer segments, andhave access to these potential buyers across the world. Last year, 20% of ourtransactions involved a non-U.S. buyer or seller and that trend will only continue toincrease.

Jim CHILDS

The First Word 1

Selected Transactions 2

Market Update 3

Sector Updates 4

About CHILDS 10

CHILDS NEWS AND EVENTS

5/7/15CHILDS hosts the 6th annual CHILDS Conference in Atlanta, GA

4/28/15CHILDS advises Advantage Resourcing in its anticipated acquisition of Atterro

3/16/15CHILDS advises Solstice Mobile in its sale to St Ives Group

3/16/15 – 3/19/15CHILDS attends Staffing Industry Executive Forum in Orlando, FL

2/4/15 – 2/5/15CHILDS attends ACG Capital Connection conference in Atlanta, GA

2/3/15–2/5/15CHILDS attends LegalTech conference in New York, NY

11/3/14 – 11/5/14CHILDS attends European Staffing Industry Executive Forum in London

11/3/14CHILDS advises Aspen Advisors in its sale to The Chartis Group

10/20/14CHILDS advises Bear Data in its sale to Datalink

10/3/14CHILDS advises Vaco on its recapitalization with Quad-C Management

9/30/14CHILDS advises intelligence, Inc. on its acquisition of Symphony Management Consulting

CHILDS ADVISORY PARTNERS

3438 PEACHTREE ROAD NEPHIPPS TOWER, SUITE 1400ATLANTA, GA 30326PHONE: 404.751.3000WWW.CHILDSADVISORYPARTNERS.COM

1Q 2015

2

RECENT CHILDS TRANSACTIONS

CHILDS Quarterly Update: 1Q 2015

Note: CHILDS represented company listed on top half of tombstone

has been acquired by

November 2013

has acquired

October 2013

has acquired

September 2013


August 2013


June 2014


May 2014


May 2014


April 2014

has been recapitalized by

April 2014


December 2013

has acquired

February 2014


February 2014

has acquired

February 2014


April 2014


August 2013

has acquired

June 2014

has acquired

August 2014


July 2014

October 2014

has been recapitalized byhas been acquired by

October 2014


November 2014

A portfolio company of RLH


July 2014

has acquired

September 2014

has acquired

August 2014

A portfolio company of Gryphon Investors

debt recapitalization with

July 2014


has acquired

July 2014



August 2014

A portfolio company of Trilantic Capital


November 2013

A portfolio company of Snow Phipps


March 2015

has agreed to acquire

April 2015

3

LOWER MIDDLE-MARKET M&A UPDATE

996 1,079 1,160 1,216

291

612 689 580

649

172

655

640 661

853

129

-

500

1,000

1,500

2,000

2,500

3,000

2011 2012 2013 2014 YTD Mar. 2015

Nu

mb

er

of

Tra

nsa

ctio

ns

Under $25M $25M-$100M $100M-$500M


LOWER MIDDLE-MARKET PRIVATE EQUITY DEAL FLOW

Sources: Capital IQ, Dealogic, Pitchbook

924 987 980

761 853

942 885 848

651 550

439 482 470

770

559 588 677

175

215 204

166

156

198

154 210

158

148

201 200 191

226

226 219

147

1,099

1,202 1,184

927

1,009

1,140

1,039 1,058

809

698 640

682 661

996

785 807 824

-

200

400

600

800

1,000

1,200

1,400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2011 2012 2013 2014 2015

Nu

mb

er

of

Tra

nsa

ctio

ns

<$100M $100M - $500M

4

PUBLIC COMPANY ANALYSIS

Last Twelve Months Indexed Stock Price Performance

Date Closed Buyer Target Target Description

4/21/15 CapStreet Group Creative Resource Group Provider of transportation and facilities services

4/14/15 Tricor Pacific Capital Certified Recycling Provider of recycling and hazardous waste treatment services

4/13/15 Gridiron Capital Dent Wizard International Provider of automotive reconditioning services

4/13/15 EQT PartnersWASH Multifamily Laundry

Systems

Provider of route-based laundry services to apartments and

universities

4/2/15 BlueLine Rental (Platinum Equity) Area Equipment Provider of industrial and non-residential rental services

3/4/15 Neuberger Berman CSC ServiceWorks Provider of route-based commercial laundry and air vending services

INDUSTRIAL SERVICES SECTOR UPDATE


RECENT M&A TRANSACTIONS

The broad industrial services market experienced an active firstquarter in M&A activity with over 600 transactions closed orannounced in North America, similar volume to that seen in Q12014. Specific verticals within the industrial services sector remainattractive as companies continue to find outsourcing to be the mostcost-effective solution for these required services.

