Information Technology Services Newsletter
 
Q1 2017
 
IT Services M&A Activity Remains Strong in Q1 2017
Quarterly M&A Commentary
  • U.S. monthly M&A deal activity reported by FactSet increased in January 2017 to 1,123 transactions from 995 in December 2016. After volume dropped to 870 in February, M&A increased in March 24.7% with 909 announcements. Aggregate M&A spending (value) also increased. In March, 18.8% more was spent on deals compared to February.[1]
     
  • Technology services continues to be one of the strongest sectors by volume in the US, with 469 transactions in Q1 2017, down slightly from Q1 2016 volume of 492 transactions.[2]
     
  • Topping Cherry Tree's Q1 IT Services transaction list with 30% of the deals for the quarter was the Systems Integration market segment. This broad segment includes VARs, hardware, network, end point, software and managed services providers. Both strategic and financial buyers have demonstrated a healthy demand for well-run companies.
     
  • The long-term trend by corporations to outsource data centers and their operations is driving interest in data center services like co-location, outsourced operations, design and development. Cloud infrastructure adoption and the myriad of hybrid solutions are also fueling data center services deals.
     
  • 15% of notable transactions for the quarter, including the Digital Bridge acquisition of Vantage Data Centers from Silver Lake Partners for well over $1 billion, signals consolidation in the data center sector. Industry players are seeking scale to cope with U.S. businesses' burgeoning demand for data and video, which is fueling a revival in fiber optic services and data storage.[3]
     
  • Private equity continues to show strong interest in IT Services, especially in targets demonstrating consistent YOY growth, blue chip clients, gross margin expansion opportunities and double digital EBITDA. Notable transaction examples were Bailiwick selling majority interest to Norwest Equity Partners[4]; Navantis and AdvancedEPM Consulting selling to Datavail, a firm backed by growth capital firms Catalyst Investors, Tahosa Capital, Lumerity Capital Partners, Boulder Ventures, Meritage Funds and MC Investment Fund (Montis); and Veritas Capital acquiring Harris Corporation's (NYSE:HRS) government IT services business.
     
  • Security consulting, assessment, cyber defense, intelligence, and managed services, especially in vertical industries like healthcare and federal government, attracted both strategic and financial buyers in the quarter.
     
  • Digital boutiques with strong UX/UI, creative and research continue to be attractive to even the largest buyers like Accenture, Salesforce.com, Cap Gemini, and Globant.
     
  • Ciber continued to sell off assets in order to help raise the money it needs to repay its creditors. Only 12-days before selling its Spanish operations, Ciber also agreed to sell its German and Danish businesses to Allgeier, a German IT company. In March, Ciber's CFO, Christian Metzger, went on record stating that the solution provider's future is uncertain if it is unable to repay Wells Fargo. The Company rejected Ameri100's offer to buy Ciber for $0.75 per share, a substantial premium over Ciber's March 10th closing stock price of $0.28.[5]
     
  • Subsequent to the end of the quarter, in April 2017, Ciber filed for Chapter 11 bankruptcy protection and struck a deal with Capgemini to sell its North America and India businesses, marking the end of life for one the largest IT Services growth stories of the past few decades.

[1] S&P Global Market Intelligence, January 2017
[2] 2017 FactSet Research Systems Inc. factset.com
[3] Reuters Technology News January 2017
[4] Cherry Tree acted as financial advisor to the seller

[5] CRN.com, 2017, The Channel Co.

Notable Transactions

January 2017
Sequence acquired by Salesforce.com
Digital
Customer relationship software company Salesforce (NYSE:CRM) has agreed to acquire 12 year-old company called Sequence, a user experience design agency based out of San Francisco and New York that works with brands like Best Buy, Peets, Apple, and Google, for an undisclosed amount. Sequence is known for its digital research and design capabilities and to Salesforce's growing services portfolio.

January 2017
Veritas Capital acquires Harris Corporation's Government IT Services business
Systems Integration
Veritas Capital, a leading private equity investment firm, has agreed to acquire Harris Corporation's (NYSE:HRS) government IT services business for $690 million in cash. Headquartered in Herndon, Virginia, the business provides communications, engineering and IT solutions for Intelligence, defense, and federal civilian customers, including supporting NASA's Space Communications Network and Deep Space Network programs, and operates within Harris' Critical Networks segment, generating over $1 billion of revenue annually.

