IT Consulting
Industry Outlook 2019
M&A activity in the IT
Consulting sector
1. BACKGROUND OF IT
CONSULTING MARKET
2. DESCRIPTION OF IT
CONSULTING INDUSTRY
3. ADDITIONAL INFORMATION
ABOUT IT INDUSTRY
4. IT INDUSTRY SEGMENTATION
5. GLOBAL IT CONSULTING
INDUSTRY TRENDS
6. SERVICES PROVIDED BY IT
CONSULTING FIRMS
7. MOST POPULAR
SUBSECTORS OF IT
CONSULTING INDUSTRY
8. GEOGRAPHICAL
SEGMENTATION
9. IT CONSULTING INDUSTRY IN
SPAIN
10. M&A ACTIVITY IN THE IT
CONSULTING SECTOR 2018
11. MAIN TRANSACTION TOPICS
FOR CONSIDERATION
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1. BACKGROUND OF IT CONSULTING MARKET
IT Consulting is understood as the field of activity that focuses on advising
organizations on the best way to use information technology (IT) in order to achieve
their business objectives. IT Consulting industry is comprised of companies that offer
business design and implement information technology (IT) systems and
infrastructure.
Expertise
Process Industry
IT Consulting Service Intelligence
Optimization
Security
These IT consulting services provide expertise, experience, and industry intelligence
to enterprises, helping to obtain better design, architecture, optimization, and
implementation of security software, people, and processes. This industry is known
for the low capital requirements and is therefore attractive for small to medium sized
businesses. IT consulting Industry players can be divided into four main segments:
professional services firms, staffing firms, independent contractors, and information
security consultants.
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2. DESCRIPTION OF IT CONSULTING INDUSTRY
Traditionally, the IT Consulting sector has represented a very important part of
global transactions in the consulting sector. This is due to the high level of
innovation that occurs in the IT industry with respect to other more traditional
consulting sectors (media, human resources, engineering, etc.), which implies the
continuous need of companies to acquire new capabilities that allow them to enter
these new and innovative markets. Additionally, the impact of new digital
technologies in all sectors of the global economy is driving interest in innovative IT
services capacities from traditional and non-traditional strategic acquires.
Since 2013, the rapidly expanding technological trends towards cloud
computing and Big Data analytics caused larger competitors to enter the
market through acquisitions of the smaller industry counterparts with
developed technology and supporting infrastructure. Industry giants like
Accenture PLC and International Business Machines Corp. (IBM) have allocated
millions in acquisition sprees in the past years, purchasing leading digital
consulting firms like OCTO Technology and even institution-based projects like
the MIT-run laboratory focused on development of computer systems.
There is a continuous need of
companies to acquire new capabilities
that allow them to enter these new and
innovative markets.
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3. ADDITIONAL INFORMATION ABOUT IT
INDUSTRY
2017 Volume 2019 Volume
$4.5 trillion $5 trillion
Global IT industry If the expected growth
surpassed $4.5 trillion materializes in the years
mark in 2017, according ahead, the spending will
the research of IDC. overlap the $5 trillion mark
by end of 2019.
CompTIA projects the global IT industry will grow at a rate of 5.0% in
2018. The range is in between 6.4% and 7.5%.
In 2017, CompTIA’s IT Industry Business Confidence Index (BC) recorded
the best year in its history with an index of 70 points during Q4.
Executives from large to medium-size technology companies remain
confident on the state of the market and their companies’ future. Smaller
to micro-size firms find it more sensitive to local conditions and slightly
lag the sentiment, however, remain solidly positive.
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4. IT INDUSTRY SEGMENTATION
17% 30%
30% 53%
53%
Emerging technologies (e.g. Telecom services Traditional categories of
IoT offerings and SaaS hardware, software and
solution) service
IT services, including consulting are more widespread and established in
mature technology markets such as the U.S., Europe and Asia Pacific
where the robust infrastructure and a large installed base of users
equipped with hardware provide the demand.
5. GLOBAL IT CONSULTING INDUSTRY TRENDS
▪ Smaller companies with fewer IT needs will find it more cost-effective to
outsource to cloud service providers and organizations with IT service
providers.
▪ The democratization of technology leads to breakthrough models.
▪ Cloud enters new phase of maturity.
▪ Internet of thing (IoT) expands technology footprints.
▪ Businesses Adjust to the new norm of security
▪ Cybersecurity – data security, privacy and ethical concerns are becoming
more brazen given the frequent lack of transparency and control over who
collects the data, how it is collected and used.
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5. Global it consulting industry trends
Artificial Intelligence (AI) adds a new layer to the solution
pack – technology solutions are growing more complex and
technology demands are growing more specific.
AI requires significant compute resources which can be
ARTIFICIAL leveraged by an adherent cloud technology; various algorithms
INTELLIGENCE that facilitate learning; and contextual awareness which can be
(AI) leveraged by the application of IoT devices or massive
collections of data. AI, therefore, proposes the benefit of an
additional layer of intelligence to the existing technical
solutions which companies are building, and provide a more
extensive IT architecture and tackle a broader range of
problems. With a diverse and scalable application use, AI
technology’s solution pack will be increasingly more
demanded by businesses of all sizes.
