Information Technology Services Newsletter
 
Q2 2017
 
IT Services M&A Activity Down Slightly in Q2 2017, but Overall Remains Strong
Quarterly M&A Commentary
  • The overall technology sector experienced significant M&A activity in 2016. However, there has been a material drop-off in tech M&A value in 2017, with only $48 billion of transaction value announced year-to-date versus over $120 billion in the first half of 2016. The number of transactions reported this year have been much more in line with the approximately 600 per quarter seen in 2016. Overall, the tech M&A market remains healthy and very active.[1]
  • For the three months ending May 2017, the technology services sector experienced a slight decline in M&A deal volume relative to the same three-month period one year ago.[2] Notable transaction volume tracked by Cherry Tree is down over 10% for the quarter compared with Q1 2017.[3]
  • Cherry Tree's IT Services Performance Index of publicly traded companies slightly outperformed the S&P 500 during Q2, but has still underperformed over the past five quarters. Valuation multiples are holding steady, and have not changed much since Q1 2017.
  • Buoyed by market demand and available capital, systems integrators continue to consolidate through M&A as customers of all sizes look to outsource, co-locate, secure, monitor, service or integrate their IT infrastructure with hybrid IT and public cloud computing. A couple great examples of this are Zayo acquiring KIO Network's data centers in California, and ePlus (NASDAQ: PLUS) acquiring One Cloud to expand its offering in hybrid IT and cloud platform migration services.
  • The large IT consultancies and systems integrators continue to acquire their growth. As an example, CGI (NYSE: GIB; TSX: GIB.A) announced two cash transactions, acquiring U.S.-based high-end consulting firms CTS and ETS as part of their stated objective to "profitably double the company in five to seven years through a combination of acquisitions and organic growth."
  • The large firms are also showing interest in smaller firms with strong, niche capabilities in attractive service areas. Examples include Globant (NYSE: GLOB) acquiring Point Source for its digital chops, Accenture acquiring Media Hive for its Salesforce Commerce Cloud depth, and Hanse Orga acquiring two smaller firms: E5 for its specialty SAP / ERP Treasury Applications competencies, and Dolphin for its SAP AR/AP processing.
  • IT services companies continue to attract capital from investors. During the quarter, Orogen invested $108 million in Virtusa (NASDAQ: VRTU), Beringer acquired ICiDigital, McLean Capital invested in RG, Odyssey backed Addison's acquisition of AIM Consulting, and Cornerstone/Oaktree acquired ITKontrakt, a leading vendor of IT services outsourcing in Poland.
  • Nontraditional strategic buyers are acquiring IT services companies with the talent to fuel their pivot to tech-enabled services. Examples during the quarter include Trimble (NASDAQ: TRMB) acquiring IoT developer ISE to expand their fleet safety and compliance solutions offerings, and Meridian Waste Solutions (NASDAQ: MRDN) acquiring Mobile Science Technologies to focus on their smart-city initiative called "Bright City" currently underway in Delaware and Georgia.

[1] VentureBeat, July 2017, Source: Capital IQ
[2] M&A Spending Climbs in May, Even as Activity Slows, June 28, 2017 Factset.com
[3] Reported by Capital IQ, per Cherry Tree screening criteria
Notable Transactions

June 2017
Peak 10 acquires ViaWest for $1.675 billion
Outsourcing
Peak 10, a portfolio company of GI Partners, and ViaWest, a wholly-owned subsidiary of Shaw Communications (TSX: SJR.B; NYSE: SJR), entered into a definitive agreement under which ViaWest, will be acquired by Peak 10 for all-cash consideration of $1.675 billion. The transaction creates a leading provider of co-location, connectivity, cloud, and managed solutions. GI Partners, an investor in ViaWest, acquired Peak 10 in 2014 and will remain the majority shareholder of the combined company.
June 2017
Globant acquires PointSource, expanding its focus on digital transformation
Digital
Globant (NYSE: GLOB), acquired PointSource, a digital design and development tech agency that specializes in retail, supply chain and insurance services solutions. With this acquisition, Globant reinforces its focus in digital transformation and continues to expand its US footprint adding two new cities where PointSource has offices: Raleigh (NC), and Chicago (IL).

