The Knowledge Economy Global M&A Report 2020
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THE KNOWLEDGE ECONOMY GLOBAL M&A REPORT 2020 Market trends and key transactional insights for owners of knowledge-intensive services and software businesses information services information and communications Marketing, Management consulting Management services Technology & services consulting Engineering management Human capital / Software SaaS CONTENTS FOREWORD .........................................3 KEY FINDINGS .....................................4 Engineering Consulting & Services ............. 43 MARKET OVERVIEW ..........................6 Key findings Key trends Key trends Regional review Regional review Equity market performance Overview of equity market performance Valuation multiples and trends Valuation multiples and trends Strategic and private equity buyer trends Buyer trends Selected notable private equity transactions Selected transactions Outlook SEGMENT REVIEWS .......................... 16 Human Capital Management ...................... 52 Key findings Key trends Regional review Management Consulting .............................. 16 Overview of equity market performance Key findings Valuation multiples and trends Key trends Buyer trends Regional review Selected transactions Overview of equity market performance Valuation multiples and trends Buyer trends Selected transactions SaaS / Software ............................................ 61 Key findings Key trends Technology Services ................................... 25 Regional review Key findings Overview of equity market performance Key trends Valuation multiples and trends Regional review Buyer trends Overview of equity market performance Selected transactions Valuation multiples and trends Buyer trends KEY CONSIDERATIONS .....................70 Selected transactions APPENDIX ......................................... 72 About Equiteq Key definitions Marketing, Communications and Equiteq market intelligence and data sources Information Services ................................... 34 Further resources Key findings Disclaimers and important information Key trends Regional review Overview of equity market performance Valuation multiples and trends Buyer trends Selected transactions 2 Confidential | © Equiteq Advisors Ltd. 2020 | equiteq.com FOREWORD David Jorgenson CEO Equiteq Equiteq is delighted to present the results of our The Equiteq Knowledge Economy Share Price Index rose thirteenth annual review of M&A and equity market with broader equity market indices and reached new trends across the knowledge economy. highs. By the end of 2019, capital raised among investors in knowledge economy businesses had reached a ten- At Equiteq we define the knowledge economy as the year high. Entering the new decade, we continue to ecosystem in which expertise, know-how and people- observe strong levels of dry powder and robust fund driven change are delivered through B2B services raising among active private equity investors. Solid globally. The knowledge economy is characterized by levels of capital available for M&A is coupled with skill innovation, creative entrepreneurship, and disruption of shortages in hot areas of the knowledge economy, old modes of doing business. Equiteq has been focused such as machine learning, advanced data analytics and on the knowledge economy since 2006, and in recent cyber security. This is maintaining pressure on strategic years these industries have undergone unprecedented and financial buyers to put their cash to work on new diversification, disruption and change. acquisitions at premium valuations. This disruption and change has been driven by the Despite recent market volatility, buyers are pushing increasing digitization of the global economy, as well forward with their acquisition strategy. The outlook for as by pervasive technology tools that are changing the the remainder of 2020 is expected to be more uncertain way we as humans live, work and relate to the world. than the prior year. Nevertheless, there remains an This external reality has accelerated the convergence unparalleled opportunity for pioneering business owners of traditional consulting sectors (delivery of expertise) and entrepreneurs to create value, and make profitable and software (scalable tools with new modes of doing exits within the disruption zone of the industry. We hope business), creating hybrid models with elements of that this latest edition of The Knowledge Economy Global both. To appropriately reflect the varied nature of M&A M&A Report gives you a taste of Equiteq’s deep insights trends and valuation metrics across this rapidly changing into deal activity within this space. landscape, this report has been expanded to address the SaaS / Software segment. If you would like to have a chat