February 2017
Salient CRGT acquires Information Innovators ("Triple-i")
Consulting
Salient CRGT, a leading provider of agile software development, data analytics, mobility, cyber security, and infrastructure solutions, has agreed to acquire Springfield, VA-based Information Innovators ("Triple-i"), a technology and mission-focused company serving the federal government, with particular strength in the healthcare IT arena. Salient CRGT is backed by two private equity firms, Bridge Growth Partners and Frontenac, and Triple-i is backed by DFW Capital Partners.

March 2017
Cognizant acquires Brilliant Service, a Japan-Based Intelligent Products and Solutions Company
Outsourced Development
Cognizant (NASDAQ:CTSH) announced the acquisition of Brilliant Service, an intelligent products and solutions company headquartered in Osaka, Japan, specializing in digital strategy, product design and engineering, the Internet of Things (IoT), and enterprise mobility. Founded in 2004, Brilliant Service helps organizations build connected businesses by leveraging innovative smart device solutions. The company provides end-to-end Android/iOS applications, embedded software, user experience design and online-to-offline services to major corporations in Japan, who are seeking to create engaging customer experiences. Its client roster includes many of Japan's top telecommunications, manufacturing, and consumer goods companies.

March 2017
Norwest Equity Partners acquires majority interest in Bailiwick
Systems Integration
Norwest Equity Partners ("NEP"), a leading middle market investment firm founded in 1961, made a significant investment in Bailiwick, a provider of professionally managed technology integration for complex, large-scale IT initiatives. Founded in 1995, Bailiwick provides best-in-class design and deployment of IT solutions for Fortune 100 and 500 companies customized to their unique needs. As a partner to leading corporations, Bailiwick professionally manages technology integration of complex, large-scale IT initiatives.

March 2017
Comm-Works acquires Network Access Products (NAP)
Systems Integration
Comm-Works acquired Network Access Products for an undisclosed sum. Comm-Works says the NAP acquisition will strengthen the organization with a second 24/7 network operations center (NOC) based in Ft. Myers, FL, and add some new Fortune 500 customers, establishing Comm-Works as a player in the increasingly competitive managed services space.

IT Services Performance Index
Cherry Tree monitors the IT services market, including deal rationale, volume and multiples. The IT Services Performance Index is a group of 60 publicly traded companies representing each of the market segments. In Q1 2017, the IT Services Performance Index slightly underperformed the S&P 500 .

 
Contact Cherry Tree for a complete listing of the most current IT Services Index.


PUBLIC COMPS - Median Statistics
Q1 2017 median enterprise value (EV) multiples for publicly traded IT Services companies were in-line with Q4 2016 multiples. As a group, one-year revenue growth came in at 5.6%, down from 7.1% in Q4 2016. The only segment of the IT Services market experiencing double digit growth is the Security industry. The Staffing segment is experiencing the lowest growth, barely up on a year-over-year basis.

Median valuation and operating metrics for publicly traded companies in the IT Services Performance Index are summarized below by segment.


Q 1 2017 Select Transactions

Date
Target
Acquirer
Segment
Target Description
Press
01/02/2017
Engage ESM
Atos (ENXTPA:ATO)
Systems Integration
Engage ESM operates as an IT enterprise service management consultancy and technology company.
01/03/2017
Continuum Security Solutions
Sirius Computer Solutions
Security
Continuum Security Solutions provides information security consulting services to Fortune 500 companies and governmental agencies.

01/04/2017
The Spitfire Group
DCG Software Value
Consulting
The Spitfire Group operates as an IT consulting firm.

01/04/2017
RAS & Associates
Perficient (Nasdaq:PRFT)
Consulting
RAS & Associates operates as a strategy and management consulting company.

01/05/2017
Tech-Pro
Artech Information Systems
Staffing
Tech-Pro provides IT and staffing services through on-site, off-site, off-shoring, and blended delivery models.