May 2017
Avtex acquires Integrated Access Solutions (IAS)
Systems Integration
Minnesota headquartered Avtex, a provider of Customer Interaction Management Solutions, acquired Integrated Access Solutions (IAS), a customer experience (CX) and contact center solutions provider. IAS specializes in custom built, hand crafted contact center solutions leveraging the Genesys and Microsoft platforms.

May 2017
ePlus acquires OneCloud Consulting
Systems Integration
ePlus (NASDAQ: PLUS) acquired OneCloud Consulting, a Milpitas, CA, based firm with a versatile team of highly trained technology consultants, architects, developers and instructors. OneCloud enables its clients' cloud and application strategy via professional services, technical education and software development. The acquisition expands ePlus' ability to address its clients' needs in cloud-based solutions and infrastructure.

May 2017
The Hackett Group acquires Oracle Cloud applications implementer Jibe Consulting
Consulting
The Hackett Group (NASDAQ: HCKT) has completed its acquisition of Jibe Consulting, a leading management and technology consulting firm focused on implementing Oracle Enterprise Resource Planning (ERP) and Human Capital Management (HCM) solutions. The combined enterprise is expected to enhance The Hackett Group's ability to fully support clients' Oracle Cloud Business Application implementation efforts in finance, procurement, manufacturing, supply chain and human capital.
 
May 2017
Doherty acquires Dahl Consulting
Staffing
Doherty, the largest family-owned, Minnesota-based staffing and recruiting agency, has acquired Dahl Consulting of St. Paul, Minnesota. Doherty's acquisition of Dahl will expand their contingent workforce solutions with information technology recruitment and MSP/VMS services.
 
April 2017
Syntax announces the acquisition of Core Services
Consulting
Syntax, a leading provider of cloud managed ERP services, acquired Core Services. Together, the combined entities will create one of the leading North American technology services firms offering best in class cloud managed services, application managed services and consulting services for ERP applications employed by mid and large enterprises. Syntax will now offer cloud based ERP services for both Oracle JD Edwards and Enterprise Business Suites users throughout North America.

The acquisition was financed with equity provided by NOVACAP with participation from Private Advisors and Northleaf Capital, and members of the Syntax and Core Services management teams.
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 over 60 publicly traded companies representing each of the market segments. In Q2 2017, the IT Services Performance Index slightly outperformed the S&P 500, but has still under-performed since March 2016.


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


Public Comps - Median Statistics
Q2 2017 median enterprise value (EV) multiples for publicly traded IT Services companies were generally in-line with Q1 2017 multiples. Median valuation and operating metrics for publicly traded companies in the IT Services Performance Index are summarized below by segment. 


