q3 2015 information technology services tree it services q32015.pdf · the overall big data and...

Q3

2015

RESEARCH REPORT

Information Technology ServicesCompanies in the business of providing IT outsourcing, staffing, consulting, systems integration and more.

INSIDE THIS REPORT

• Executive Summary and Overview

• Industry Spotlight — Rise of the 3rd Platform

• IT Services Market Segments

• Market Performance

• Value Differentiators and Valuation Metrics

• M&A Outlook

• Public Valuations — IT Services Performance Index

• M&A Activity — Selected Companies

CHERRY TREE RESEARCH | WWW.CHERRYTREE.COM | 952.893.90121

We believe this is a good time for IT services companies to evaluate their strategic options, including: a) re-capital-ization with the right financial partner to fund growth and de-risk owners, b) sale of the company, or c) exploration of a hybrid process that may include re-capitalization to fuel growth plans while remaining open to a possible sale event.

The IT services market attracts both strategic buyers seek-ing growth and financial buyers seeking lower risk return on capital. This report further reviews buyer motivations, valuation metrics, value differentiators and due diligence considerations.

IT SERVICES MARKET OverviewAccording to Gartner, worldwide IT spending is forecasted to grow 2.5% in 2015 on a constant-currency basis. The IT services component of that growth will be 3.7%. By 2019, worldwide IT spending is forecasted to exceed $3.9 tril-lion. Therefore, the market outlook continues to look good for the IT services industry in terms of revenue growth and profit. According to Forrester Research, US IT spending will rise 10% in 2015, but total technology spending will go up just 5%. Spending by CIOs and their business partners on the market-facing initiatives to win, serve, and retain cus-tomers will outpace spending on the back-office systems and technology infrastructure in the classic IT agenda. Spending on software, consulting and systems integration services, and technical staff will grow more rapidly in 2015 and 2016 than spending on technology outsourcing, tele-com services, and especially computer and communica-tions equipment.4

EXECUTIVE SUMMARYIn the five years leading up to 2015, the Infor-

mation Technology (IT) industry has performed

well, fueled by strong corporate profits, improved

macroeconomic conditions, technological inno-

vation, and business trends. Stronger corporate

profit and increased investment in computers

and software have precipitated industry revenue

growth.1 By 2019, worldwide IT spending is fore-

casted to exceed $3.9 trillion.2 Investment in IT

by consumers and corporations directly results in

increased demand for a broad variety of services

necessary to use those products.

The IT services industry consists of companies engaged in the design, integration, development, implementation, operation, and support of commercial off-the-shelf (COTS) and customized solutions for business and consumers. This report reviews market conditions, trends, valuations, and transactions in IT services, including outsourcing, staffing, consulting, systems integration, security and “3rd platform” (social, mobile, big data/analytics and cloud) services.

The IT services market in the US is large, highly competi-tive, fragmented and growing faster than the overall econ-omy. IT services M&A deal volumes increased in 2014, and have continued to increase in 2015, driven by the growing demand for IT capabilities across many industries, particu-larly in the US, the UK and China. Deal multiples for hot IT sectors, including security, social, mobile, big data/analyt-ics and cloud, significantly outperformed others.3

In this report, we spotlight what industry analysts have termed “The 3rd Platform” solutions — those built on social, mobile, big data/analytics and cloud.

Nearly all IT services providers, in each of the market segments outlined in this report, will be impacted by explosive growth of 3rd Platform solutions and should develop proactive strategies to take advantage of new opportunities for innovation and growth.

1 IBISWorld,ITConsultingintheUS,5/2015

2 GartnerMarketDatabook,3Q15Update,9/2015

3 EquiteqLTD.TheGlobalConsultingM&AReport2015

4 USTechMarketOutlookFor2015&2016:TheBTAgendaPowersSteadyExpansion,6/2015

(Continued on page 6)

Information Technology Services | Q3 2015

$4.5

Exhibit 1: IT Segment Market Size and Growth

Source: Cherry Tree Research

Segments U.S. 2015 Growth

Outsourcing $109 b 2.0%

Consulting $377 b 3.2%

Staffing $166 b 6.0%

Application Integration $200 b 10.3%

Security $200 b 9.8%

CHERRY TREE RESEARCH | WWW.CHERRYTREE.COM | 952.893.9012 2

INDUSTRY SPOTLIGHT

5 IDCPredictions2015:AcceleratingInnovation—andGrowth—onthe3rdPlatform,12/2014,Doc#252700

6 Gartner,Inc.“TheNexusofForces:Social,Mobile,CloudandInformation”,2013

7 TheOpenGroup,OpenPlatform3.0Initiative,2015

Rise of the 3rd Platform — Social, Mobile, Big Data/Analytics, and Cloud

The IT industry’s dramatic and disruptive shift to what has been termed “The 3rd Platform” (built on social, mobile, big data/analytics and cloud solutions) continues to accelerate. Spending on these technologies and solutions is growing at 13% annually and accounts for nearly one-third of all in-dustry revenue and almost 100% of industry growth.5

Nearly all IT services providers, in each of the market segments outlined in this report, will be impacted by explosive growth of 3rd Plat-form solutions and should develop proactive strategies to take advantage of new opportu-nities for innovation and growth.

