TECHNOLOGY & BUSINESS SERVICES

Transcription

1 TECHNOLOGY & BUSINESS SERVICES STRATEGIC MARKET INSIGHTS 2018 REPORT

2 G2 Insights IT Managed Services IT Managed Services models continue to dominate the IT landscape providing businesses reliable, 24/7 service and protection from growing threats to data security. New technologies, including Artificial Intelligence ( AI ), are making managed services more efficient while others, like the Internet of Things ( IoT ), are poised to grow explosively in the near term. Additionally, industry consolidation has become more pronounced in recent years, as IT Managed Services Providers ( MSPs ) race to keep up with new technologies and provide comprehensive service offerings. According to Gartner, IT services spending will reach $985 billion in 2018, a 5.5% increase from 2017, and surpass $1 trillion in Managed services are expected to grow more quickly than the broader industry from $181 billion in 2018 to $282 billion by 2023, a 9.3% CAGR. Growth of Internet of Things ( IoT ) Drives Complex IT Needs The IoT market has exploded in recent years, with the installed base of IoT devices expected to grow to 20.4 billion by 2020, nearly double 2018, according to Gartner. Devices span from industry specific applications such as sensors for electricity plants and location devices for healthcare to smart, connected buildings and security cameras. The staggering growth of IoT and smart devices, has created a substantial market opportunity for managed service providers to analyze, interpret, and secure data. For instance, adoption of IoT managed services is expected to take off in manufacturing, growing from $959 million in 2018 to $23 billion in As growth in IoT devices and spending accelerates, a need for effective management and security services for IoT becomes paramount. IoT MSPs must be able to scale quickly alongside organizations and manage vast networks of connected devices. MSPs that are not proactively addressing present and future needs for IoT management do so at their own risk. Total Spending (Trillions) Projected IoT Spending $3.5 $3.0 $2.9 $2.5 $2.1 $2.0 $1.7 $1.5 $1.4 $1.5 $1.0 $0.7 $1.0 $0.5 $0.5 $0.8 $1.0 $1.1 $1.4 $ Business Consumer New Technology Drives Managed Services Spend Total Units (Billions) Projected IoT Installed Base Business Consumer IT MSPs are leveraging AI technology to efficiently manage data and extract meaningful insights. According to Clutch, a B2B research firm, nearly one in five businesses using cloud computing also use AI features, and nearly one in four on the cloud use IoT features. Those figures are expected to rise as AI and IoT use cases become more prevalent. AI is expected to change the way people and businesses interact with computers and revolutionize industries. Currently, companies such as Amazon are using AI to aggregate and evaluate the flood of data produced by the ever increasing number of internet-connected devices. IT MSPs bridge the gap between data collection and implementation and will continue to benefit from the projected rise of AI, IoT, and other new technologies. Source: Gartner, MarketsandMarkets, G2 Insights 2

3 G2 Insights IT Managed Services (Continued) Cybersecurity as a Service Gains Traction Cybersecurity continues to be a major source of concern across industries as attacks become more prevalent and damaging. Recent high-profile data breaches at Equifax and Marriott and the shortage of cybersecurity professionals have underscored the need for robust data security protocols and ushered in a new wave of interest in Cybersecurity as a service ( CSaaS ). Small and medium-sized businesses ( SMB ) are increasingly at risk of data breaches and downtime, which can introduce liability and hinder operations. According to Verizon, 61% of data breaches targeted SMBs in 2017, up from 53% in Costs of a cyber attack for small businesses can range anywhere from $85K $150K, far in excess of the costs of a MSP. In response, SMBs are becoming more proactive in the face of cybersecurity risks. In addition to the security benefits, adoption of CSaaS has increased among SMBs as a way to reduce capital expenditures, ramp up service on-demand, and compensate for a shortage of cybersecurity workers. Demand for cybersecurity professionals is expected to rise to 6 million globally by 2019, with a projected shortfall of 1.5 million, according to Cisco. The shortage of expertise available to companies is resulting in substantial growth for MSPs that can provide access to cybersecurity experts. IT MSPs that provide cybersecurity services are well-positioned to capitalize on the demand for increased security but must face challenges including threats that become more sophisticated every day. Managed services providers that are able to develop and implement AI and machine learning to intelligently monitor and respond to threats have a unique competitive advantage. Select CSaaS Providers <$100MM By Total Revenues >$50B Consolidation in IT MSP Industry The IT MSP market has undergone significant M&A activity in recent years and is poised to continue this consolidation. IT MSPs have historically made for strong acquisition targets due to their scalable business models, recurring revenue base, and sticky customer relationships. Additionally, providers are conducting acquisitions in order to expand geographically to capture additional market share and service customers locally. Providers of all sizes are considering acquisitions in order to expand their product offerings and secure customers that increasingly expect a one-stop-shop solution for their IT requirements. Many investors are executing roll-up strategies to bolster their technology offering and build a base of highquality recurring revenue streams. Despite consolidating forces, the IT MSP market remains relatively fragmented with plenty of space for newcomers and niche players to operate. While a trend of consolidation is expected to continue, the market is growing quickly enough to accommodate a large field of players. Source: Verizon, G2 Insights 3

