Technology & Business Services

Transcription

1 Strategic Market Insights Q Report

2 Select Acquisitions Niche / SME Servicers Blue-chip Partners Product Leaders Technology & Business Services G2 Insights Cloud Computing Services Executive Summary The Cloud Computing Market is expected to reach $555 billion in 2020, up from $209.9 billion in 2014, representing a CAGR of 17.6%. Driving this growth are small and medium-sized businesses that are adopting enterprise cloud and IT solutions to increase their operational efficiency, productivity and agility. While cloud architectures limit the capital expenditure historically needed to purchase and maintain expensive software licenses and hardware for traditional enterprise-grade IT infrastructures, customization and integration is required in order to extract maximum value from these cloud ecosystems. This has created a market opportunity for third party consulting providers who are able to compete against larger, traditional systems integrators and establish a differentiated offering across newer cloud ecosystems. Select Cloud Ecosystems Environment ServiceNow Practice Consolidation Across Cloud Ecosystem Partners G2 expects enterprise-oriented service providers focused on cloud solutions such as ServiceNow and Workday to continue to spawn a rapidly growing, new category of consulting firms who are able to compete favorably with traditional blue-chip service providers. With barriers to entry removed and no clear cut market leader in any category, blue-chip partners, who strive to maintain their leadership positions and service all major product leaders, have utilized mergers and acquisitions to service or refresh their services offerings. Blue-chip partners will continue to chiefly rely on M&A in an effort to expand capabilities or build expertise in new cloud computing solutions. Source: Allied Market Research, S&P Capital IQ, G2 Insights 2

3 G2 Insights Cloud Computing Services (continued) G2 Spotlight: The ServiceNow Platform-as-a-Service (PaaS) and its Ecosystem A provider that has recently risen to become its own cloud product leader is the IT service management (ITSM) platform ServiceNow. Since 2003, the cloud-based workflow & automation system has provided a single PaaS lifecycle product across Financial Services, Healthcare, Life Sciences, Higher Education, and Government industries. In addition to its products and services, the company also provides consulting, implementation, optimization, and training services. As corporations move to continually automate their digital presence, customer service and support operations have received record numbers of customer queries, tickets, and data. ServiceNow s agile cloud platform has seen continued growth due to its ability to accommodate millions of customer transactions from its customers automated service and support systems. Challenger 2017 Gartner Magic Quadrant for IT Service Management Tools Leaders Niche Visionaries 2018 ServiceNow Trends & Opportunities ServiceNow grew 39% in revenues over Third party service providers who recognized the sizeable opportunity offered outsourced ServiceNow consulting, implementation, integration, and support solutions, an important role within ServiceNow s ecosystem representing a rapidly growing opportunity. As ServiceNow s PaaS continues to spread across most all industries, third party outsourced services targeting a wide range of global corporations to SMEs will also see continued growth as Gartner predicts further growth in enterprise software spending (9.4%) to increase through To date, while no true market leader with scale has emerged, both strategic and private equity suitors have snapped up ServiceNow consulting and implementation firms such as Acorio (owned by Momentum Equity Partners), Navigis (owned by Cloud Sherpas, a subsidiary of Accenture), and Triad Technology Partners (acquired by KPMG). M&A activity has also occurred across providers with revenues below $50MM. For example, Inergex (est. revenues of <$20MM) acquired Crossfuze (a ServiceNow service specialist) in Spring It is expected that ServiceNow implementers, integrators, and consultants will continue to pique the interest of investors and strategics looking to vertically and horizontally expand their service offerings throughout Source: V-Soft Consulting, Gartner 3