01/05/2017
The Kemtah Group
Belcan
Outsourcing
The Kemtah Group provides IT infrastructure support services.

01/05/2017
CEB (NYSE:CEB)
Gartner (NYSE:IT)
Consulting
CEB operates as a practice insight and technology company in the United States, Europe, and internationally.

01/09/2017
Altitude
Accenture (NYSE:ACN)
Consulting
Altitude offers product design, consulting, and innovation services.

01/09/2017
SEAL Consulting
CenturyLink (NYSE:CTL)
Systems Integration
SEAL Consulting provides SAP solutions for enterprise-wide business and technology needs.

01/09/2017
Tridea Partners
Columbus A/S (CPSE:COLUM)
Consulting
Tridea Partners is a Microsoft Dynamics ERP and CRM consulting partner.

01/10/2017
Commerx
Lotus Innovations Fund
Systems Integration
Commerx provides digital and telecommunications services.

01/11/2017
GlobalLogic
Canada Pension Plan Investment Board
Outsourced Development
GlobalLogic provides full-lifecycle product development services to customers worldwide.

01/12/2017
T2 Computing
Axispoint
Systems Integration
T2 Computing is a provider of computing, storage, networking, and support services.

01/16/2017
G²S Global
Liberty Advisor Group
Security
G²S Global operates as a security advisory firm specializing in business threat intelligence and cyber monitoring solutions

01/16/2017
True North Service
LogiGear
Staffing
True North Service provides contract staffing and software testing services to technology companies.

01/17/2017
CynergisTek
Auxilio (AMEX:AUXO)
Security
CynergisTek provides IT security consulting services.

01/17/2017
C7 Data Centers
DataBank
Outsourcing
C7 Data Centers is a data center service provider in the Salt Lake City market.

01/17/2017
M&S Technologies
Kudelski Security
Security
M&S Technologies provides cyber and network security solutions.

01/17/2017
Kerr Consulting
Proviso Capital
Consulting
Kerr Consulting offers IT consulting services including accounting, ERP, CRM and human resources software.

01/18/2017
Navantis
Datavail
Consulting
Navantis, a Microsoft Premier Partner, provides systems integration and IT solutions in Canada.

01/18/2017
ASG Renaissance, Staffing Arm
Kyyba
Staffing
The Staffing Arm of ASG Renaissance comprises engineering and IT staffing employees, clients, and equipment.

01/18/2017
Micro Strategies
NEC (TSE:6701)
Systems Integration
Micro Strategies provides business process and infrastructure technology solutions in North America.

01/18/2017
Curvature
SMS Systems Maintenance Services
Systems Integration
Curvature provides pre-owned and new-surplus networking equipment and services solutions.

01/18/2017
Coders Center
SoftServe
Outsourced Development
Coders Center, a Sitecore Gold Implementation Partner, specializes in enterprise content management systems and e-commerce platforms.

01/19/2017
HVE ConneXions and Unified ConneXions (UCX)
Sphere 3D (Nasdaq:ANY)
Systems Integration
UCX provides strategic, architectural, operational, and implementation planning related to the customers' IT and network infrastructure.

01/24/2017
DSM Computing Solutions
Apogee IT Services
Systems Integration
DSM Computing Solutions provides IT support services and computing solutions.

01/24/2017
KINETiQ DIGITAL
Robots and Pencils
Digital
KINETiQ DIGITAL, a digital agency, provides digital strategy, data intelligence, and digital execution services.

01/24/2017
Sequence
Salesforce.com (NYSE:CRM)
Digital
Sequence, a digital agency, designs and develops customer experiences and building digital products for brands.

01/25/2017
Brilliant Experience
10Pearls
Digital
Brilliant Experience develops and offers customer engagement and cognitive design solutions.

01/25/2017
solid-serVision
Accenture (NYSE:ACN)
Systems Integration
solid-serVision, a ServiceNow partner, provides service-management solutions in Germany and internationally.

01/25/2017
InfoSERVER
Wipro (BSE:507685)
Systems Integration
InfoSERVER provides custom application development and software deployment services in Brazil.

