Information Technology Services Newsletter
 
Q3 2017
 
Technology M&A activity up for Q3 2017. IT Services transaction 
volume  increased with many deals under $100M.
Quarterly M&A Commentary
  • Q3 2017 saw an increase in Technology deal activity over Q2 2017. During the quarter, there were 468 Technology deals announced for a total disclosed deal value of $61.4 billion. Total volume increased over the prior year, primarily driven by small deals (< $100M), and a significant increase in deals with undisclosed values. Approximately 25% of the Technology transaction volume, representing 20% of the value, involved IT services providers.  [1]
  • Notable transaction volume for IT services tracked by Cherry Tree is up over 10% for the quarter compared with Q2 2017.  [2]
  • Cherry Tree's IT Services Performance Index of publicly traded companies outperformed the S&P 500 during Q3. Valuation multiples are holding steady and have not changed much since Q1 2017. It is interesting to see the median 1-year revenue growth metric decrease from 6.1% to 4.7%, and the median 3-year revenue growth metric decrease from 7.4% to 6.8%, possibly signaling a shift from revenue growth to earnings growth. [3]
  • Digital transformation services continue to be in high demand, especially as the segment expands with innovative new solutions around digital customer experience (DCX), Internet of Things (IoT) and agile product development.
    • Notable DCX deals include: BCG acquiring Maya, ServiceNow acquiring Telepathy, and Accenture acquiring Clearhead.
    • Notable IoT deals include: Spiria acquiring Iotopia, and Prodea acquiring Arrayent.
    • Notable agile product development deals include: Apax Partners acquiring ThoughtWorks, and CGI Group acquiring Summa Technologies.
  • While enterprise customers of all sizes and industries are lifting, shifting and drifting their IT workloads to the public clouds, the legacy storage, maintenance and data center management business remains healthy. The larger providers are seeking expansion and consolidation. In the quarter, we saw Park Place Technologies acquire Performance Data, Equinix (Nasdaq:EQIX) acquire Itconic, and Cincinnati Bell, once merged with Hawaiian Telecom, acquire OnX to expand their regional footprint and service offerings.
  • Federal government contractors were notably active. SUBSYSTEMs acquired KMS Solutions, DSA acquired PPC, and H.I.G. Capital Group acquired NCI (Nasdaq:NCIT) in a take-private transaction.
  • The H.I.G. transaction was one of many financial buyer transactions in the quarter. We continue to see private equity groups demonstrate they are willing to bet big on IT Services, including Baird Capital and Council Capital backing eMids' acquisition of Encore Health Resources, and AE Industrial Partners acquisition of CDI (NYSE:CDI), taking the company private while paying a 33% premium to the July 28, 2017 stock price.
  • Don't count out the little guy. We recorded a higher number of transactions in Q3 2017 that involved smaller companies (< 30 employees) as targets for strategic buyers. Examples include Minnesota based Bright Health, an innovative health insurance venture, acquiring Spyder Trap, a digital marketing agency, Infogix, an analytics software company acquiring Data Clairvoyance, a boutique data consulting business, and Adjacent Solutions acquiring DBAK, a Denver based Oracle technologies, licensing and services specialist.
  • Healthcare IT continues to attract healthy deals as the industry specialization underlined multiple transactions this quarter, as we observed the Bright Health deal, the Med Tech Solutions acquisition of Constellation's MN based Health IT Business, and the aforementioned eMids tuck-in of Encore Health Resources.
  • Lastly, we are watching Konica Minolta continue to transform themselves into a global, digital technology powerhouse with strategic IT services acquisitions. They announced multiple transactions in the quarter, including Document Scanning Systems and Imaging (DSSI) in September, and TLS.NET in July.