about your current sale journey as a business owner or acquisition strategy as Across the knowledge economy, M&A activity rose an acquirer, please get in touch. to a ten-year high in 2019, both with respect to the number of completed transactions and the amount of capital invested in deals. M&A drivers include soaring stock prices, strong levels of capital available for new deals, and talent shortages in the knowledge economy. Regionally we noted a stronger rise in overall activity in North America and Asia, as well as an uptick in deal count in Europe. Across the market, those companies with a stronger technology-enabled component achieved the highest valuation metrics. Demand remains strong for those disruptive businesses that are innovating in this changing environment. equiteq.com | © Equiteq Advisors Ltd. 2020 | Confidential 3 KEY FINDINGS M&A activity increased with variations in deal flow by segment. Interquartile Range of Revenue Valuation Multiples by Segment (2019) 2019 Deal Count - 19% Q1 Q3 0.8 1.3 2.3 2019 Capital Invested - 29% $235bn Management consulting Q1 Q3 0.9 1.5 2.2 Technology services Q1 Q3 3,755 deals 3,755 1.2 1.5 2.2 Marketing, communications and information services Q1 Q3 0.6 0.8 1.6 Engineering consulting & services Q1 Q3 0.9 1.6 2.6 Human capital management 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q3 Deal count Capital invested 1.1 3.1 5.5 SaaS / Software There was a notable rise in overall deal activity in North America and Asia Pacific, as well as a rise in deal count in Europe. Europe North America 1,452 DEALS 1,993 DEALS Capital Invested ($M) Asia Pacific Capital Invested ($M) 50,499 175,708 137 DEALS 27% 24% Capital Invested ($M) 14% 58% 4,861 10% 68% Rest of the World 95 DEALS Australia & NZ Capital Invested ($M) 78 DEALS 997 Capital Invested ($M) 54% 112% 2,815 12% 561% Cross-border M&A accounted for 29% of all deals in 2019 (versus 33% in 2018) 2019 Deal Count 2019 Capital Invested ($M) 4 Confidential | © Equiteq Advisors Ltd. 2020 | equiteq.com Buyer review by segment Management Technology Marketing, Engineering Human capital SaaS / consulting services communications consulting & management Software and information services services Notable Boston DXC Technology Accenture WSP Global Korn Ferry Salesforce strategic Consulting Group Interactive Accenture NV5 Alight Solutions Oracle buyers Sia Partners Publicis Groupe Capgemini SGS TMP Worldwide SAP McKinsey Dentsu Logicalis Terracon Broadstone Microsoft BDO S4 Capital Corporate Cognizant Jensen Hughes Benefits Workday Begbies Traynor Havas Spencer Stuart % of all deal count by private 29% 40% 34% 29% 43% 39% equity % of all capital invested by private 27% 32% 20% 47% 56% 43% equity The Equiteq Knowledge Economy Share Price Index1 reached new highs with broader equity market indices. 29% S&P 500 S&P 500 9% 19% 29% 26% KnowledgeKnowledge economy economy 12% 17% 26% 30% ManagementManagement consulting consulting 11% 9% 30% 18% Technology servicesIT services 12% 18% 19% Marketing, communications and 7% 10% Media agency information services 8%10% 12% 41% Engineering consultingEngineering & services consulting 41% 14% 11% 17% Human capitalHuman management capital management 17% 14% 19% 37% SaaSEnterprise / Software software 37% 37% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2019 Average Return 2010 to 2019 2019 Average Annual Return 2010 to 2019 Note 1: On page 75 we discuss the S&P 500 index as a benchmark for comparison to the Equiteq Knowledge Economy Share Price Index. Source: Equiteq M&A and share price data throughout the report rely on third party sources including PitchBook and CapIQ, see page 74 and 75 for more information. equiteq.com | © Equiteq Advisors Ltd. 2020 | Confidential 5 MARKET OVERVIEW KEY TRENDS M&A drivers included Demand for solutions Deal activity varied soaring stock prices, that enable digital by region, with cross- strong levels of transformation border M&A dipping. capital available for is impacting all There was a rise in M&A activity new deals and talent knowledge economy in both North America and APAC. shortages in the segments. North America continues to experience strong economic growth knowledge economy. and low unemployment, which In 2019, as expected there is fueling buyer activity. Despite was strong demand for digital Deal count and capital invested trade tensions between the US transformation solutions across in M&A rose in 2019. There was and Asia, globalization, economic all segments of the knowledge also a rise in the competitiveness development and rising adoption economy. According to data from of average deal structures, as of new technologies is driving Reports and Data, the digital observed by a slight rise in the international demand for specialist transformation market is expected upfront cash component for businesses