01/26/2017
Premier EDA Solutions
Altium (ASX:ALU)
Systems Integration
Premier EDA Solutions resells Altium electronic design automation software for companies in the United Kingdom and Ireland.

01/26/2017
Cleveland Technology Center
H5 Data Centers
Outsourcing
Cleveland Technology Center comprises data center space in Cleveland, Ohio.

01/27/2017
LPS Integration
Data Blue
Systems Integration
LPS Integration is a VAR specializing in cloud infrastructure, networking, security and storage architecture.

01/27/2017
Harris Corporation, Government IT Services Business
Veritas Capital
Systems Integration
Harris Corporation, Government IT Services Business provides IT and engineering managed services to government agencies.

01/30/2017
Congruity
Procurri
Systems Integration
Congruity is engaged in servicing, managing, and implementing support and infrastructure solutions worldwide.

01/31/2017
InvestTech Systems Consulting
Accenture (NYSE:ACN)
Systems Integration
InvestTech Systems Consulting provides investment technology systems-integration and consulting services.

01/31/2017
365 Data Center, facilities in Cleveland and Pittsburgh
DataBank
Outsourcing
Cleveland and Pittsburgh data center assets of 365 Data Centers.

02/01/2017
Saturn Infotech
Jade Global
Consulting
Saturn Infotech delivers business analytics solutions including Oracle Hyperion Enterprise Performance Management, Business Intelligence, Big Data and Cloud Computing.

02/01/2017
DC74 Data Centers
Lumos Networks (Nasdaq:LMOS)
Outsourcing
DC74 Data Centers provides data center services in North Carolina.

02/01/2017
IntroPro
Luxoft (NYSE:LXFT)
Systems Integration
IntroPro provides end-to-end product development, engineering and software development consulting services.

02/02/2017
Metcom Network Services
Epsilon Telecommunications
Systems Integration
Metcom Network Services provides connectivity and colocation services across the greater New York metro market.

02/02/2017
Cologix
Stonepeak Infrastructure Partners
Outsourcing
Cologix is a network neutral interconnection and data center company.

02/03/2017
Ciber Germany and Ciber Denmark
Allgeier SE
Consulting
Ciber Germany and Ciber Denmark provide fully integrated IT solutions and services.

02/06/2017
Sentinel Data Centers, Two Data Centers in North Carolina and New Jersey
CyrusOne (Nasdaq:CONE)
Outsourcing
Sentinel Data Centers sold two enterprise class data centers in North Carolina and New Jersey.

02/06/2017
IO, UK Data Center
Equinix (Nasdaq:EQIX)
Outsourcing
IO, UK Data Center provides co-location and data center services.

02/06/2017
Information Innovators
Salient CRGT
Consulting
Information Innovators provides solutions and services to IT and health-focused clients across the federal government.

02/07/2017
Barefoot Technologies
Wipfli
Consulting
Barefoot Technologies provides development, integration, implementation, consulting, and support services for the NetSuite platform.

02/08/2017
AST
Tailiwind Capital
Systems Integration
AST is a pure-play Oracle consulting, implementation, and managed services firm.

02/08/2017
Endgame, U.S. Federal Government Services Business
Accenture (NYSE:ACN)
Security
Endgame, U.S. Federal Government Services Business comprises cyber defense, hunt-as-a-service capabilities, red teaming, and cyber operations.

02/08/2017
Infinigate
H.I.G. Capital
Security
Infinigate is a value-added distributor of IT security solutions in Europe.

02/08/2017
Vantage Data Centers
Digital Bridge Holdings
Outsourcing
Vantage Data Centers operates data centers.

02/09/2017
iDefense Security Intelligence Services
Accenture (NYSE:ACN)
Security
iDefense Security Intelligence Services develops cyber intelligence solutions related to vulnerabilities, malicious code, and global threats to organizations.

02/13/2017
Eclipsecurity
HALOCK Security Labs
Security
Eclipsecurity provides information security consulting services.

02/13/2017
AirTrunk
TPG Capital, Goldman Sachs
Outsourcing
AirTrunk develops and operates data centers.