Q2  2017 Select Transactions


Date
Target
Acquirer
Segment
Target Description
Press
06/29/2017
Info@Risk
BPM
Security
Info@Risk provides penetration testing, information security assessment and risk assessment services.
06/29/2017
Inframon
Ensono
Outsourcing
Inframon is a Microsoft Azure services provider with expertise transitioning Microsoft-centric organizations to the cloud.
06/28/2017
Intrepid
Accenture (NYSE:ACN)
Digital
Intrepid develops connected device and mobile based applications.
06/28/2017
DoubleDigit
CreativeDrive
Digital
DoubleDigit operates as a technology and marketing solutions agency.
06/27/2017
Brocade Communications, Certain U.S. Federal Assets
Hitachi Data Systems Federal
Systems Integration
Brocade Communications, Certain U.S. Federal Assets comprises certain federal government IT service maintenance contracts.
06/23/2017
Clarity Consulting
Perficient (Nasdaq:PRFT)
Systems Integration
Clarity Consulting designs, develops, customizes, and implements enterprise software applications on Microsoft platforms.
06/21/2017
Matrix Integration
Infotex
Systems Integration
Matrix Integration provides IT services to businesses, specializing in infrastructure services.
06/20/2017
Mainstream Security
RoundTower Technologies
Security
Mainstream Security provides information security services.
06/19/2017
Virtual Resource
Industrial Staffing Services
Staffing
Virtual Resource provides contract staffing to the power and utility, engineering, and IT industries.
06/16/2017
Natoma Technologies
Red River
Systems Integration
Natoma Technologies offers IT consulting and systems integration services.
06/13/2017
Blackmesh
Contegix
Outsourcing
Blackmesh provides web content management application hosting and secure compliance solutions.
06/13/2017
ViaWest
Peak 10
Outsourcing
ViaWest provides IT and infrastructure solutions.
06/13/2017
Innovative Software Engineering
Trimble (Nasdaq:TRMB)
Outsourced Development
Innovative Software Engineering operates as an engineering and systems integration company that offers IoT and telematics solutions.
06/08/2017
INM
Padilla
Digital
INM designs and develops software products for web and mobile.
06/07/2017
Phase One
Accenture (NYSE:ACN)
Systems Integration
Phase One provides Salesforce solutions to the federal government.
06/07/2017
GMD
Advent International
Systems Integration
GMD develops and implements IT solutions in Peru.
06/07/2017
Netelligent
InterVision
Systems Integration
Netelligent provides hybrid IT solutions.
06/07/2017
CyberTrails
NexusTek
Systems Integration
CyberTrails provides managed IT services to small and mid-size businesses.
06/06/2017
innoWake
Deloitte
Systems Integration
innoWake offers software products and consulting services for modernizing legacy applications and development environments.
06/06/2017
Westcon-Comstor, Americas Business
SYNNEX (NYSE:SNX)
Systems Integration
Westcon-Comstor, a technology distributor, provides security, collaboration, networking, and data center products to customers.
06/05/2017
Bristol Office Supply
RJ Young
Systems Integration
Bristol Office Supply distributes copiers, scanners, printers, and related products.
06/02/2017
SolutionsIQ
Accenture (NYSE:ACN)
Consulting
SolutionsIQ provides Agile consulting and transformation solutions.
06/02/2017
By Light Professional IT Services
Sagewind Capital
Systems Integration
By Light Professional IT Services offers hardware, software, engineering, and IT integration services to defense, civilian, and commercial customers.
06/01/2017
LabAnswer
Accenture (NYSE:ACN)
Consulting
LabAnswer provides laboratory informatics consulting services in the United States.
06/01/2017
CompView
Diversified
Systems Integration
CompView sells audio visual solutions.
06/01/2017
4i
Fractal Analytics
Consulting
4i provides growth strategy and foresight analytics consulting to Fortune 500 companies.
06/01/2017
PointSource
Globant (NYSE:GLOB)
Digital
PointSource designs and develops digital solutions for the retail, supply chain, and insurance sectors.
05/31/2017
RuleTek
Incessant Technologies
Systems Integration
RuleTek provides business process management architecture services for the IT sector, focusing on Pega BMP.
05/30/2017
Integrated Access Solutions
Avtex
Systems Integration
Integrated Access Solutions operates as a customer experience and contact center solutions provider, leveraging the Genesys and Microsoft platforms.
05/25/2017