ARTIFICIAL
INTELLIGENCE
MACHINE LEARNING
DEEP LEARNING
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5. Global it consulting industry trends
According to estimates, around 90% of all digital data that exists in
the world today was generated in only the past two years. This is a
result of the ongoing digitization of information, and more
recently, the mass deployment of sensors.
INSIGHT
Technological breakthroughs in distributed computing power and
ECONOMY
storage of information have enabled the collection of much more
delicate, valuable, and timely data. Machine learning and AI are at
the forefront of data analytics field, allowing refinement and
conversion of data into evermore precise and valuable insights.
These developments are ushering in what can be characterized as
the insights´ economy.
The cloud’s value proposition solution facilitates faster and
easier experimentation and innovation. XaaS capabilities are
making it cheaper and easier for broad ranges of users to
access cutting-edge technologies and services, such as AI and EVERYTHING AS A
IoT-based solutions. SERVICE (XAAS)
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6. SERVICES PROVIDED BY IT CONSULTING FIRMS
▪ Architecture and IT Strategy ▪ Business Intelligence
▪ IT Outsourcing ▪ Integration of Systems
▪ ERP Services ▪ Infrastructure
▪ Design and Development of ▪ IT Implementation
applications ▪ IT Governance
▪ Digital transformation ▪ Program & Project Management (PPM)
▪ Cyber Security Health Check
▪ Data Management in Data Analytics ▪ Software Management
▪ Digital customer experience consulting
7. MOST POPULAR SUBSECTORS OF IT
CONSULTING INDUSTRY
CYBER SECURITY CLOUD-BASED
The latest disruptive impacts of SOLUTIONS
new cloud-based solution on
company’s business and operating Many traditional services layers
models, makes cloud computing are sing niche acquisitions in
and cyber security a critical cloud services to counter slower
investment priority. revenue generations from
traditional on-premise ERP
implementations.
ARTIFICIAL INTELLIGENCE AND
AUTOMATION
Consulting service providers are actively implementing automated back office
function in order to improve the customer experience and relieve office workers of
laborious back office tasks. The primary benefits of automation is reduction in
costs, improving customer service and allowing for more precise oversight of
trends impacting the clients’ business.
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8. GEOGRAPHICAL SEGMENTATION
EUROPE
33% ASIA PACIFIC
22%
NORTH
AMERICA 33%
5%
7%
SOUTH
AMERICA
7% 22% 33% 33%
South North
Europe Asia Pacific
America America
accounts for 7% accounts for 22% of U.S. accounts for Japan, China,
of the total and the total and 31% or $1.5 India, and APEC
growing. expected to witness trillion of the countries accounts
marginal growth total and is for 33% of the
with a significant consequently the total and is
compound annual largest tech consequently the
growth rate (CAGR) market in the largest tech region
over the forecast world. in the world.
period.
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9. IT CONSULTING INDUSTRY IN SPAIN
Exhibit 1: Leading IT consulting companies in 2017 based
on sales value in millions of Euros
(*) Includes the IT division (Minsait) and
other industrial solutions
10. M&A ACTIVITY IN THE IT CONSULTING
SECTOR IN 2018
For the purpose of collecting a more comprehensive and reliable deal scope data, a
pitchbook advanced search was used to filter out the global mid-market M&A activity
in IT consulting industry. The deal dates ranged with minimum deal value of $ 5
million and maximum of $ 100 million to ensure that collected data is within the mid-
market scope.
During 2018 the average value deal size has been $16,4M, with 46% of the transactions
closed in North America and 38% in Europe and a medium multiple average of 8,6
times.
During 2018 the average value deal
size was $16,4M, with 46% of the
transactions closed in North
America and 38 % in Europe.
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10. M&A activity in the it consulting sector 2018
Demand for business with cloud services remains robust but in
line with previous years.
Accenture acquired two consulting partners of ServiceNow
1 according with his plan to leading the service in the market.
WPP-Wundermand acquired Pierry a US specialist in Salesforce
Marketing Cloud, providing WPP with technology consulting
2 expertise in marketing services in a market with competitors like
Accenture, IBM or Deloitte.
Haven Cyber Technologies acquires Onevinn, the Leading
3 Swedish provider of Microsoft Cloud Services and Solutions
Hitachi Solutions America acquired Capax Global, a Microsoft
Azure cloud services partner deliver business applications, modern
4 workplace, data, artificial intelligence, infrastructure and IoT
(Internet of Things) solutions on Azure.
Accenture acquired Orbium, a Switzerland-based management
consultancy and technology services provider focused on the
5 financial services industry. Orbium is the largest services provider of
the Avaloq Banking Suite, a digital and core banking software used
by the banking and wealth management industry.
PS&C has acquired Salesforce consulting and implementation
6 partner Artisan Consulting, in a move to strengthen the company's
Salesforce capabilities.
Infosys has acquired Fluido, a Salesforce cloud consulting,
7 implementation and training partner with reach across Europe.
Indra, the Spanish leader in the IT sector in Spain, has acquired
8 Paradigma, the cloud services company specializing in digital
strategy, customer experience and Big Data.