Key Trends:

Private Equity Focus on Lower Middle-market: Financialbuyers continue to show substantial interest in the lowermiddle-market industrial services sector with multipleplatform investments in the first quarter. Key platforminvestments for private equity firms include: Lazer Spot(Greenbriar Equity), Keais Records Services (CapStreetGroup), Cascade Environmental Services (Snow Phipps), andEnvirosystems (TorQuest Partners).

Full Service Integration Driving Engineering &Construction Consolidation: The E&C industry continues ona path toward full service integration – a central theme ofacquisition activity. Many clients are seeking to “rationalize”vendors, choosing firms that can provide end-to-end services.

Building Services Seeing Increased Demand from HigherOffice Occupancy Rates: Office vacancy rates are on thedecline in most markets with the national vacancy ratedeclining to 14.4%, a 10 bps decline from last quarter. In Q12015, U.S. office markets absorbed approximately 11.4million sq. feet of office space with 60 of 80 markets reportingnet occupancy gains. Additionally, there is nearly 100 millionsq. feet of new office space under construction, up 51% fromQ1 2014.

We expect M&A activity to remain active as the market continues totake advantage of the low cost of financing and seeks alternatives toslowing organic growth and related segment headwinds.

Valuation Multiples

Note: Public company data as of April 24, 2015

75

85

95

105

115

125

Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15

Facilities Services Rental ServicesEnvironmental Services Engineering & ConstructionS&P 500 Index

7.8x 8.1x8.7x

10.1x

0.0x

2.5x

5.0x

7.5x

10.0x

12.5x

15.0x

Engineering &Construction

EnvironmentalServices

Facilities Services Rental Services

Forward Year EV/EBITDA

5


7.0x

9.4x 9.7x

10.9x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

Search C/LI IT/Prof HRO

Forward Year EV/ EBITDA


DateClosed Buyer Target Target Description

4/28/15* Advantage Resourcing Atterro Human Capital GroupProvider of specialty staffing, contingent workforce solutions, and

recruitment process outsourcing

4/20/15 Nautic Partners Source4TeachersOutsourced substitute teacher and paraprofessional managed

services

4/8/15 ScribeAmerica Medical Scribe SystemsProvider of managed medical scribe programs to emergency

departments

4/2/15 Wilson HCG Head2Head Canadian recruitment services firm

3/10/15 AdeccoKnightsbridge Human Capital

Management

Human capital solutions and executive leadership development

consulting

2/24/15 Serent Capital Icon Professional Services Provider of contingent workforce management solutions (HRO)

HUMAN CAPITAL MANAGEMENT SECTOR UPDATE


Positive industry and economic tailwinds continue to characterizethe Human Capital Management sector through the first quarter of2015. Recent reports forecast the U.S. staffing industry to grow6.0% and 5.0% in 2015 and 2016, respectively, to reach a total sizeof $139.1 billion. The temporary penetration rate increased inMarch to 2.03%, just shy of the all-time record high set inDecember 2014. The growth in U.S. GDP, perhaps the strongestpredictor of staffing industry growth, is expected to be 2.9% in2015 (the fastest rate in a decade) and 2.7% in 2016. Industrygrowth is also expected to be driven by increasing bill rates, due toaccelerated wage inflation from the increasing scarcity of qualifiedcandidates and the passing through of Affordable Care Act costs.

The possibility of a near-term recession is the most significantthreat to the forecasted sector growth. However, most economistsand industry experts believe the likelihood of a near-term recession(2015 or 2016) is low, and that multiple years remain in the cycle.The current economic recovery is nearing its sixth year, and theaverage length of the last five expansions has been 5.9 years.

Secular trends continue to propel both the IT and healthcarestaffing segments. Low IT unemployment, demand for enterpriseIT projects, data security needs, and “big data” analytics areexpected to contribute to 7% growth in the IT sector for 2015, to$27.5 billion. An aging U.S. population, large numbers of newlyinsured individuals, and a shortage of doctors, nurses, and alliedhealth professionals are factors that will drive healthcare staffinggrowth of 7% in 2015 to approximately $11 billion.