4 Key Trading Statistics Sector Cloud Software & Services Number of Companies Median Enterprise Value ($MM) Median Revenue Growth LTM 1 LTM 2 Median EV / EBITDA Revenue Growth* EV / EBITDA 20 8, % 16.3% 6.9x 23.7x E-Commerce 10 1, % 13.2% 4.2x 14.2x IT Managed Services 10 9, % 13.0% 1.8x 12.4x Business Process Outsourcing (BPO) 10 6, % 6.8% 2.5x 12.1x Consulting Services 14 1, % 17.3% 1.3x 12.9x Human Capital Management 16 1, % 9.8% 0.5x 10.8x 1 Compared with values at September 30, LTM Multiples as of September 30, 2018 * YoY growth calculations exclude companies with negative margins in either period considered. Sector Summary in Millions USD (converted where necessary) Data sourced from S&P Capital IQ as of September 30, 2018 Technology & Business Services Selected Industry Deals 2018 Several notable transactions have been completed or announced in the Technology & Business Services industry through G2 has outlined select transactions below. Accenture acquires Pillar Technology (August 2018) Accenture, a global professional services company providing a broad range of strategy, consulting, and technology solutions, acquired Pillar Technology, a smart embedded software company. The acquisition enhances Accenture s Industry X.0 practice in the U.S., which helps companies address the shift to digital products and services NuMSP acquires Info-Link Technologies, Inc. (August 2018) NuMSP, a national managed service provider offering managed IT and cybersecurity solutions acquired Info-Link Technologies, Inc., a full service information technology firm, offering network solutions for businesses in central Ohio. The acquisition is part of NuMSP s effort to grow its offerings for SMB customers in the U.S. and become a nationwide provider. NexusTek, backed by Abry Partners, acquires three IT MSPs (August 2018) NexusTek, an Abry Partners portfolio company acquired three IT MSPs, reinforcing private equity s growing role in building nationwide MSPs through rollup strategies. NexusTek acquired Cal Net Technology Group, Syndeo Technologies, and Decision Consultants, all regional providers of IT MSP services. NexusTek completed five M&A transactions in 2018 and eight in the prior four years. Genpact acquires Barkawi Management Consultants (July 2018) Genpact, a global professional services firm specializing in digital transformation acquired Barkawi Management Consultants, a supply chain management consultancy, as part of its ongoing strategy to invest in supply chain technologies. The acquisition enables Genpact to deliver global end-to-end supply chain services. Atos acquires Syntel (July 2018) Atos, an international leader in digital transformation technology, acquired Syntel, a global provider of integrated IT and knowledge process services for $3.4 billion. The transaction represented a 14% premium over Syntel s thirty day average share price. Syntel brings a diverse portfolio of advanced digital and proprietary solutions in cloud, social media, mobile, IoT, and automation and will burnish Atos presence in North America. Source: S&P Capital IQ, TechCrunch, CRN, CHANNELe2e 4