02/15/2017
Ciber Spain
ManpowerGroup (NYSE:MAN)
Staffing
Ciber Spain provides fully integrated IT solutions and services.

02/15/2017
Sourcebits
Ascendum
Digital
Sourcebits provides digital strategy, design, implementation, marketing and lifecycle-management services.

02/16/2017
Cloudreach
The Blackstone Group (NYSE:BX)
Systems Integration
Cloudreach designs and develops cloud computing solutions and offers consulting services.

02/16/2017
TCube Solutions
Cap Gemini (ENXTPA:CAP)
Consulting
TCube Solutions provides software and services for property and casualty insurance providers worldwide.

02/16/2017
Idean
Cap Gemini (ENXTPA:CAP)
Digital
Idean is a digital strategy and experience design consultancy

02/17/2017
zData
Atos (ENXTPA:ATO)
Consulting
zData, a PIVOTAL services partners, provides big data solution consulting.

02/20/2017
SinnerSchrader (XTRA:SZZ)
Accenture (NYSE:ACN)
Digital
SinnerSchrader operates as an independent digital agency in Germany and internationally.

02/20/2017
SunTel Services
Cincinnati Bell (NYSE:CBB)
Systems Integration
SunTel Services provides network security, data connectivity, and unified communications solutions.

02/21/2017
Preferred Systems Solutions
STG Group (OTCPK:STGG)
Systems Integration
Preferred Systems Solutions provides IT, engineering, program management, intelligence, and staffing services to government and commercial clients.
02/22/2017
RagingWire Data Centers
NTT (TSE:9432)
Outsourcing
RagingWire Data Centers designs, builds, and operates mission critical data centers.

02/23/2017
Data Center Facility in Oregon
OVH Groupe
Outsourcing
OVH Groupe acquired a data center facility in Oregon.

02/28/2017
Infusion
Avanade
Consulting
Infusion is a global software engineering, design and digital strategy firm with a strong Microsoft expertise.

02/28/2017
ICT-Center, Zurich Data Center Business
Equinix (Nasdaq:EQIX)
Outsourcing
ICT-Center, Zurich Data Center Business comprises data center operations in Zurich, Switzerland.

03/01/2017
Laser Resources
Xerox (NYSE:XRX)
Systems Integration
Laser Resources supplies printing system technologies, mailing solutions, and managed services to organizations throughout Iowa.

03/01/2017
Ratio
Globant (NYSE:GLOB)
Digital
Ratio provides digital services specializing in video streaming solutions.

03/02/2017
Brilliant Service
Cognizant (Nasdaq:CTSH)
Outsourced Development
Brilliant Service provides digital strategy, product design and engineering, IoT, and enterprise mobility solutions.

03/06/2017
AdvancedEPM Consulting
Datavail
Consulting
AdvancedEPM Consulting focuses on implementing Oracle enterprise performance management solutions.

03/06/2017
Bailiwick
Norwest Equity Partners
Systems Integration
Bailiwick provides design and deployment of IT solutions for Fortune 100 and 500 companies.

03/06/2017
The HCI Group
Tech Mahindra (NSEI:TECHM)
Consulting
The HCI Group offers healthcare technology consulting services, specializing in the implementation of electronic medical records software.

03/07/2017
Network Access Products
Comm-Works
Systems Integration
Network Access Products designs, deploys, and supports wide area and local area technology solutions.

03/07/2017
Maintech
Oak Lane Partners
Systems Integration
Maintech provides infrastructure support services for corporate IT enterprises in North America.

03/07/2017
Two Data Centers in Atlanta and Toronto
TowerBrook Capital Partners; Ascent
Outsourcing
Two Data Centers in Atlanta and Toronto comprises two enterprise-grade data centers.

03/10/2017
ATCG Solutions
Ameri100 (OTCPK:AMRH)
Systems Integration
ATCG Solutions is a systems integration firm specializing in end-to-end SAP Enterprise Cloud Services.

03/13/2017
Ciber (NYSE:CBR)
Ameri100 (OTCPK:AMRH)
Consulting
Ciber operates as an IT service company providing consulting, managed services, application development, and staffing solutions.