An emerging, and rapidly growing, industry sub-segment iseducation and training, as school districts and companies look tooutsource staffing and training. Specific notable points include:

Nautic Partners recapitalization of Source4Teachers

LinkedIn acquisition of Lynda.com (online training)

Strong performance by Kelly Services education segment

Valuation Multiples


Note: Public company data as of April 24, 2015*Announced date, CHILDS served as the exclusive financial advisor to Advantage Resourcing

*C/LI = Clerical/Light Industrial*HRO = HR Outsourcing

60

70

80

90

100

110

120

130

140


C/LI IT/Prof Search HRO S&P 500 Index

6


7.4x

9.7x

10.6x11.1x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

CC AR F&A IT



DateClosed Buyer Target Target Description

4/3/15 Accenture Axia Limited

Provides commercial strategy, customer and product portfolio

development services, performance management, and related

solutions primarily to the life sciences and healthcare sectors

4/1/15 Maximus Federal Services AcentiaProvides technology and management solutions to healthcare,

financial, and regulatory markets

3/31/15 Lindsay Goldberg ECS FederalProvides system engineering and information technology services

and solutions

2/12/15 Siris Capital Group Digital RiverProvides end-to-end cloud-commerce, payments, and marketing

solutions

2/05/15 Publicis Groupe SapientProvides strategy, marketing, and technology services to improve

business performance

12/22/14 Koch Industries Oplink CommunicationsDesigns, manufactures, and sells optical networking components,

modules, and subsystems

BUSINESS PROCESS OUTSOURCING SECTOR UPDATE


The major incumbent BPO providers have undergone a significantamount of acquisition activity that is drastically changing the industrylandscape. Utilizing acquisitions to gain a competitive advantage bysupplementing service capabilities is nothing new, but the ease atwhich consumers of BPO services can now change providers is alsoprompting providers to stay progressive and is influencing acquisitionstrategies in ways not seen before.

Wired.com recently posted an article by ISG Partner Esteban Herrerathat highlighted the decreasing advantage of incumbent serviceproviders in the BPO marketplace. He indicated that only five yearsago, incumbents retained the contract more than 80% of the time,even noting that a provider had to be a “complete disaster” beforeclients would consider changing services. Today, less than 50% ofincumbent providers retain the work, according to the most recentISG Outsourcing Index.

There are several factors influencing this trend:

Pricing has declined: it is a buyers’ market; providers areoffering attractive incentives to clients so incumbent providersunwilling to match are often replaced

Costs of switching have dropped: competitors have been willingto absorb some of these costs

Multi-sourcing has become a default strategy: This helpsensure the best capabilities and creates competition

The devil you do not know might be better: Strainedrelationships with providers often warrants a change torevitalize the organization

Incumbent arrogance: Failure to innovate

Market dynamics are not expected to shift dramatically andincumbents will face additional competitive pressures so we canexpect to see continued acquisitions and jockeying among providersto gain a competitive edge to win and keep key contracts.

Valuation Multiples


Note: Public company data as of April 24, 2015

90

95

100

105

110

115

120

125

130

135


IT F&A A/R Collections Call Center S&P 500 Index

7



Date Closed Buyer Target Target Description/Comment

3/30/15* UnitedHealth CatamaranPharmacy benefits management services and healthcare information technology solutions

3/17/15Constellation Healthcare Technologies

Physicians Practice Plus Revenue cycle management solutions

2/24/15 Navigant Health RevenueMedProvides coding, revenue cycle management, and business process management services

2/22/15 Cerner Siemens Health Services Siemens healthcare information technology solutions business segment

2/12/15 HealthStream HealthLineProvides credentialing software, contact center software, and quality management software

2/11/15 Advisory Board Company Clinnovations Healthcare information technology and management consulting services

HEALTHCARE SERVICES SECTOR UPDATE


NOTABLE M&A TRANSACTIONS

The Healthcare Services sector continues to be an attractive area forstrategic acquisitions and private equity investment, and healthcareinformation technology continues to lead the way. Cost containmentand outcome improvement remain the dominant forces of the U.S.healthcare system, shaping both business innovation and theinvestment landscape. So far in 2015, healthcare M&A markets havedelivered record-breaking volume, with 294 deals completed, anincrease of 25.1% over the same period in 2014. Deal value,meanwhile, shot up to $97.9 billion, more than twice as high as thecomparable period’s $48.9 billion. Investment activity, both significantin deal volume and dollar value, generally centered around:

Revenue cycle management;

Population health and analytics;

Hospital outsourced services; and

Patient engagement solutions

The strong level of deal activity is spurred by a combination of factors,including greater conviction among leaders of well-capitalizedcompanies to make acquisitions, as well as the continuation of afavorable financing environment. Additionally, and consistent withour prior quarterly updates, health systems are continuing to turn toM&A in a growth-constrained economy, and private equity firms withsubstantial capital, enhanced by another strong year of fundraising, arefacing pressure to make investments and exit legacy holdings.

