PowerPoint PresentationBridgepoint Investment Banking is a division of Bridgepoint Holdings, LLC. Securities offered through an unaffiliated entity, M&A Securities Group, Inc., member FINRA/SIPC. This entity is not affiliated or associated with, authorized or sponsored by Bridgepoint Advisers Limited
FOCUS SECTOR: SOFTWARE & TECHNOLOGY IT SERVICES INDUSTRY REPORT
MAY 2019
IT SERVICES INDUSTRY REPORT
BIG PICTURE IT Services company valuations and earnings have seen consistent expansion with minimal cyclicality
Private Equity Investment as a percentage of IT Services M&A activity increased at a 6.8% CAGR from 2015-2018
Cycle timing is critical to maximize transaction value. Recent Increase of 2.9x (25.2%) of public IT Services firms’ median TEV / EBTIDA multiple indicates that now is an attractive time for businesses to explore recapitalization strategies
Bridgepoint Investment Banking advises IT Services firms owners seeking near- term liquidity or growth financing that it is imperative to consider exploring monetization, financing and other strategic options
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Note: Composite composed of selected public comparable companies listed on page 3. Source: Bridgepoint Investment Banking, Capital IQ, Deloitte, Equiteq, Gartner, IBISWorld, IDC Bridgepoint Investment Banking is a division of Bridgepoint Holdings, LLC. Securities offered through an unaffiliated entity, M&A Securities Group, Inc., member FINRA/SIPC
MAY 2019 BRIDGEPOINT INSIGHTS
Public IT Consulting firms’ median valuation multiples are currently trading at 13.4x, up 45.7% from the most recent cycle trough of 9.2x in October 2014
According to Gartner, many enterprises lack necessary internal talent to continue driving adoption of leading technologies at a time when IT is growing in importance – indicating that the IT consulting services industry will grow by 4.7% in 2019 and 4.8% in 2020
Global IT Services Revenues are expected to grow by 4.7% year over year to $1.03 trillion in 2019
According to IDC, project-oriented revenue grew by 5.2% in the first half of 2018, led by third parties in the business consulting and application development space
EXECUTIVE SUMMARY
IT Services Valuation Cycle
TEV / LTM
REV EN
UE
TEV / EBITDA TEV / Revenue Current Median 13.4x 1.48x Historical Median 11.5x 1.53x Peak Median 14.6x 1.81x Trough Median 9.2x 1.23x
Source: Bridgepoint Investment Banking, Capital IQ, Gartner, IBISWorld, IDC
IT SERVICES INDUSTRY REPORT
Key Business Considerations Source: Gartner
IT Services Firms that can prove they have a mission critical differentiated service will continue to see strong valuations
Demand for Consultants Specializing in Specific Areas Is Increasing
The valuation market for IT Services Firms will likely outpace the overall global market as the industry continues to grow faster than GDP
Evolving Technologies Will Lead to Sustained IT Services Industry Growth
Firms that have a historical track record of higher retention of junior talent will be attractive acquisition targets
High Attrition Rates of Junior Staff Continues to Remain A Challenge
Firms that help clients implement the technologies requisite to remaining competitive and generate recurring revenue will gain higher valuations
The Velocity of Technical Advancement Requires Enterprises To Engage Outside
Expertise To Remain Competitive
Firms that provide a high touch value added services like transforming unstructured enterprise data into insightful business data command high valuations
Shortage of IT Professionals Driving Investment In High Tech At a Premium
Demand for IT Services Firms capable of developing custom applications to support business processes indicates sustained strong valuation tailwinds
Many Enterprises Are Struggling To Develop Custom Applications At The
Rate Needed To Run Their Business
KEY IT SERVICES TRENDS VALUATION CONSIDERATIONS
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IT Services Spending
Selected Recent Industry Transactions
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($ in millions, except per share data) 4/20/2019 Equity Enterprise P / E TEV / Revenue TEV / EBITDA TEV / EBIT
Company Name Country Share Price Value Value LTM LTM LTM LTM
Accenture plc Ireland $178.61 $113,923.3 $109,870.9 26.0x 2.69x 16.5x 18.0x
