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Technology Services Perspective – 2019 Market Review

By Jon Tingling 24 Jan 2020

Welcome to the 2019 year in review of our Technology Services Perspective – Results International’s quarterly market update of the technology services sector. In the last 12 months, Results International has advised on high-value transactions across all of these disruptive subsectors (performance marketing, data & analytics, software development, intelligent automation, machine learning, cloud services etc.).

The subsectors we track include (i) Customer Engagement (marketing & eCommerce, website UX and performance marketing), (ii) Applications (key vendor systems integrators, software development, data & analytics and mobile), (iii) Infrastructure (managed services, automation, cloud services and VARs), (iv) AI and (v) cybersecurity services. Separately, we cover the broader marketing services market (beyond the customer engagement categories mentioned above) in our quarterly infographics which you can find here and security software in our quarterly CyberScope which you can find here.

Review of 2019 predictions for technology services:

  • As predicted, as cloud adoption continues at an increased pace, and new technologies (AI, machine learning and intelligent automation, among others) move into the mainstream, consultancies, networks and private equity investors continued to vie aggressively for firms with scaled skills in these new technologies across the digital services space, putting upward pressure on valuations in the space. During the year, buyers from across the technology services spectrum alongside private equity investors competed aggressively for assets in the space, which maintained upwards pressure on both public trading and transaction multiples. The Results International public company IT/ Consulting Services index closed at 11.0x trailing EBITDA (compared to 9.8x in Q4 2018) which is also reflective in the strong valuations we are seeing in our transactions in the space.
  • We expected to see more nimble upstarts in Marketing Communications (such as former WPP Chief Martin Sorrell’s S4 Capital) challenge the large networks for prized acquisitions, as the networks learn to thrive in a media environment increasingly dictated by Silicon Valley, rather than by legacy publishers and traditional content providers. In 2019, the S4 group of companies completed no less than 8 acquisitions in the space, topped only by Dentsu (12). This was far greater than Sorrell’s predecessor WPP (2), who placed a higher focus on divestments (the largest of which, Kantar was sold to Bain Capital for $4bn).

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2020 predictions:

  • Nimble listed and private equity-backed groups will continue to gain ground and make acquisitions in the sector by offering flexible deal structures as an attractive proposition (a blend of both the support of a large strategic blended with the independence and support of a financial partner)
  • Nascent technologies will continue to drive M&A growth in interesting new areas. Intelligent Automation (IA) continues to increase in focus as consultancies compete for scaled service providers with automation capabilities. A host of well-funded, hyper-growth automation software companies (led by UiPath, Blue Prism and Automation Anywhere) are disrupting the global services market, thereby creating huge demand for skilled implementation partners. Similarly, the next wave of IoT and connected technologies driven by 5G is driving industry innovation
  • Technology service providers armed with the right stack of value additive proprietary technology will transact at attractive valuations as they partner with private equity groups entering or continuing to grow their portfolios in the space. In January 2020, Results advised Sapphire Systems, an ERP specialist consultancy, on their significant investment from Horizon Capital and in September 2019 Intragen on their investment from FPE Capital

The technology services sector is incredibly active with a wide buyer universe, and the outlook is exciting. As such, now is a good time to be contemplating fundraising, exit, or growth through acquisition in the space – if you are, please do get in touch.

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Jon Tingling

Associate

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