Looking to the remainder of 2015, we believe healthcare M&A marketswill remain active and robust. The Affordable Care Act, high cashreserves, and a favorable deal making environment are all expected tocontribute to heavy M&A activity throughout the rest of the year.However, standing on the forefront of a potential rate hike from theFederal Reserve, and the 2016 Presidential election, we are payingattention to credit markets and on any potential legislative changesthat may shift the regulatory landscape and affect specific sub-sectors.

Valuation Multiples

90

100

110

120

130

140

150

160


Outsourced Services Technology Hospitals

Alternate Site Providers S&P 500 Index Home Healthcare

Note: Public company data as of April 24, 2015*Announced date

8.3x

11.1x 11.1x12.0x

12.6x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

Hospitals HomeHealthcare

Alternate SiteProviders

OutsourcedServices

Technology


8




4/12/15* KPMG Beacon Partners Healthcare management and IT consulting services firm

3/26/15 Accenture Agilex TechnologiesProvides mission and technology consulting, software and solution

development, and system integration services for the Federal Sector

3/16/15 St Ives Group Solstice MobileOne of the largest privately held, mobile-first digital consultancies in

the U.S.

2/12/15 Huron Consulting Studer HoldingsProvides consulting, coaching, and learning solutions to healthcare

organizations

2/3/15 Aon Hewitt Kloud Provides Workday consultancy services to European businesses

1/8/15 Potomac Equity Partners Orion Systems IntegratorsGlobal IT firm offering Technology and Business services and

solutions – Cloud, systems integration, app development, etc.

IT SERVICES SECTOR UPDATE



Global M&A activity in the IT Services sector is off to a strong startin Q1 2015, with 217 closed transactions versus 210 in Q1 2014,and 204 in Q1 2013. In addition to strong debt markets, cash-richbalance sheets, and private equity dry powder, consumerconfidence levels hit a 10-year high during the quarter. Manyanalysts believe that 2015 will see an urgency to close deals, beforethe Federal Reserve raises interest rates.

Global private equity investment activity was down quarter-over-quarter 26% in terms of capital invested and 30% in terms ofvolume. Despite this, deal count for private equity IT servicesactivity was up quarter-over-quarter. Additionally, Silicon Valley-based New Enterprise Associates raised the biggest venture capitalfund in the industry at $2.8 billion. Clearly, technology and ITservices continue to command interest with investors and buyersalike.

Two major trends dominated the acquisition landscape for strategicbuyers in the first quarter of 2015:

Acquiring New Geographies: A significant number of strategicM&A deals in Q1 were driven by the desire to expand andstrengthen geographic footprints

SMS (TH Lee / Summit) acquired Prob-Solve Group, enhancingits position in the UK market

St Ives Group acquired Solstice Mobile, furthering its expansionin North America

Cal Net acquired Velocity Network Solutions, strengthening itsmarket position in Southern California

Cloud Offerings in High Demand: Cloud computing technology andservice providers continue to command high buyer interest anddeal valuations

SolarWinds acquires Librato, as part of its Cloud expansionstrategy

GTT Communications acquires MegaPath Managed ServicesBusiness, expanding its portfolio of cloud networking services

Valuation Multiples


6.9x

8.3x9.1x

12.2x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

SystemsIntegrators/VARs

Federal IT Services Consulting Services ManagedServices/Hosting


70

80

90

100

110

120

130

140

150

160


Consulting Services Managed Services/HostingFederal IT Services Systems Integrators / VARsS&P 500 Index

9



SOFTWARE SECTOR UPDATE



In the first quarter of 2015, 357 software transactions closed in theUnited States. Volume increased by 3.5% year-over-year and 5.3%year-over-year, but more importantly, valuations remained strongat approximately 3.31x revenue. Notable trends include:

Enterprise Software:

− The use of collaboration technologies, data analytics, and mobiledevices have increased adoption and popularity of enterprisesoftware over the last few years

− SAP Revenue: $19.7B; up 8.6% year-over-year− Oracle Revenue: $38.4B; up 2.5% year-over-year− Microsoft Revenue: $93.4B; up 7.6% year-over-year

SaaS:

− Demand for cloud solutions will continue to be a key driver of theoverall software market. The $156 billion market is forecast to growby more than 15% annually through 2017.

− The SaaS business model, replete with recurring revenues, is a veryattractive one. However, it can present some difficulties in starting,growing, and self-financing a SaaS company (vs. a perpetual model).The majority of the notable companies in the market today areventure-backed, it is the minority of them that are bootstrapped.