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10. M&A activity in the it consulting sector in 2018
Cyber security continues the growth as consequence of the high
demand of cloud solutions and connected device.
Carbonite has acquired Webroot for $618.5 million. The deal marries
Carbonite’s cloud- and appliance-driven backup and disaster
1 recovery (BDR) business with Webroot’s MSP- and SMB-centric
cybersecurity business.
CACI International has acquired LGS Innovations for $750 million.
2 LGS provides communications, intelligence, surveillance and
cybersecurity services to federal government agencies.
Adjust, the mobile measurement company, has acquired Tel Aviv,
3 Israel-based cyber security and AI startup Unbotify for an
undisclosed amount.
ePlus Technology has acquired SLAIT Consulting, a managed IT
4 services provider (MSP) with cybersecurity advisory and hybrid cloud
expertise.
ConnectWise has acquired Sienna Group, a leading managed
5 security services provider (MSSP), allowing the company to offer
cybersecurity services to managed service providers (MSPs).
Artificial Intelligence is being aggressively adopted by forward-
looking businesses, particularly in the banking, retail and
automotive sectors and rising buyer demand for AI players.
Salesforce acquired Datorama, an Israel-based company which
1 provides AI driven marketing analytics and intelligence data to
enterprises.
Accenture acquired Genfour, a pure-play automation service
2 provider specializes in assessing, implementing and managing
automation solutions.
New Relic, Inc., a digital intelligence company, has recently
3 announced that it has acquired SignifAI, a company specializing in
machine learning (ML) and artificial intelligence (AI).
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10. M&A activity in the it consulting sector in 2018
Exhibit 1: Deals by Global Regions Exhibit 2 Average price deal (million $)
The pie chart above depicts the The previous bar chart shows the
distribution of deals in IT consulting average deal size by global regions. The
industry by global regions. United States United States (€ 25,4M) is practically 3
(46%) and Europe (38%) accounted eight times higher than in Europe (€ 8.6M),
out of ten transactions while Asia which shows the great difference in the
representing a smaller chunk with 11%. IT services companies in these
geographies.
Exhibit 3: Transaction Value by Exhibit 4: Transaction Value by
Multiple EBITDA Multiple Revenue
The average Enterprise Value for the The average Enterprise Value for
transactions has been 8,6 x EBITDA with transactions has been 0,85 x revenue
lower values in Europe and higher in with higher values in Europe and
Asia Pacific. lower in Asia Pacific.
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10. M&A activity in the it consulting sector in 2018
Exhibit 5: Evolution EBITDA multiple Exhibit 6: Evolution Revenue multiple
After the lowest values in the 2013-2015 The growth trend experienced since
years, sustained growth continues with 2017 continued during 2018.
similar values since the last two years.
Artificial Intelligence is being aggressively
adopted by forward-looking businesses,
particularly in the banking, retail and
automotive sectors and rising buyer
demand for AI players.
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11. MAIN TRANSACTION TOPICS FOR
CONSIDERATION
Business sizes Deal Structure Buyers from Metrics for the Cross border
and transactions other industries transaction transactions
Buyers always pay extra value for large companies with a recognized brand in the
market, intellectual property, strong customer base and proven ability to grow.
Normally the structure of a deal in the IT services sector includes an upfront cash
payment in combination with earn-out within 2-4 years to decrease the buyer´s risk
and increase the seller´s income.
Digital disruption will continue to attract interest from non-technological industries
for new enterprise technologies and services. A very clear example has been the
acquisitions realized by advertising agencies and industrial manufacturing companies
of technologies around Industry 4.0. Industrial companies are generally paying
premium prices to acquire new technologies for which they are unable or lack
resources to develop themselves.
The industry main valuation method is last year´s EBITDA on comparable M&A
transactions. Only a few transactions are using the last year´s revenue multiple
method.
Cross-border transactions will continue to grow during the next few years driven by
the increasing demand to access international markets by acquiring local companies
with strong client base, branding and local expertise.
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AUTHOR -
Bernar de la Hera Curriculum
• Partner ICT Specialist,
ONEtoONE Corporate Finance
• Management and Business
Consultant ICT Companies
• Practice Dynamics Microsoft
Services, Microsoft
• Director Oil and Gas Market,
GCI EMEA Microsoft Lead,
Unisys
• Sales Manager, Baan Company
• General Manager, Watermark
Contact Details: Industrial Engineer School of Industrial
[email protected] Engineering Bilbao. He has accumulated
experience for almost 30 years in various
+34 91 183 48 58
management positions in companies in the
sector of information technology. He
worked during this period in companies
both national and international majors,
developing his work over the past years as
Strategic Business Consultant in ICT
companies. He has extensive experience in
Commercial Management, General multi,
new business development and markets in
Spain and EMEA, internalization processes,
motivating teams and executive coaching.
In recent years he has played roles in
companies such as Baan Company, Unisys
and Microsoft. Since end of 2013 he has
begun working for ONEtoONE as partner
specialist in the information and technology
sector where has managed several
operations.
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About ONEtoONE
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