 

[1] PWC US Technology Deals Insights, Q3 2017
[2] Reported by Capital IQ, per Cherry Tree screening criteria
[3] Cherry Tree Research, IT Services Performance Index
Notable Transactions

September 2017
Convergint Technologies Acquires Integrated Security Systems Division of SDI Presence
Systems Integration
Actively acquisitive Convergint Technologies, a worldwide leader in service-based systems integration, announced the acquisition of the Charleston-based Integrated Security Systems Division (ISSD) of SDI Presence. The transaction is Convergint's twelfth acquisition in the past two years.
September 2017
Staffing 360 Solutions Acquires Two Firms, firstPRO Georgia and CBS Butler 
Staffing
Staffing 360 Solutions (Nasdaq:STAF), a staffing provider operating in the US and UK, announced two acquisitions as well as the refinancing of Staffing 360's balance sheet with current lenders. The company acquired Atlanta-based firstPRO Georgia, a US-based company targeting IT staffing, accounting and finance staffing, and CBS Butler, a UK-based firm specializing in engineering and IT staffing services.

September 2017
Presidio Acquires Edina Minnesota based Emergent Networks
Systems Integration
Presidio (Nasdaq:PSDO), a leading North American IT solutions provider delivering digital infrastructure, cloud and security solutions to middle-market customers, acquired Emergent Networks, a privately held IT consulting company headquartered in Edina, Minnesota. 

August 2017
Apax Partners acquires ThoughtWorks
Outsourced Development
Apax Partners announced a definitive agreement to acquire ThoughtWorks, a global software development and digital transformation consulting company. Founded in 1993, ThoughtWorks is considered a pioneer in agile software development, and has been at the forefront of software design and delivery since its inception - growing to over 4,500 employees spread across 42 offices in 15 countries. 

August 2017
Clearlake Capital-Backed ConvergeOne Acquired Strategic Products and Services "SPS"
Systems Integration
ConvergeOne, based in Eagan, MN, and considered a leading IT services provider of collaboration and technology solutions, announced that it has acquired Strategic Products and Services ("SPS"), a global, multivendor communication and networking managed service provider headquartered in New Jersey. 
 
July 2017
Mastech Digital Acquires InfoTrellis
Digital
Mastech Digital (AMEX:MHH), a leading digital transformation services provider, announced that it has entered into definitive agreements to acquire the services division of InfoTrellis, a Canada-based data management and analytics company. 
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 Q3 2017, the IT Services Performance Index outperformed the S&P 500.


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


Public Comps - Median Statistics
Q3 2017 median enterprise value (EV) multiples for publicly traded IT Services companies were generally in-line with Q2 2017 multiples. Median valuation and operating metrics for publicly traded companies in the IT Services Performance Index are summarized below by segment. 


Q3  2017 Select Transactions

09/29/2017
Caase.com
Insight (Nasdaq:NSIT)
Systems Integration
Caase.com offers cloud integration services, with a specialization in Microsoft Cloud, to clients in the Netherlands.
09/29/2017
Telepathy
ServiceNow (NYSE:NOW)
Digital
Telepathy provides UI/UX and app development services for software companies.
09/28/2017
UNAFORTIS
Luxoft (NYSE:LXFT)
Systems Integration
UNAFORTIS implements Avaloq, a software package for the financial services market.
09/28/2017
root9B
Tracker Capital
Security
root9B provides cybersecurity products, services, and training.
09/27/2017
Host.net
365 Data Centers
Outsourcing
Host.net is a Florida data center services provider.
09/25/2017
Principle Solutions Group
Eliassen Group
Staffing
Principle Solutions Group provides IT staffing and consulting services.
 