HR Technology:

− The HR technology market is expected to grow 16.8% from $11.3billion in 2015 to $13.2 billion in 2016

− Key drivers for HR technology market include contingent labor,analytics, and adding social features

M&A was robust throughout the country in 2014, but no sector wasas strong as software. In the U.S. alone, nearly 1,500 companieswere acquired at an average revenue multiple of 3.75x. This trendcontinued into the first quarter of 2015, and we expect the marketto stay strong throughout the year. Strategic acquirers andfinancial sponsors continue to seek assets to fill out markets orpenetrate into new niches. Given recent market feedback, weexpect key sub-sectors of interest to be: data/data as a service, HRtechnology & job boards, automotive dealership automation, andvertically-focused solutions.

Valuation Multiples


90

100

110

120

130

140


Enterprise Software SaaS HR Technology S&P 500 Index

16.3x

35.9x

67.2x

3.3x 4.5x 6.1x0.0x

15.0x

30.0x

45.0x

60.0x

75.0x

Enterprise Software HR Technology SaaS

Forward Year EV/EBITDA Forward Year EV/Revenue


4/30/15* IBM ExplorysDevelops cloud-computing platform solutions for the

healthcare sector

4/9/15* LinkedIn Lynda.comOnline education company that enables individuals to learn

business, software, technology, and creative skills

3/30/15 Vector Capital Saba SoftwareCloud-based intelligent talent management solution for

organizations to hire, develop, and engage people worldwide

3/24/15* Lexmark KofaxProvides capture and business process management (BPM)

software and related maintenance and professional services

3/9/15* Maximus Federal Services AcentiaDaaS and analytics solutions to healthcare, financial and

regulatory markets

3/2/15 Deltek HRSmartSaaS-based HR and talent management software solutions for

companies to attract, hire, develop, and retain talent

10

CONTACT INFORMATION

SECTOR FOCUS

OUR SERVICES

ABOUT CHILDS ADVISORY PARTNERS

CHILDS Advisory Partners provides exceptional investment banking services to high-performing business services and tech-enabled companies. Our unique combination of sector focused coverage, process excellence, and strength of team allow us to maximize value – and achieve successful outcomes for our clients. Collectively, our senior bankers have executed over 450 M&A and financing transactions. CHILDS is a member of FINRA and SIPC and is a registered broker-dealer.

Sales and Recapitalizations – CHILDS works with management teams, financial sponsors, and special committees to provide crucial insights into the intricacies and nuances of sale processes

Strategic Acquisitions ‐ Our disciplined methodology coupled with our industry relationships makes CHILDS an ideal buy‐side partner

INDUSTRIAL

SERVICES

HEALTHCARE

SERVICES

HUMAN CAPITAL

MANAGEMENTIT SERVICES

BUSINESS SERVICES, HEALTHCARE, AND TECHNOLOGY

BUSINESS PROCESS

OUTSOURCINGSOFTWARE

MERGERS & ACQUISITIONS

CAPITAL

RAISES

FINANCIAL & STRATEGIC ADVISORY

CHILDS proprietary knowledge database consists of active debt and equity investors focused on service businesses (senior debt through mezzanine and growth equity)

CHILDS is continuously in the market assisting its clients raise capital for a multitude of purposes including organic growth, acquisitions, and one‐time owner dividends

CHILDS can act as a strategic consultant to help leadership teams develop their strategic road map in order to create and enhance shareholder value

CHILDS can undertake a detailed analysis of a company’s tangible and intangible valuation drivers as a separate undertaking or as a precursor to an M&A assignment

Jim ChildsManaging DirectorPhone: (404) 751-3002Email: [email protected]

Ross DeDeynManaging DirectorHealthcare ServicesPhone: (404) 751-3018Email: [email protected]

Tom DonahueManaging DirectorTechnology Services/SoftwarePhone: (617) 290-5433Email: [email protected]

Don HolbrookManaging DirectorTechnology Services/SoftwarePhone: (949) 276-8715Email: [email protected]

Cooper MillsManaging DirectorBusiness ServicesPhone: (404) 751-3003Email: [email protected]

Jason WallaceManaging DirectorBusiness ServicesPhone: (404) 751-3020Email: [email protected]

Alan BuglerDirectorBusiness ServicesPhone: (404) 751-3004Email: [email protected]

Dave PhillipsDirectorBusiness ServicesPhone: (904) 292-9305Email: [email protected]


uarterly update - bowstring advisors · 5/7/15 childs hosts the 6th annual childs conference in...

Documents