TriCore Solutions
Rackspace
Outsourcing
TriCore Solutions provides enterprise application managed solutions.
05/24/2017
NES Associates
CSRA (NYSE:CSRA)
Systems Integration
NES Associates provides IT and network services to the Department of Defense and other federal government agencies.
05/23/2017
FIS / Capco Consulting
Clayton, Dubilier & Rice
Consulting
Capco Consulting provides business and technology consulting services to the financial services industry.
05/19/2017
Ciber (NYSE:CBR)
HTC Global
Systems Integration
Ciber provides IT consulting services.
05/18/2017
Robbins-Gioia
McLean Capital
Consulting
Robbins-Gioia provides management and technology services.
05/16/2017
OneCloud Consulting
ePlus (Nasdaq:PLUS)
Systems Integration
OneCloud Consulting provides cloud and software-defined infrastructure services, software development, and technical training services.
05/16/2017
Eccella
NGDATA
Consulting
Eccella provides data management and analytics consulting services.
05/15/2017
Media Hive
Accenture (NYSE:ACN)
Systems Integration
Media Hive provides platform development and systems architecture for the e-commerce industry, focusing on Salesforce Commerce Cloud.
05/15/2017
ICiDigital
Beringer Capital
Digital
ICiDigital is a technology enabled digital marketing company.
05/15/2017
e5
Hanse Orga
Systems Integration
e5 provides solutions and consulting services for treasury and financial IT implementations, specializing in SAP.
05/15/2017
Fairhaven Integration Services
O2 Investment Partners
Systems Integration
Fairhaven Integration Services provides engineering and installation services across various platforms.
05/15/2017
Prestige Systems
Park Place Technologies
Systems Integration
Prestige Systems provides IT infrastructure services.
05/11/2017
Jester Communications
Ackmann & Dickenson
Outsourced Development
Jester Communications designs and develops mobile software solutions.
05/11/2017
Dolphin Enterprise Solutions
Hanse Orga
Systems Integration
Dolphin Enterprise Solutions provides data and process solutions for SAP systems.
05/09/2017
Vonage (NYSE:VG), Hosted Infrastructure Product Line
Rapidscale
Outsourcing
Vonage, Hosted Infrastructure Product Line comprises infrastructure as a service, hosted exchange, virtual desktop, and other related services.
05/09/2017
Jibe Consulting
The Hackett Group (Nasdaq:HCKT)
Systems Integration
Jibe Consulting operates as a management and technology consulting company, specializing in Oracle solutions.
05/08/2017
MasterGraphics, Autodesk Manufacturing & Plant Business
D3 Technologies
Systems Integration
Autodesk Manufacturing & Plant Business of MasterGraphics provides Autodesk product data management and lifecycle solutions (PDM/PLM).
05/08/2017
Lochbridge
DMI
Outsourced Development
Lochbridge offers technology solutions in the IoT space.
05/04/2017
KIO Networks, San Diego Data Centers
Zayo (NYSE:ZAYO)
Outsourcing
San Diego Data Centers of KIO Networks operates data centers.
05/03/2017
Virtusa (Nasdaq:VRTU)
The Orogen Group
Outsourcing
Virtusa offers business outsourcing and IT consulting services.
05/02/2017
Kepler-Rominfo, JJUPIN scripting tool
cPrime
Outsourced Development
Kepler-Rominfo, JJUPIN scripting tool supports JIRA automation.
05/02/2017
Web Decisions
Deloitte
Digital
Web Decisions is an omni-channel data management and marketing services company.
05/02/2017
RoseASP
ESW Capital
Outsourcing
RoseASP provides cloud computing services to Microsoft Dynamics ERP and CRM customers.
05/02/2017
Verizon (NYSE:VZ), Cloud and Hosting Service Business
IBM (NYSE:IBM)
Outsourcing
Verizon, Cloud and Hosting Service Business comprises cloud and managed hosting services.
05/02/2017
Portal Solutions
WithumSmith+Brown
Systems Integration
Portal Solutions delivers digital workplace solutions for the enterprise on SharePoint and Office 365 platforms.
05/01/2017
AIM Consulting
Addison Group
Staffing
AIM Consulting provides IT consulting and staffing services.
05/01/2017
Tomont Solutions
KPMG
Systems Integration
Tomont Solutions offers Oracle enterprise performance management (EPM) consulting, training, and support services.
05/01/2017
Dahl Consulting
Doherty
Staffing
Dahl Consulting provides staffing and workforce solutions.
05/01/2017
Paradigm Technology Consulting
ISS Solutions
Systems Integration
Paradigm Technology Consulting provides IT consulting services, specializing in Microsoft Dynamics.
04/28/2017