09/25/2017
iTech US
SharedLabs
Consulting
iTech US provides custom software services and data solutions.
09/21/2017
Edge Hosting
DataBank
Outsourcing
Edge Hosting designs, operates, and simplifies IaaS and PaaS managed cloud hosting solutions.
09/20/2017
Lyons Consulting Group
Capgemini (ENXTPA:CAP)
Systems Integration
Lyons Consulting Group designs and develops e-commerce systems, with a deep expertise in Salesforce Commerce Cloud.
09/20/2017
Pierry
Wunderman
Systems Integration
Pierry provides Salesforce Marketing Cloud implementations and consulting services.
09/19/2017
Spectrio
Bertram Capital
Outsourcing
Spectrio operates as an audio/video marketing company, providing content and managed services.
09/19/2017
firstPRO Georgia and CBS Butler
Staffing 360 Solutions (Nasdaq:STAF)
Staffing
firstPRO Georgia and CBS Butler provide staffing services.
09/18/2017
Integrated Security Systems Division of SDI Presence
Convergint Technologies
Systems Integration
The Integrated Security Systems Division of SDI Presence designs, installs and services integrated security systems.
09/18/2017
Integrated Data Storage
ePlus (Nasdaq:PLUS)
Systems Integration
Integrated Data Storage provides data center integration, cloud, and IT consulting services.
09/18/2017
PrimeStaff
George Konik Associates
Staffing
PrimeStaff offers technical recruiting and staffing services.
09/18/2017
RackAlley
Hivelocity
Outsourcing
RackAlley offers co-location, dedicated servers, and cloud hosting services.
09/18/2017
InfoZen
ManTech (Nasdaq:MANT)
Systems Integration
InfoZen provides cloud managed services, agile software development, DevOps, systems engineering, and IT management services to the federal government.
09/15/2017
Document Scanning Systems and Imaging
Konica Minolta
Systems Integration
Document Scanning Systems and Imaging operates as a reseller of document management software.
09/15/2017
AllStaff
Malone Workforce Solutions
Staffing
AllStaff provides staffing and workforce solutions.
09/12/2017
Clearview International
Zayo (NYSE:ZAYO)
Outsourcing
Clearview International offers collocation and cloud infrastructure services in Texas.
09/11/2017
Local Biz Now
Ansira
Digital
Local Biz Now operates as a digital agency and online search marketing company.
09/11/2017
All Tech 1
BlackPoint IT Services
Systems Integration
All Tech 1 provides computer consulting, service, and repair for small and medium sized businesses.
09/11/2017
Itconic
Equinix (Nasdaq:EQIX)
Outsourcing
Itconic provides data center, connectivity and cloud infrastructure solutions in Spain and Portugal.
09/11/2017
Emergent Networks
Presidio (Nasdaq:PSDO)
Systems Integration
Emergent Networks provides IT strategy, solutions and support.
09/11/2017
Datapipe
Rackspace
Outsourcing
Datapipe architects, deploys, and manages multi-platform hybrid IT solutions.
09/08/2017
Portent
Clearlink, a SYKES Company
Digital
Portent operates as a digital marketing agency.
09/08/2017
Ally PLM
PROLIM
Systems Integration
Ally PLM provides product lifecycle management solutions (PLM), and is a leading Siemens PLM partner.
09/07/2017
Fast Forward Labs
Cloudera (NYSE:CLDR)
Consulting
Fast Forward Labs researches machine intelligence, enabling organizations work with data science and machine learning.
09/07/2017
TandemSeven
Genpact (NYSE:G)
Digital
TandemSeven provides customer and digital consulting services.
09/07/2017
Delphic Digital
Hero Digital
Digital
Delphic Digital provides digital marketing and web design services.
09/07/2017
Brighter
Intellectsoft
Outsourced Development
Brighter offers UX/UI, software, QA, and product development services.
09/07/2017
Iotopia Solutions
Spiria
Outsourced Development
Iotopia Solutions develops mobile applications and IoT software solutions.
09/06/2017
IBB Consulting
Accenture (NYSE:ACN)
Consulting
IBB Consulting provides consulting services for broadband, mobility, media, and technology companies.
09/06/2017
Colorado Data Center
Zayo (NYSE:ZAYO)
Outsourcing
Colorado Data Center comprises of a co-location facility in Westminster, CO.
09/05/2017
CLS Performance Solutions
GP Strategies (NYSE:GPX)
Consulting