Booz Allen Hamilton Holding Corporation United States $56.94 $7,976.3 $9,538.6 19.9x 1.45x 14.3x 15.9x
CGI Inc. Canada $70.93 $19,411.1 $20,784.9 - 2.39x 14.2x 16.1x
Cognizant Technology Solutions United States $71.34 $40,612.2 $36,846.2 19.8x 2.29x 11.1x 13.0x
DXC Technology Company United States $64.58 $17,325.0 $22,744.0 10.8x 0.95x 4.1x 6.8x
EPAM Systems, Inc. United States $171.42 $9,287.1 $8,541.6 40.4x 4.63x 30.2x 34.8x
Gartner, Inc. United States $157.20 $14,139.9 $16,265.2 118.2x 4.09x 26.7x 44.3x
ICF International, Inc. United States $75.18 $1,414.5 $1,603.2 23.6x 1.20x 13.3x 17.1x
Infosys Limited India $10.33 $44,866.0 $41,095.1 20.5x 3.49x 13.8x 15.3x
Insight Enterprises, Inc. United States $57.12 $2,042.7 $2,401.1 12.6x 0.34x 8.7x 10.1x
International Business Machines United States $140.33 $124,874.9 $161,874.9 14.8x 2.06x 9.3x 12.9x
Leidos Holdings, Inc. United States $65.25 $9,371.7 $12,206.7 17.2x 1.20x 11.6x 15.4x
ManTech International Corporation United States $55.58 $2,215.2 $2,217.4 27.0x 1.13x 13.4x 19.7x
Perficient, Inc. United States $28.24 $931.3 $1,006.4 38.7x 2.02x 16.8x 25.4x
RCM Technologies, Inc. United States $4.06 $52.3 $79.3 18.5x 0.40x 9.3x 11.4x
Science Applications International United States $73.01 $4,331.0 $6,221.0 23.5x 1.34x 17.5x 20.3x
Unisys Corporation United States $10.83 $560.6 $652.3 8.4x 0.23x 2.4x 2.8x
Virtusa Corporation United States $52.70 $1,576.8 $1,782.1 251.4x 1.48x 19.3x 27.0x
Wipro Limited India $4.39 $24,640.8 $20,437.8 - 2.42x 12.5x 14.7x
Total
High 251.4x 4.63x 30.2x 44.3x
Mean 40.7x 1.88x 13.9x 17.9x
Median 20.5x 1.48x 13.4x 15.9x
Low 8.4x 0.23x 2.4x 2.8x
Date Announced Target Acquiror 04/30/2019 Autodata Solutions Company Thoma Bravo, LLC 04/26/2019 Imex Systems Inc. (TSXV:IMEX) NxGen Communications Corp. 04/24/2019 Autopro Automation Fulcrum Automation Technologies 04/24/2019 Adaptive Technologies Group Cyemptive Technologies, Inc. 04/22/2019 AZBS, Inc. NuMSP LLC 04/16/2019 SeNet International Gaming Laboratories International 04/16/2019 Midtown Technology Partners Montra Solutions LLC 04/12/2019 CellTuck, LLC Level 5 Advertising, LLC 04/10/2019 Virteva LLC Crossfuze LLC 04/08/2019 Enterprise Solutions Consulting TMG Consulting, Inc. 04/05/2019 MidCo Inc. FE Moran Security Solutions 04/03/2019 Project One, Inc. Eliassen Group, LLC 03/27/2019 Rural Sourcing, Inc. Bain Capital Private Equity, LP 03/26/2019 Workforce Insight, LLC Management Buyout 03/21/2019 Essential Consulting LLC Besler & Co., Inc. 03/18/2019 Omni Resources, Inc. Saggezza Inc. 03/13/2019 Dynamo Development, Inc. SeriesOne, Inc. 02/26/2019 Datix Inc. Clients First Business Solutions LLC 02/13/2019 Proactive Technologies, LLC Abacus Group, LLC
Transaction Highlight Engility Holdings, an IT services contractor was acquired by Science Applications International on 9/10/2018
Valuation Data Total Enterprise Value (TEV): $1,555 TEV / EBITDA: 18.3x; TEV / Revenue: 13.7x
Transaction Highlight Polaris Consulting, a custom application development firm was acquired by Virtusa Consulting on 7/26/2018
Valuation Data Total Enterprise Value (TEV): $821.4 TEV / EBITDA: 15.3x; TEV / Revenue: 11.4x
Moon Graph
4/20/19
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bridgepointib.com In order to offer securities-related Investment Banking Services discussed herein, to include M&A and institutional capital raising, certain representatives of Bridgepoint Investment Banking are registered representatives of M&A Securities Group, Inc., an unaffiliated broker-dealer and member FINRA/SIPC. This entity is not affiliated or associated with, authorized or sponsored by Bridgepoint Advisers Limited.
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Gary Grote Managing Director
Mike Anderson Managing Director
Market-leading boutique investment bank providing M&A and capital raising advisory solutions
197+ years cumulative investment banking experience spanning 118 transactions
$102+ billion of M&A, capital raising, corporate finance and transaction advisory service experience
42 completed M&A assignments spanning more than $30 billion
77 completed corporate finance transactions, raising more than $73 billion in capital
HEALTHCARE INDUSTRIALSSOFTWARE & TECHNOLOGY
Sole Financing Arranger
acquisition
recapitalization
BRIDGEPOINT INSIGHTS