Computer Technology Solutions and Ecommerce Systems
CGI Group (TSX:GIB.A)
Systems Integration
Computer Technology Solutions provides professional services to enterprise clients. ECommerce Systems provides technology and strategic services to businesses around the globe.
04/27/2017
Mobile Science Technologies
Meridian Waste Solutions (Nasdaq:MRDN)
Outsourced Development
Mobile Science Technologies develops web-based software and mobile applications.
04/26/2017
ITKontrakt
Oaktree Capital Management; Cornerstone Partners
Outsourcing
ITKontrakt provides outsourced IT services from Poland.
04/25/2017
365 Data Centers
Chirisa Investments; Lumerity Capital; Longboat Advisors
Outsourcing
365 DataCenters provides co-location services for small and mid-sized businesses, telecom carriers, and cloud service providers.
04/25/2017
Delta Computer Group
Service Express
Systems Integration
Delta Computer Group provides infrastructure hardware maintenance support and services.
04/20/2017
Kunstmaan
Accenture (NYSE:ACN)
Digital
Kunstmaan operates as a communication, design, and digital agency.
04/20/2017
Advanced Technology Solutions
IMAGINiT Technologies
Systems Integration
Advanced Technology Solutions, an IT consulting company, provides services to Autodesk customers.
04/20/2017
Echo Cloud
Online Tech
Outsourcing
Echo Cloud Solutions, a cloud based enterprise cloud company, owns and operates data centers.
04/20/2017
Core Services
Syntax
Systems Integration
Core Services provides hosting, cloud, and consulting services to implement, develop, and support Oracle applications for clients.
04/18/2017
InfoReliance
ECS
Security
InfoReliance provides cybersecurity, cloud computing, software engineering and managed services primarily for the federal government.
04/13/2017
SSP Innovations
Warren Equity Partners
Systems Integration
SSP Innovations provides geographic information systems consulting, custom software development, and systems integration services to utilities.
04/12/2017
Cirracore
Green House Data
Outsourcing
Cirracore provides managed enterprise, private, and hybrid cloud solutions for enterprises.
04/11/2017
EA Labs
Aasonn
Systems Integration
EA Labs specializes in building extensions and integrations to SAP SuccessFactors and SAP HANA.
04/11/2017
Williams & Garcia
Data Blue
Systems Integration
Williams & Garcia designs and implements cloud platform solutions for modern enterprise applications.
04/11/2017
ReeWise
Exadel
Consulting
ReeWise provides data analytics and business intelligence solutions.
04/11/2017
Jaguar Labs
Tiempo Development
Outsourced Development
Jaguar Labs provides custom software, web and mobile application development services in Mexico.
04/10/2017
Human Solutions
Oasis Systems
Systems Integration
Human Solutions provides strategic consulting services for Federal and State governments, and commercial customers.
04/07/2017
PRO Unlimited
Harvest Partners; Investcorp
Staffing
PRO Unlimited develops contingent workforce management solutions for Global and Fortune 500 companies worldwide.
04/07/2017
EDL Consulting
Simplus
Systems Integration
EDL Consulting provides Salesforce systems integration solutions.
04/06/2017
Zycron
BG Staffing (AMEX:BGSF)
Staffing
Zycron offers IT services and solutions in the United States and internationally.
04/04/2017
entero
BCforward
Staffing
entero provides IT recruitment, financial recruitment, and contract staffing services.
04/04/2017
Data Center Complex in Cincinnati, Ohio
H5 Data Centers
Outsourcing
Data Center Complex in Cincinnati, Ohio comprises a carrier hotel and data center property.
04/03/2017
ConnectSolutions
AASKI
Outsourcing
ConnectSolutions provides private cloud managed services to the virtual training and web conferencing markets.
04/03/2017
SNI Companies
Gee Group (AMEX:JOB)
Staffing
SNI Companies, an employment services company, provides recruitment and staffing services.
04/03/2017
ADI Strategies
Huron Consulting (Nasdaq:HURN)
Consulting
ADI Strategies provides consulting and advisory services in designing and building analytic solutions.
04/03/2017
Retikal
Kaufman Hall
Outsourced Development
Retikal provides Higher Education enterprise performance management software development and delivery capabilities.

 
Cherry Tree & Associates 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
952.253.6001 (direct)
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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