Lower M&A deal volume in Q2 2016. Integrators, digital UI/UX and security providers in demand. CPA's are buying.

 

 

Middle market companies with valuations below $40 million attracting buyers.
 
Quarterly M&A Commentary

Overall, M&A deal volume was down during the second quarter of 2016, especially compared to the prior two quarters. Historically, M&A volume has slowed in the US during election years, picking up after the results are announced. Technology sector M&A led all others in first half of 2016.[1]
  • Global M&A: $1.6 trillion, down 20%
  • US M&A: $726 billion, down 26%
  • US technology: M&A $149 billion, down slightly (3%)
Middle Market
The IT services industry is large and diverse, dominated by small firms. The vast majority (approximately 80%) of deals in the IT services and consulting markets are below $100 million in value, with approximately 70% of the transactions reported in 2015 under $40 million and 35% of reported transactions under $5 million. [2]

SMAC
Social, mobile, analytics and cloud (SMAC) computing solutions continue to be the economic drivers for the IT industry and its services providers. The use of smart devices and social media, along with the adoption of cloud computing, is creating new opportunities for IT services providers. There is almost an insatiable demand from corporate clients to design digital strategies that connect them with their customers in new ways.
 
Systems Integration and Infrastructure Operations
There was an increase in deal volume for the quarter in this segment. Digital business imperatives are driving companies to modernize their application architecture and infrastructure strategies to support modern agility and scalability requirements, resulting in opportunities to serve an ever-transforming, hybrid cloud. In the quarter, we observed that systems integration M&A focused on regional expansions plus providers of colocation and cloud services in carrier-neutral data centers combined with broad array of managed services offerings.
 
Security
During the quarter, we observed that in the security market segment there were a growing number of smaller transactions by larger buyers acquiring capabilities to better help companies mitigate risks arising from a seemingly endless wave of digital and connected business environmental threats.
 
Digital
Lines between traditional IT services segments of staffing, consulting and systems integration continue to blur in response to the market demand for more digital products. We have observed that IT services companies are acquiring digital media agencies with strong design, UI and UX to expand in-trend offerings and capabilities.
 
Software Development Outsourcing
The Software Development Outsourcing (SDO) services market is one of fastest growing, best performing segments in IT services driven by software disruption and application proliferation. Demand for outsourced software development services has continued to increase as next-generation software, mobile applications, connected products, and other digital experiences have heightened the need to deliver products quickly and seamlessly. Developing next-generation products for both web and mobile consumption requires not only specific skill-sets, but large development teams to build and support these solutions. Many of the leaders in the SDO segment have global operations and centers in tech-advantaged locations around the world.
 
We believe that M&A activity will continue to accelerate in SDO as public market companies hold strong balance sheets and trade at higher levels. The US-publicly listed companies in this segment include EPAM, Luxoft and Globant. These three companies have also been very active in the M&A market. Financial buyers in the private equity community continue to have a strong interest in this segment with transactions such as Bain Capital/VXI acquiring Symbio, Blackstone / Pactera, and Apax / GlobalLogic. [3]
 
Audit, Accounting, Tax and IT
While not a new trend, it is an increasingly active one. We see professional audit and tax firms stepping up their M&A activity in the quarter. We have highlighted a few select transactions where established accounting and tax firms have acquired IT services companies to expand their offerings and addressable markets within geographic footprints, including Grant Thornton, WIPFLI, and Bennett Thrasher among the firms either announcing or completing deals.
 
Source:
[1] Dealogic / WSJ July 3, 2016
[2] Equiteq Ltd 2016
[3] Baird, Mooreland Partners, Cherry Tree research

Regional and Notable Transactions

June 2016
Carousel Industries acquires two companies, SOURCE and Atrion
Integration / VAR
Carousel Industries, a leader in communication and network technologies, professional and managed services and cloud solutions, acquired two companies in April, SOURCE, Inc. and Atrion, Inc., significantly expanding their position in security, productivity and collaboration, unified communications, networking, applications and integrations and data center solutions.
 
May 2016
Marco acquires Paragon Solutions Group
Integration / VAR
Marco, a leading technology services provider in the United States, acquired Paragon Solutions Group, Inc., a business IT services company located in Plymouth, Minnesota. Paragon has been providing their clients with managed IT, cloud-based services and business IT services for over 10 years. Since 2010, Marco has grown from 350 employees to 1,050 employees and now has 49 locations serving 28,000 customers throughout the Midwest and nationally.
 