CLS Performance Solutions offers ERP end user adoption and training services in the UK.
09/05/2017
Cloud Technology Partners
Hewlett Packard Enterprise (NYSE:HPE)
Systems Integration
Cloud Technology Partners provides cloud application and infrastructure solutions.
09/01/2017
CodeSWAT
VRP Consulting
Outsourced Development
CodeSWAT develops custom Salesforce solutions.
08/31/2017
Blue Canopy
Jacobs Engineering Group (NYSE:JEC)
Systems Integration
Blue Canopy provides cybersecurity, data analytics and application development solutions for the government.
08/31/2017
BAAX
Lightwell
Systems Integration
BAAX provides data warehousing, data integration, business intelligence, and analytics services.
08/28/2017
Blue Agility
cPrime
Systems Integration
Blue Agility provides agile and DevOps consulting and training services.
08/24/2017
VERAX Solutions
Accenture (NYSE:ACN)
Systems Integration
VERAX Solutions provides systems integration services to the financial services sector in Canada.
08/23/2017
ThoughtWorks
Apax Partners
Outsourced Development
ThoughtWorks is a global software development and digital transformation consulting company.
08/23/2017
Summa Technologies
CGI Group (TSX:GIB.A)
Outsourced Development
Summa Technologies is an IT consultancy with expertise in digital experience and agile software development.
08/23/2017
Basati
Simplus
Systems Integration
Basati provides Salesforce solutions for the financial services industry.
08/23/2017
Applause
Vista Equity Partners
Outsourcing
Applause provides mobile application quality tools and services.
08/22/2017
Net Data Centers
ANEXIO
Outsourcing
Net Data Centers provides data center solutions.
08/22/2017
Affecto (HLSE:AFE1V)
CGI Group (TSX:GIB.A)
Systems Integration
Affecto provides strategic consulting, systems integration, and digital transformation services in Europe.
08/22/2017
Atlantix Global Systems
CXtec
Distribution
Atlantix Global Systems buys, sells, leases, and rents IT hardware and equipment.
08/18/2017
EDJE
Webspec Design
Digital
EDJE offers website development services.
08/17/2017
Dascom Systems Group
AVI Systems
Systems Integration
Dascom Systems Group operates as an IPTV systems integration company.
08/17/2017
Strategic Products and Services (SPS)
ConvergeOne
Systems Integration
SPS operates as a multi-vendor communication and networking managed service provider.
08/16/2017
Frogman Interactive
GlynnDevins
Digital
Frogman Interactive provides digital marketing agency services to senior living communities.
08/15/2017
Design Software Solutions
Vectorworks
Systems Integration
Design Software Solutions resells Vectorworks software.
08/14/2017
hug digital
Grey Group
Digital
hug digital provides digital marketing services.
08/10/2017
ProSource Solutions
Improving
Staffing
ProSource Solutions provides Microsoft consulting, staffing, and project services.
08/09/2017
Wire Stone
Accenture (NYSE:ACN)
Digital
Wire Stone operates as a marketing agency.
08/09/2017
Emerging Technology Advisors
Cloudreach
Systems Integration
Emerging Technology Advisors provides professional services to help clients modernize their infrastructure, architecture and business processes.
08/09/2017
Zado Infotech
QA Mentor
Outsourcing
Zado Infotech provides test automation solutions for web, mobile, and cloud applications.
08/08/2017
Concrete Solutions
Accenture (NYSE:ACN)
Outsourced Development
Concrete Solutions develops cloud-based mobile solutions and web applications in Brazil.
08/08/2017
NCE Group
Park Place Technologies
Outsourcing
NCE Group provides third-party data center maintenance and repair services.
08/08/2017
Envision Business Consulting
Strong-Bridge Consulting
Consulting
Envision Business Consulting provides business consulting services.
08/07/2017
Comrade
CI&T
Digital
Comrade, a digital agency, offers strategy and design services to create brand and digital experiences.
08/03/2017
Search Technologies
Accenture (NYSE:ACN)
Systems Integration
Search Technologies specializes in the design, implementation, and management of search and big data analytics applications.
08/03/2017
Brilliant Basics
Infosys (NYSE:INFY)
Digital
Brilliant Basics is a digital product and customer experience studio.
