Solganick & Co. issues IT Services, Cloud and Managed Services M&A Update for Q4 2016

January 30, 2017 – Solganick & Co. issues its latest IT Services, Cloud and Managed Services M&A Update for Q4 2016 –  Solganick Co MnA Update Q4 2016

In the IT Services sector, there were 2,210 total M&A transactions with a value of $78 billion announced in 2016 as compared to 2,217 total M&A transactions announced with a value of $89 billion in 2015. Strategic buyers announced 881 deals in 2016, of which 171 were reported for $65.1 billion in aggregate value. Valuations slightly increased for deals that were publicly announced. Buyer’s interest in cloud software and services continues to drive IT services M&A activity at all size spectrum’s of the market.

 

M&A Multiples Paid in Q4 2016:

EV/Revenue Range: 0.22x to 4.72x

EV/EBITDA Range: 4.07x to 52.73x

 

 

IT Services, Cloud and Managed Services M&A Drivers for 2016-2020

 

Cloud Business

Cloud computing has evolved and matured rapidly over the past few years, which has enabled the development of increasingly sophisticated and customizable hybrid models. Hybrid tools and enabling technologies such as the network now allow for discrete management options and seamless integration with on-premises infrastructure, leading to increasing opportunity for enterprises that take advantage of these offerings.

Just four of the recent, announced or completed cloud M&A deals—Oracle buying NetSuite, Microsoft scooping up LinkedIn, Salesforce acquiring Demandware, and Vista Equity acquiring Marketo*–are together worth about $40 billion. It’s a large amount of money. But one implication of this M&A activity that is not being discussed much is that it represents $40 billion in cash being held by large investors that probably needs to find a new home soon, assuming all these deals close.

There are nearly 30 cloud “unicorns”—companies valued at $1 billion or more—waiting in the wings to go public, and I think we’ll see some of them stage IPOs. 2017 could be a busy year for new issues as the Cloud Circle of Life continues.

Source: https://www.comparethecloud.net/articles/hybrid-cloud-the-future-of-infrastructure/

https://www.battery.com/powered/new-life-tech-ipos/

 

Cyber Security

Following current trends in security M&A as well as the general political and social environment, we expect cybersecurity to remain a hot space throughout 2017.

400 million malware attacks were identified last year alone, according to IDC. A mass migration of IT services to the cloud, coupled with a huge growth of connected devices, has created a perfect environment for security breaches. Cars are becoming increasingly connected, mobile payment applications proliferate and continuously updated mobile applications, wearable tech and IoT all come with security vulnerabilities.
The pure play cybersecurity players will likely continue to seek acquisitions to retain competitive advantage whilst tech corporates scramble to find security companies to complement their current offerings. The large consultancies with Accenture in the forefront are also likely to keep a keen eye on the space for potential opportunities along with Private Equity houses.

 

 

Artificial Intelligence

Nearly 140 private companies working to advance artificial intelligence technologies have been acquired since 2011, with over 40 acquisitions taking place in 2016 alone. Corporate giants like Google, IBM, Yahoo, Intel, Apple and Salesforce, are competing in the race to acquire private AI companies, with Samsung emerging as a new entrant in October with its acquisition of startup Viv Labs, which is developing a Siri-like AI assistant, and GE making 2 AI acquisitions in November 2016.

Anywhere there is a critical problem that involves analyzing data at scales beyond that humans can handle using current analytics tools is ripe for being transformed by machine learning.
There is a surplus of investment capital poured into a sector creating hundreds of innovative companies. A few will grow and become standalone companies, go public and survive for a couple of decades or more.
However, by far, most will be acquired to fill in the gaps at larger vendors who will use M&A to acquire the AI skills and technology they lack in house.

Source: CB Insights, Hampleton Partners

 

You can access the complete report here, which includes recent M&A transactions and publicly traded valuation tables: Solganick Co MnA Update Q4 2016

 

 

Posted in IT Services M&A, Quarterly Update, Sector Analysis.