May 2016
Wipfli acquires Brittenford Systems, Inc.
Consulting
Wipfli LLP (Wipfli), founded in Wausau, WI and one of the top 20 accounting and consulting firms in the United States, acquired Brittenford Systems, Inc. headquartered in Reston, Virginia. Brittenford Systems specializes in providing financial system and accounting software implementations and support services to businesses and organizations around the country, focusing specifically on Microsoft Dynamics SL, Microsoft Dynamics GP and cloud-based Intacct and Host Analytics.
 
April 2016
Professional Data Systems and Stemp Systems Group merge to create StratX IT
Consulting
Professional Data Systems, Inc. (PDS) and NYC based Stemp Systems Group, Inc. announced their merger to create StratX IT Solutions, LLC. StratX is headquartered in New York City and White Plains with regional offices in Long Island, New Jersey, Rhode Island and Minnesota serving businesses in the tristate-area and nationwide.
 
April 2016
Evening Post Industries acquires Ackmann & Dickenson
Digital
Minneapolis-based Ackmann & Dickenson (A & D), a web and mobile application development and digital marketing agency, has joined forces with Clear Night Group (CNG), a marketing services holding company and subsidiary of Evening Post Industries (EPI). As part of CNG, A & D will retain its name, leadership team and headquarters in the North Loop of Minneapolis, where it employs nearly 60 people.

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 57 publicly traded companies representing each of the market segments.


 
Over the past twelve months, publicly traded IT services firms in Cherry Tree's IT services index have generally performed in line with the market, however over the past quarter the index has underperformed versus the S&P 500.
($ in millions)


EV
EV
EV



LTM
LTM
LTM
Segment
GM
EBITDA
Revenue
GP
EBITDA
Staffing
18.9%
4.7%
0.3x
1.5x
7.5x
Systems Integration
25.6%
10.4%
1.1x
5.4x
11.0x
Consulting 38.3%
11.0%
1.1x
3.4x
10.5x
Outsourcing
34.0%
16.7%
2.2x
6.2x
12.4x
Security
25.0%
10.5%
1.5x
2.8x
13.5x
All Companies

30.9%
11.5%
1.2x
4.4x
10.9x
Q2 2016 Select Transactions
 
Date
Target
Acquirer
Segment
Target Description
Link
6/27/16
ReachLocal, Inc. (NasdaqGS:RLOC)
Gannett Co., Inc. (NYSE:GCI)
Digital
Provides a suite of online marketing and reporting solutions to small and medium-sized businesses.
6/27/16
SOURCE, a Carousel company
Carousel Industries of North America, Inc.
Integration
Provides enterprise-level unified communications solutions and services, including voice, video, and data.
6/23/16
G3G, Inc.
TriCore Solutions, LLC
Integration
Provides integrated SAP and business intelligence solutions.
6/23/16
EOIR Technologies, Inc.
Arlington Capital Partners
SDO
Provides intelligence, surveillance, and reconnaissance (ISR) services, as well as engineering support services.
6/21/16
Dextrys, Inc.
EPAM Systems, Inc. (NYSE:EPAM)
SDO
Provides software engineering and application services worldwide.
 
6/20/16
Cutter Associates, LLC
Nomura Research Institute Holdings America, Inc.
Consulting
Provides consulting, benchmarking, and operations and technology research services.
 
6/20/16
Casey, Quirk & Associates LLC
Deloitte Consulting LLP
Consulting
Provides management consulting services to the asset management industry worldwide.
 
6/16/16
Synapse Product Development, LLC
Cambridge Consultants Limited
SDO
Provides product development and consultancy services.
 
6/16/16
Consulting Solutions International, Inc.
White Wolf Capital LLC
Staffing
Operates as a technology consulting and recruiting company.
 
6/14/16
Syslogic Technical Services Inc.
Incedo Inc
SDO
Provides information technology services in Florida, New Jersey, and India.
 
6/13/16
Oceans Edge, Inc., Cyber Business
ManTech International Corporation (NasdaqGS:MANT)
Security
A leading provider of cyber network operations (CNO) solutions.
 