08/02/2017
Halo Group
Fahrenheit IT
Staffing
Halo Group provides IT staffing services.
08/02/2017
Allen Myland
Park Place Technologies
Outsourcing
Allen Myland provides data storage maintenance services.
07/31/2017
CDI (NYSE:CDI)
AE Industrial Partners
Staffing
CDI provides engineering and IT staffing solutions.
07/28/2017
FORTRUST
Iron Mountain (NYSE:IRM)
Outsourcing
FORTRUST provides data center and colocation services.
07/27/2017
Lutech
One Equity Partners
Systems Integration
Lutech provides IT systems integration and solutions to private and public-sector clients in Italy.
07/26/2017
TLS.NET
Konica Minolta
Systems Integration
TLS.NET develops cloud based voice and infrastructure solutions.
07/26/2017
Arrayent
Prodea
Outsourcing
Arrayent develops and operates an IoT Cloud PaaS that enables customers to implement and deliver connected products and systems.
07/20/2017
Spyder Trap
Bright Health
Digital
Spyder Trap provides digital marketing services.
07/20/2017
Performance Data
Park Place Technologies
Systems Integration
Performance Data provides IT hardware maintenance and systems integration services.
07/18/2017
Data Clairvoyance
Infogix
Systems Integration
Data Clairvoyance offers data strategy consultancy services.
07/18/2017
KMS Solutions
SUBSYTEMs
Systems Integration
KMS Solutions provides systems engineering and technical assistance to the federal government.
07/18/2017
MAYA Design
The Boston Consulting Group
Digital
MAYA Design operates as a design consultancy and technology research lab.
07/17/2017
Encore Health Resources
eMids
Systems Integration
Encore Health Resources provides IT consulting services for the healthcare market.
07/12/2017
Clearhead
Accenture (NYSE:ACN)
Digital
Clearhead offers digital optimization services.
07/12/2017
Health IT Business, Constellation
Med Tech Solutions
Systems Integration
The Health IT Business of Constellation provides IT solutions to the health care industry.
07/12/2017
47Lining
REAN Cloud
Systems Integration
47Lining is an Amazon Web Services consulting partner specializing in big data.
07/11/2017
Zetta
Arcserve
Outsourcing
Zetta provides cloud backup and disaster recovery as a service (DRaaS) solutions.
07/10/2017
DBAK
Adjacent Solutions
Systems Integration
DBAK is an Oracle IT consulting company.
07/10/2017
OnX Enterprise Solutions
Cincinnati Bell (NYSE:CBB)
Outsourcing
OnX Enterprise Solutions provides cloud and managed services, digital application services and infrastructure services.
07/07/2017
WOW!brands
BDSmktg
Digital
WOW!brands offers brand strategy, digital marketing, and development services.
07/07/2017
InfoTrellis
Mastech Digital (AMEX:MHH)
Systems Integration
InfoTrellis offers consulting and technology services for master data management, data integration, and big data.
07/06/2017
Project Performance Company (PPC)
Data Systems Analysts (DSA)
Systems Integration
Project Performance Company provides IT solutions to the government.
07/06/2017
Fine Tec
Exclusive Group
Security
Fine Tec operates as a value-added distributor for network security and data integrity.
07/06/2017
Ksquare Solutions
Infolob Solutions
Staffing
Ksquare Solutions offers digital technology services, such as mobile first and artificial intelligence based automation.
07/06/2017
TNG
Point B
Digital
TNG provides digital marketing services.
07/06/2017
Experior
QualiTest
Outsourcing
Experior provides performance, security, and managed testing services to SAP clients.
07/05/2017
Tribridge
DXC Technology (NYSE:DXC)
Systems Integration
Tribridge provides Microsoft Dynamics 365 integration services.
07/03/2017
NCI (Nasdaq:NCIT)
H.I.G. Capital
Systems Integration
NCI provides IT and professional services and solutions to the U.S. Federal Government.
07/03/2017
Nearsoft
Indecomm Global Services
Outsourced Development
Nearsoft offers software development outsourcing services with development centers in Mexico.
 


 
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
IT Services and Technology

Cherry Tree & Associates, LLC
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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