5 Market & Industry Trends Market Index Trends The Technology & Business Services sector has vastly outperformed the S&P since the end of The gap widened further during the third quarter as the industry experienced continued strong growth % 200.0% S&P 500 Software & Services (Industry Group) S&P 500 (^SPX) 160.0% 120.0% 80.0% 40.0% 0.0% EV / EBITDA Trend by Industry The Technology and Business Services sector has generally outperformed the S&P 500 index. In the past six years, Cloud Software & Services have led the sector, followed by IT Managed Services, Business Process Outsourcing, Specialty Consulting Services, E-Commerce Services, and Human Capital Management. 25.0x 20.0x 15.0x EV / EBITDA 10.0x 5.0x 0.0x ^SPX BPO Specialty Consulting Cloud E-Commerce Services Human Capital Management IT Managed Services '18 '18 '18 Source: S&P Capital IQ as of September 30,

6 Selected Ongoing G2 Projects G2 has a robust backlog of mandates ranging across its buy-side, sell-side, capital markets, and restructuring service offerings. Project Identify Strategic Advisory Project Identify G2 is currently advising a leading provider of security and access management software for the enterprise and IoT. The firm s SaaS-based platform manages the identities of people and things for Fortune 500 organizations. Security Software Project Cirrus Sell-Side Cloud Consulting and Managed Services Project Cirrus G2 is currently advising an IT consulting and digital services provider on the divestiture of its cloud and managed services division. The firm is a leading provider of multi-pillar Oracle consulting services to the utilities, healthcare, and manufacturing industries. Project Liberty Sell-Side Digital Transformation Project Liberty G2 is currently advising on the sale of a leading consulting and managed services provider of Salesforce and digital transformation solutions. Digital transformation, the topic of the 18 newsletter, is a rapidly growing space involving the transformation of business processes and the customer experience. Project Unify Strategic Advisory Supply Chain Consulting & IT Services Project Unify G2 is currently advising a provider of supply chain consulting and information technology services. The company is a leading provider of supply chain transformation and omni-channel commerce technology and consulting. Project Husky Restructuring Audio-visual Communications Project Husky G2 is currently advising on the restructuring of a leading provider of audio-visual communication solutions. The firm provides system integration, broadcast video, distance learning, digital collaboration, and managed services for the unified communications and professional audio-visual markets. 6

7 Reference Contact & Glossary of Terms Matt Konkle, Sr. Managing Director Jeffrey Unger, CEO Scott Yen, Director Will Luetmer, Analyst Term Definition Revenue EBITDA Market Cap Long-Term Debt Net Debt Enterprise Value P/E Tangible Book Value Total revenue from the sale of goods and services rendered during the reporting period, in normal course of business, reduced by sales returns and allowances, and sales discounts. For banks, this item is defined as net interest income after loan loss provisions Earnings before interest, taxes, depreciation, and amortization. Calculated as Revenue Expenses, excluding interest, taxes, depreciation and amortization Market value of a company using most recently reported basic weighted average shares outstanding. Calculated as Market Price (as of period end) * Basic Weighted Average Shares Outstanding Sum of the carrying values as of the balance sheet date of long-term debt with a maturity beyond one year or the normal operating cycle, if longer Net Debt shows the company s overall debt situation by netting the value of debts with cash and other similar liquid assets. Calculated as Total Debt Cash & Cash Equivalents and Short Term Investments Enterprise Value represents the combined economic value of a company as of the most recent fiscal year end. Calculated as Diluted Market Capitalization + Total Debt + Minority Interest + Preferred Stock Cash and Short Term investments A valuation ratio of a company stock price compared to its per share earnings. Calculated as Market Price / Earnings per Share for the last annual period Total Shareholder s Equity Goodwill and Intangible Assets For more information about G2, please visit: Our corporate headquarters is located at: 535 Boylston Street, 11 th Floor, Boston, MA Boston Chicago Indianapolis Naples San Francisco The information included in this Presentation is not a complete analysis of all material facts regarding any company, industry, or security and does not constitute investment advice. Opinions expressed or implied by the materials here presented reflect only the judgement of its author as of the date of the Presentation and is subject to change without notice. The information in this Presentation has been obtained from sources which G2 generally considers reliable, but we make no representation or warranty, express or implied, as to the accuracy or completeness of any information herein. This Presentation has been prepared for informational purposes only and upon the express understanding that it will be used only for the purposes set forth in the Section captioned G2 Overview above. G2 expressly disclaims any and all liability which may be based on such information, errors therein or omissions there from. Securities offered through Western International Securities, Inc. Member FINRA & SiPC. G2 Securities and Western International Securities are separate and unaffiliated entities. 7