6/10/16
Futurum IT ApS
BP3 GLOBAL INC.
Consulting
Provides IT consulting services.
 
6/10/16
iPremise, LLC
Nexus Technologies, Inc.
Integration
Provides cloud storage and voice over IP services to enterprises and small businesses.
 
6/9/16
Performa Apps LLC
Priority Software Ltd
Integration
Provides enterprise resource planning (ERP) software consulting and training services.
 
6/9/16
Intellio LLC
Aroluxe LLC
Digital
Provides integrated marketing fulfilment, consulting, and software solutions.
 
6/9/16
True Clarity Consulting LLC
Server Suites LLC
Consulting
Provides professional consulting services.
 
6/8/16
Conexus, a PFSweb Company
PFSweb Inc. (NasdaqCM:PFSW)
Integration
Conexus is an eCommerce system integrator, providing consultancy and systems integration services for omni channel commerce in the United Kingdom.
 
6/8/16
Atrion, Inc.
Carousel Industries of North America, Inc.
Integration
Atrion, Inc., an IT services company, provides consultative and managed services across technology areas, such as security, productivity and collaboration, unified communications, networking, applications and integrations, and data center.
 
6/7/16
Prism Engineering LLC
Fisher/Unitech, Inc.
Integration
Prism Engineering LLC resells CAD, CAM, and 3D printing solutions and offers technical support services.
 
6/6/16
Digital Networks Group, Inc.
Avidex Technologies Inc.
Integration
Digital Networks Group, Inc., an audio-visual (AV)/information technology systems integration company, specializes in the design, installation, and service of network infrastructure, AV, and multimedia distribution solutions in the United States.
 
6/2/16
Adaptive Communications LLC
Optiv Security Inc.
Integration
Adaptive Communications, LLC resells, designs, and installs enterprise networking, data storage, and information security solutions in the East Coast.
6/2/16
Palace Gate Corporation
V-Soft Consulting, Inc.
Staffing
Provides staffing solutions to corporations in various industries in the United States.
 
6/1/16
DOT NET IT Ltd
Epicor Software Corporation
Consulting
Provides enterprise resource planning (ERP) software consulting, IT, and infrastructure services worldwide.
6/1/16
AbleBridge, Inc.
Crowe Horwath LLP
Consulting
Provides Microsoft Dynamics customer relationship management (CRM) consulting services.
 
6/1/16
Softvision Consulting LLC
Softvision Paradigms International Group, LLC
SDO
Provides outsourced software product development services.
6/1/16
Bulletproof Solutions Inc.
Gaming Laboratories International LLC
Integration
Provides information technology services in Atlantic Canada.
6/1/16
WhiteLight Group LLC
Venture Technologies, Inc.
Integration
Resells and implements Oracle business application software products in the United States.
 
6/1/16
Tenthwave Digital, LLC
Wirestone, LLC
Digital
Operates as a digital agency in the United States.
 
5/31/16
The IN Group, Inc.
DrFirst.com, Inc.
Consulting
Provides information systems and workflow redesign consulting services for the hospital market.
 
5/27/16
Softmart, Inc.
PC Connection, Inc. (NasdaqGS:PCCC)
Integration
Operates as a reseller of software, hardware, and IT services products to enterprise, mid-market, small business, non-profit, federal government, state and local government, academic, and partner network customers.
 
5/26/16
Pixel & Line and Project Forge
Vector Logic, LLC
SDO
Provides software development services.
 
5/25/16
Fame House LLC
Universal Music Group, Inc.
Digital
Helps artists and entertainers to manage their digital presence, reach new audiences, and connect with their fans through online marketing campaigns.
 
5/25/16
Paragon Solutions Group, Inc.
Marco, Inc.
Integration
Designs and implements information technology infrastructure services and solutions.
 
5/25/16
IdentityMine, Inc.
Valorem Consulting Group, LLC
SDO
Operates as an interactive design, software development, and user experience company.
 
5/24/16
Enterprise Services business of Hewlett Packard Enterprise
Computer Sciences Corporation (NYSE:CSC)
Consulting
Provides IT consulting services.
5/24/16
Base36, Inc.
Compunnel Software Group, Inc.
Staffing
Provides IT consulting and staffing services.
 
5/23/16
Aspediens Holding SA
Fruition Partners, Inc.
Consulting
Provides technology-enabled solutions for the service-management sector, and operates as a partner of ServiceNow.
 