4 Key Trading Statistics Sector Cloud Software & Services Number of Companies Median Enterprise Value (MM) Median Revenue Growth FY LTM 2 Median EBITDA Growth* EV / Revenue EV / EBITDA 20 2, % (3.3%) 4.6x 13.4x E-Commerce 11 1, % 20.0% 4.3x 11.9x IT Managed Services 11 1, % 10.3% 1.4x 11.3x Business Process Outsourcing (BPO) Specialty Consulting Services Human Capital Management 1 Compared with values at December 31, LTM Multiples as at December 31, 2017 * YoY growth calculations exclude companies with negative margins in either period considered. 11 2, % 3.4% 2.3x 10.7x % 9.8% 1.2x 10.6x 16 1, % 5.8% 0.5x 9.6x Sector Summary in Millions USD (converted where necessary) Data sourced from S&P Capital IQ on December 31, 2017 Technology & Business Services Selected Industry Deals Q Several notable transactions have been completed or announced in the Technology & Business Services industry through Q G2 has outlined select transactions below. ConvergeOne acquired Private Equity-backed Alexander Open Systems (AOS) (Dec. 2017) ConvergeOne, a ~$700MM+ global IT services provider acquired AOS, a Clearlake Capital-backed IT consulting firm specializing in architecting, implementing and supporting an expansive portfolio of solutions including cloud, collaboration, data center, networking, security, virtualization, and business intelligence. This acquisition allows ConvergeOne to strengthen its Midwest operations and cloud service offerings. CGI Group, Inc. (TSX:GIB.A) acquired Paragon Solutions, Inc. (Dec. 2017) CGI Group, a provider of app. development, cloud development, consulting, IT migration, advisory, project management and other technical services, acquired Paragon Solutions, a provider of business and IT consulting for life sciences, healthcare, insurance, and financial sectors. The acquisition allows CGI to strengthen its life sciences and healthcare offerings while also establishing a Northeast presence. System One acquired GAP Solutions Inc. (Dec. 2017) System One, a $260MM+ staffing and technical support services firm backed by Thomas H. Lee Partners, acquired GAP Solutions, Inc., a specialty management consulting firm geared towards operations enhancement for defense, homeland security, and civilian government agencies. With this acquisition, System One is able to expand their solutions to the defense and federal civilian markets. UnitedHealth Group s OptumInsight acquired Advisory Board Co. (Nov. 2017) The Advisory Board Company, a research and insight, technology, consulting, and data-enabled services company, was acquired by OptumInsight, the healthcare services advisory arm of UnitedHealth Group (NYSE:UNH) for $1.3BN. The acquisition allows OptumInsight to increase its data analytics and research capabilities, particularly in the healthcare sector. Source: PR Newswire, Company Press Releases, S&P Capital IQ 4

5 EV / EBITDA Index =100 Technology & Business Services Market & Industry Trends % Change in Personal DPI According to the Federal Reserve s readily available Consumer Price Index s All Urban Consumer Index has steadily increased, indicating rising cost-of-living standards. The rise in consumer spending, increasingly facilitated through tech-enabled means, functions as a leading indicator for the Technology & Business Services industry Q1 '07 Q1' 08 Q1 '09 Q1 '10 Q1 '11 Q1 '12 Q1 '13 Q1 '14 Q1 '15 Q1 '16 Q1' 17 Q1' 18 Data sourced through S&P Capital IQ on December 31, 2017 Last 5 Year EV / EBITDA Trend by Industry The Technology and Business Services sector has generally outperformed the S&P 500 index. Cloud Software & Services comparables led the sector followed IT Managed Services, Specialty Consulting Services, E- Commerce Services, Business Process Outsourcing, and Human Capital Management. 20.0x 15.0x 10.0x 5.0x 0.0x Q1 '12 Q3 '12 Q1 '13 Q3 '13 Q1 '14 Q3 '14 Q1 '15 Q3 '15 Q1 '16 Q3 '16 Q1 '17 Q3 '17 ^SPX BPO Human Capital Management Specialty Consuling Cloud E-Commerce Services IT Managed Services Data sourced through S&P Capital IQ on December 31,

6 Dry Powder ($BN) Funds Raised Technology & Business Services M&A Activity Middle Market Though mid market deal volumes have come down off historical highs, frothy debt availability continues to drive premium valuations. Q M&A by the Numbers 28.2% 10.6x US Median EBITDA Multiple $45.3MM Median Deal Size 71.8% Sponsored Non-Sponsored 14% YoY Increase in Median EBITDA Multiple M&A transaction multiples are the median North American M&A activity independent of target / acquirer industry and enterprise value. The dataset has been restricted to multiples between 0.0x and 30.0x EBITDA; *Sourced through Pitchbook s Q Report. Private Equity Dry Powder $500 $450 $400 $350 $300 $250 $200 $ $599 $ $ $ $ $ $1, $100 $ $ Funds Closed Dry Powder 0 *Sourced through PitchBook Q Report 6

7 Selected Ongoing G2 Projects G2 has a robust backlog of mandates ranging across its buy-side, sell-side, capital markets, and restructuring service offerings. Project Cirrus Sell-Side Cloud & IT Managed Services Project Cirrus G2 is currently advising an IT managed services provider catering to U.S. and Canada s federal, state/provincial, and local governments, as well as schools and commercial businesses. The Company offers consulting, packaged application, cloud technologies, application outsourcing, and infrastructure services. Project Blue Sell-Side Specialty National Executive Search Services Project Blue G2 is currently advising a national executive search firm serving non-profit and education development sectors. The Company specializes in recruiting executive leadership positions and their teams across the education, healthcare, science, arts and culture, and advocacy and missiondriven nonprofit sectors. Project Daytona Sell-Side Specialty Financial Advisory Consultancy Project Daytona G2 is currently advising a financial and operational specialty consulting firm on a sell-side process. The firm provides support ranging from COO / CFO to accounting services for emerging life science and renewable energy companies. Project Medical Buy-Side Health Technology Management Services Project Medical G2 is currently advising a provider of integrated health technology management services in a buy-side process. Search criteria includes: Core Services: Repair and maintenance of biomedical, ultrasound, x-ray, and nuclear medicine equipment Value-Added Services: Equipment sales, relocation, procurement, and regulatory consulting and compliance 7