03/13/2017
Communications Resources
Interdev
Systems Integration
Communications Resources designs, installs, and maintains voice and data communication infrastructure and systems.

03/14/2017
RAGE Frameworks
Genpact (NYSE:G)
Systems Integration
RAGE Frameworks develops knowledge-based automation technology and services providing Artificial Intelligence for the enterprise.

03/14/2017
Geneva Technical Services
Highlands Ventures
Staffing
Geneva Technical Services provides IT consulting and staffing services to companies in the United States.

03/14/2017
Accentia Middle East
Infor
Consulting
Accentia Middle East provides Infor ERP implementation services in the Middle East and North Africa.

03/20/2017
Aporia Solutions
Accume Partners
Security
Aporia Solutions provides IT risk and security assessment, and security audit services.

03/20/2017
Ciber, Infor Practice
Infor
Consulting
Ciber, Infor Practice comprises of implementation, integration and upgrade services related to Infor software customers in North America and Europe.

03/20/2017
Comm Solutions
Optiv Security
Systems Integration
Comm Solutions provides security and networking technology, services and solutions.

03/21/2017
Focus Group Europe
Accenture (NYSE:ACN)
Systems Integration
Focus Group Europe provides implementation and deployment services for ServiceNow software.

03/21/2017
Stelligent Systems
HOSTING
Consulting
Stelligent Systems provides DevOps automation in the Amazon Web Services cloud.

03/21/2017
Binary Semantics, Managed Services Division
Vaco
Staffing
The Managed Services Division of Binary Semantics is an Indian based managed services provider.

03/23/2017
derivIT
Luxoft (NYSE:LXFT)
Consulting
derivIT provides IT consulting services to the financial services industry across the APAC region.

03/27/2017
Day1 Solutions
Deloitte
Consulting
Day1 Solutions provides cloud consulting solutions for the Amazon Web Services cloud.

03/27/2017
Structured Network Solutions
Orion
Systems Integration
Structured Network Solutions, an IT advisory and consulting company, provides technology integration services.

03/27/2017
VelocityMSI, Medical Cloud Hosting Division
Trapp Technology
Outsourcing
The Medical Cloud Hosting Division of VelocityMSI provides cloud hosting services largely to the medical market.

03/30/2017
Lenmar Group
Kellton Tech (BSE:519602)
Outsourced Development
Lenmar Group provides custom software development and cloud solutions for the financial services market.



 
Cherry Tree is a private investment banking firm headquartered in Minneapolis. Our firm specializes in serving middle market companies and their owners, whether private, public, or divisions of larger corporations.
 
Led by IT industry veterans, our team will work with you to evaluate your company's strategic alternatives and determine how trends in IT services affect your prospects.

Prepared by: Elmer Baldwin, Managing Director, ebaldwin@cherrytree.com , 952.253.6001
Important Disclosures

The information included in this publication has been obtained from public sources, and is not based upon private or confidential Cherry Tree information. Cherry Tree gathers its data from sources it considers reliable. However, it does not guarantee the accuracy or completeness of the information provided within this publication. Any opinions presented reflect the current judgment of the authors and are subject to change. Cherry Tree makes no warranties, expressed or implied, regarding the accuracy of this information or any opinions expressed by the authors. Officers, directors, partners of Cherry Tree and Cherry Tree proprietary investment funds may have positions in the securities of the companies discussed, and certain affiliates of Cherry Tree may recommend to specific clients the purchase and sale of securities discussed in the publication. This publication does not constitute a recommendation with respect to the securities of any company discussed herein, and it should not be construed as such. Cherry Tree or its affiliates may from time to time provide investment banking or related services to these companies. Like all Cherry Tree employees, the authors of this publication receive compensation that is affected by overall firm profitability. We undertake no obligation to update any information in this publication.
  
The IT Services Performance Index is a hypothetical index, and does not reflect an actual investment portfolio. Comparisons between the IT Services Index and other indices are for illustrative purposes only. Correlations in performance information for the IT Services Performance Index and other indices should not be relied upon as indicative of risks involved in owning or holding a portfolio of securities similar to the IT Performance Services Index. Past performance should not be relied upon as indicative of future performance.

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