5/23/16
Geekatoo, Inc.
HelloTech, Inc.
Integration
Provides onsite and online tech support, installation, setup, and repair services for individuals and business customers in the United States.
 
5/23/16
110 Consulting Inc.
TA Group Holdings
Consulting
Provides technology and business consulting services.
 
5/19/16
Kismatic, Inc.
Apprenda Inc.
Integration
Provides enterprise support and production tooling for Kubernetes and Docker.
 
5/19/16
JURINNOV, LLC
Technology Concepts & Design, Inc.
Security
Provides computer forensics, cybersecurity, and eDiscovery solutions.
 
5/18/16
Comms-care Group Limited
Ingram Micro Inc. (NYSE:IM)
Integration
Provides channel network and server support solutions.
5/18/16
Planet Logic, LLC
ITelagen, Inc.
Outsourcing
Develops cloud solutions for electronic medical record/electronic health record/physician management software companies in the United States.
 
5/12/16
Merit Consulting AS
Infor, Inc.
Consulting
Develops and offers customized ERP solutions in Norway and internationally.
 
5/12/16
AKA Enterprise Solutions, Inc.
Green Beacon Solutions LLC
Consulting
Provides the sale, implementation, training, consulting, service and support of Microsoft Dynamics for client's business needs around the world.
 
5/11/16
Hatstand Limited
Synechron Inc.
Consulting
Provides specialist services and solutions to financial institutions in the United Kingdom and internationally.
 
5/9/16
TracePoint Consulting, LLC
Information Services Group, Inc. (NasdaqGM:III)
Consulting
Provides organizational change management (OCM), communications, and end user training consultancy services to Fortune 1000 enterprises in the United States.
 
5/9/16
OpsRules Partners, LLC
Accenture plc (NYSE:ACN)
Consulting
Engages in identifying and capturing hidden opportunities in supply chains and operating models of companies.
 
5/9/16
PPL Solutions, LLC
Hansen Technologies Ltd. (ASX:HSN)
Outsourcing
Provides back office services to utility and retail energy clients.
 
5/6/16
Prime Solutions, LLC
Altamira Technologies Corporation
Outsourcing
Prime Solutions, LLC provides engineering services focusing on computer network operations (CNO).
 
5/4/16
The Innovation Enterprise Ltd.
Argyle Executive Forum, LLC
Digital
Provides event and digital marketing services.
 
5/4/16
Guardian Digital Forensics, Inc.
PT&C Forensics, Inc.
Security
Provides digital forensics and electronic discovery (e-discovery) services
.
5/3/16
Milestone Systems, Inc.
Kudelski SA (SWX:KUD)
Security
Develops and provides enterprise network security and infrastructure strategy solutions.
5/3/16
Dot Net Solutions Ltd.
New Signature Inc.
Consulting
Provides Microsoft cloud solutions.
 
5/3/16
TEKNOVARE Inc.
BP3 GLOBAL INC.
Consulting
Develops decision support systems.
 
5/2/16
Brittenford Systems, Inc.
Wipfli LLP
Consulting
Provides accounting system, enterprise performance management, and CIO Advisory services to small and mid-market businesses and nonprofit organizations.
 
4/28/16
Red Associates U.S., Inc.
Cognizant Technology Solutions Corporation (NasdaqGS:CTSH)
Consulting
A consulting firm specializing in the use of human sciences to help business leaders better understand customer behavior.
 
4/28/16
Frank Recruitment Group Limited
TPG Growth
Staffing
A global staffing and recruiting business focused exclusively on the enterprise software market.
 
4/28/16
AVI-SPL, Inc.
H.I.G. Capital, LLC
Integration
An end-to-end provider of audio visual and video collaboration solutions for organizations of all types around the world.
 
4/27/16
ANXeBusiness Corp.
Open Text Corporation (NasdaqGS:OTEX)
Integration
Provides managed security, compliance, and connectivity solutions in the United States.
 
4/27/16
Brinkster Communications Corporation
Trapp Technology, Inc.
Outsourcing
Brinkster Communications Corporation provides Cloud Infrastructure as a Service and web hosting services.
 
4/21/16
Action Business Systems, Inc.
Konica Minolta Business Solutions, U.S.A., Inc.
Integration
Operates as an office equipment dealer for Toshiba in Baltimore-Washington areas.
 