8 Selected Q4 Transaction Highlight G2 successfully advised the full sale of a specialty management consulting firm to a strategic portfolio company of a national private equity firm. G2 Capital Advisors acted as the exclusive Sell-Side Advisor to Bridgepoint Consulting a portfolio company of Client Bridgepoint Consulting is a leading management consulting firm that helps companies throughout their business lifecycle. Offering a broad range of finance, technology and risk/compliance services, Bridgepoint supports clients from the startup phase all the way to IPO readiness and beyond. Since 1999, Bridgepoint has been helping executives and management teams reduce their business and operational risks, bridge resource gaps and improve overall performance. Situation Bridgepoint had achieved an impressive period of sustained growth and profitability leveraging investments in infrastructure made over the last several years as well as expansion into new service offerings. The principles of the firm were interested in securing a potential liquidity event and were specifically seeking a partner for their next stage of growth. Engagement G2 served as the exclusive advisor to Bridgepoint Consulting, responsible for running a targeted, hands-on sale process, which ultimately resulted in a sale toaddison Group. Outcome The transaction was successfully executed through a sale to Addison Group, a portfolio company of Odyssey Investment Partners. Addison Group is a leading provider of professional staffing and permanent placement services for Information Technology, Finance & Accounting, Executive Search, Healthcare, HR & Administrative, and Engineering. This exciting partnership provides Bridgepoint the incredible opportunity to leverage Addison s national presence to accelerate our growth strategy and extend our services, said Bob Smith, Co-Founder and Principal of Bridgepoint Consulting. We look forward to working with the Addison team to build new synergies while enhancing our ability to deliver high-value services for our clients. This also provides many career opportunities for our team that will allow them to continue growing professionally. 8

9 Reference Contact & Glossary of Terms Matt Konkle, Managing Director Jeffrey Unger, CEO Scott Yen, Director Theodore Bang, Analyst Term Definition Revenue EBITDA Market Cap Long-Term Debt Net Debt Enterprise Value P/E Tangible Book Value Total revenue from the sale of goods and services rendered during the reporting period, in normal course of business, reduced by sales returns and allowances, and sales discounts. For banks, this item is defined as net interest income after loan loss provisions Earnings before interest, taxes, depreciation, and amortization. Calculated as Revenue Expenses, excluding interest, taxes, depreciation and amortization Market value of a company using most recently reported basic weighted average shares outstanding. Calculated as Market Price (as of period end) * Basic Weighted Average Shares Outstanding Sum of the carrying values as of the balance sheet date of long-term debt with a maturity beyond one year or the normal operating cycle, if longer Net Debt shows the company s overall debt situation by netting the value of debts with cash and other similar liquid assets. Calculated as Total Debt Cash & Cash Equivalents and Short Term Investments Enterprise Value represents the combined economic value of a company as of the most recent fiscal year end. Calculated as Diluted Market Capitalization + Total Debt + Minority Interest + Preferred Stock Cash and Short Term investments A valuation ratio of a company stock price compared to its per share earnings. Calculated as Market Price / Earnings per Share for the last annual period Total Shareholder s Equity Goodwill and Intangible Assets For more information about G2, please visit: Our corporate headquarters is located at: 535 Boylston Street, 11 th Floor, Boston, MA Boston Chicago Indianapolis Naples San Francisco The information included in this Presentation is not a complete analysis of all material facts regarding any company, industry, or security and does not constitute investment advice. Opinions expressed or implied by the materials here presented reflect only the judgement of its author as of the date of the Presentation and is subject to change without notice. The information in this Presentation has been obtained from sources which G2 generally considers reliable, but we make no representation or warranty, express or implied, as to the accuracy or completeness of any information herein. This Presentation has been prepared for informational purposes only and upon the express understanding that it will be used only for the purposes set forth in the Section captioned G2 Overview above. G2 expressly disclaims any and all liability which may be based on such information, errors therein or omissions there from. Securities offered through Western International Securities, Inc. Member FINRA & SiPC. G2 Securities and Western International Securities are separate and unaffiliated entities. 9