4/20/16
Comprise Limited
BackOffice Associates, LLC
Consulting
Provides IT consulting services to help clients make the most of their SAP investment.
 
4/20/16
Soltius Middle East FZ LLC
YASH Technologies, Inc.
Consulting
An IT consulting and services company, provides SAP solutions.
 
4/19/16
BNS Network Solutions, Inc.
Aureon LLC
Integration
Provides networking solutions for community banks and small businesses in Iowa.
 
4/18/16
Showcase Technology, Inc.
Uniguest Inc.
Integration
Showcase Technology, Inc. provides secure, centrally managed, complimentary-use, and pay-for-use computer systems, printers, copiers, and fax machines to hotels in the United States and Canada.
 
4/18/16
eNSYNC Solutions Inc.
Data Systems International, Inc.
Integration
Provides integrated supply chain solutions with its family of ScanWorkX mobile software products and support for Microsoft Dynamics AX and IFS customers.
 
4/15/16
Boldradius Solutions (US) Corp.
Lightbend, Inc.
SDO
Provides software development, training, and consulting services.
 
4/15/16
Graves Technology LLC
Bennett Thrasher PC, Investment Arm
Consulting
Operates as a technology consulting company that implements small and large computer networks.
 
4/14/16
Gotham Digital Science LLC
Stroz Friedberg, LLC
Security
Provides information security solutions.
 
4/14/16
NorthBit LTD.
Magic Leap, Inc.
Security
Provides a variety of ultra sophisticated security and internet solutions that allow enterprises, OEMs and publishers to leverage their full technological potential.
 
4/12/16
Clocktower Media, Inc.
Metova, Inc.
Digital
Clocktower Media, Inc. provides Web design and development services.
 
4/12/16
Advancive Technology Solutions Inc.
Optiv Security Inc.
Security
Advancive Technology Solutions Inc., a security advisory and solution implementation company, provides identity and access management services and solutions.
 
4/9/16
Dataware, LLC
Midco
Integration
Dataware, LLC operates data centers in South Dakota.
 
4/7/16
Stemp Systems Group, Inc.
Professional Data Systems, Inc. (PDS)
Consulting
Provides information technology, consulting, and technical services to healthcare, legal, financial, and other sectors.
 
4/6/16
International Audio Visual, Inc.
Almo Professional A/V
Integration
International Audio Visual, Inc. supplies professional AV technology products to value-added resellers worldwide.
4/6/16
the e-tailing group, inc.
Astound Commerce Corporation
Consulting
The e-tailing group, inc. provides ecommerce consulting services.
 
4/6/16
Choice Technologies, Inc.
Data Processing Solutions, Inc.
Integration
Choice Technologies, Inc. provides security and compliance, managed services, and consulting for IT and business process customers in Maryland, Pennsylvania, Northern Virginia, and the District of Columbia.
 
4/5/16
Agency Oasis
RightPoint Consulting LLC
Digital
Agency Oasis provides digital marketing services.
 
4/5/16
Ackmann & Dickenson, Inc.
Clear Night Group
Digital
Ackmann & Dickenson, Inc. provides application development and digital marketing services.
 
4/4/16
Aurionpro Solutions, Inc., IT Services Business in USA
Saicon Consultants, Inc.
Consulting
Provide staffing, project and other IT services.
 
4/4/16
Oleen Pinnacle Healthcare Consulting LLC
Cumberland Consulting Group, LLC
Consulting
Oleen Pinnacle Healthcare Consulting LLC operates as a healthcare consulting company that provides business and IT services to the healthcare industry in the United States.
 
4/3/16
MphasiS Limited (BSE:526299)
The Blackstone Group L.P. (NYSE:BX)
Outsourcing
MphasiS Limited provides application development and maintenance, infrastructure outsourcing, and business and knowledge process outsourcing services to clients worldwide.
 
4/1/16
ARRYVE LLC
Grant Thornton LLP
Consulting
ARRYVE LLC operates as a business consulting company.
 
4/1/16
Clearview International, LLC
Zayo Group, LLC
Integration
Clearview International, LLC engages in the development and implementation of technology programs.
 

Cherry Tree & Associates
 
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.

Cherry Tree & Associates, LLC | 952.893.9012 | Email | Website