What is the 3rd Platform?In the beginning, there were mainframes. They are considered the 1st Platform. During the 1950s and 60s, centralized mainframes, housed in fortified data centers, enabled science, government and business to har-ness computational power. However, in the 1970s, 80s and 90s the 2nd Platform ush-ered in entirely new levels of productivity and power by connecting personal computers to mainframes in client/server and multi-tier architecture. Today, the 3rd Platform is “the convergence and mutual reinforcement of four interdependent trends: social interaction, mobility, cloud, and information” as a “nexus of forces” that “is transforming the way people and businesses relate to technology.”6 This 3rd Platform enables millions of apps, billions of users and trillions of things to work seamlessly together like never before. These convergent forces, united by the growing consumerization of technology and the resulting evolution in user behavior, offer the potential to create new business models and system designs faster, better and cheaper than ever before.7

SocialSocial media applications like Facebook, Twitter, SnapChat, YouTube, WhatsApp and Instagram, along with the 3rd Platform to operate them, have fostered consumer-centric entrepreneurs who pursue their personal passions. They supply the world with delightful new apps for people’s phones every day.

Corporate customers are jumping on-board, big-time. 3rd Platform tools are also enabling many enterprise-centric entrepreneurs to create solutions to the pain points in business.

Source: IDC 2014


INDUSTRY SPOTLIGHT

8 https://slack.com/

9 https://squareup.com/

10 https://stripe.com/

11 https://www.domo.com/

12https://www.directly.com/

13 Informa,WorldCellularInformationService(WCIS)

14 PWCGlobalEntertainment&MediaOutlook2015

Examples of enterprise-centric solutions include:

• In communications, replacing inflexible and structured email, companies like Slack can significantly reduce internal email traffic.8

• In retail payments systems, replacing difficult and expensive systems, companies like Square enable mer-chants to accept credit card payments using their smartphones, or tablet, and then operate a sophisticated point of sale system.9 And, compared with time required to deploy traditional merchant accounts, companies like Stripe can dramatically reduce payment integration time for developers by providing them with a set of modern application program interfaces (APIs).10

• In data analytics, compared to the complex and difficult task of data analysis for executives, companies like Domo provide improved access to real-time data that can help users save time and improve decision making.11

• In customer service, replacing call centers filled with people, companies like Directly promise to reduce cus-tomer response times while improving customer satisfaction.12

Social media has empowered consumers to create their own content and has launched a new generation of highly functional capabilities, like APIs (Tumblr, Facebook, Wordpress), streaming data (Twitter Firehose), video players and plug-ins (YouTube), video streaming (Periscope), and so much more.

MobilePeople love their phones. Mobile phone adoption has reached 73% of the world’s population.13 Worldwide smartphone and tablet spending will hit $484 billion in 2015, generating 40% of all IT growth. Phablets, devices that combine the form and function of a smartphone and a tablet, typically with a 5.5 to 7 inch screen, are hot with consumers mostly because of mobile browsing. Phablet momentum will accelerate, accounting for 18% of smartphone units sold in 2015, up from 11% in 2014. Mobile device usage is ubiquitous; work, play, personal and professional time is spent connected. Mobile advertising is growing over 34% year over year with improved ad formats and video viewing.14 Beyond the mobile device as the primary social engagement platform, there are two major areas worth highlighting: buy buttons and messaging.

TWITTER FACEBOOK GOOGLE


INDUSTRY SPOTLIGHT

15 KleinerPerkinsCaufieldByers,KPCBInternetTrends2015,Images:Twitter,Facebook,Google.

16 KleinerPerkinsCaufieldByers,KPCBInternetTrends2015

17 TheBigDataLandscape,Copyright©2012-2015TheBigDataGroup,LLC

Buy buttons purposed for the user’s mobile experience reduce the friction with a purchase commitment and enable the transaction at the moment of interest. Examples of the leaders are Twitter, Facebook and Google.15

While multi-tasking seems natural on a workstation or PC, the functions on a mobile device are more single purpose. Inte-grating the buy button within apps provides mobile consumers the ability to jump, in a natural way, to the logical next step in the purchasing process.

Communicating to users on mobile devices is widely accepted and getting much better. Messaging infrastructure and applications are enabling solutions that are instantaneous, expressive, entertaining, real-time, simple and professional. The market leaders are building large, secure and highly scalable platforms with APIs and developer kits to extend their services to the enterprise.

Messaging leaders are aiming to create cross-platform operating systems that are context-persistent communications hubs for more and more services.16

Big Data/Analytics

Commerce and research are being transformed by data-driven discovery and prediction. Data scientists, software devel-opers, and analysts from many different industries are performing big data analytics in the cloud, while dealing with the challenges of the increasing volume, variety, and velocity of digital information. The overall big data and analytics market is on a path to reach $125 billion worldwide. The market is composed of many companies that provide pieces of the puzzle, including: technology (Apache HBase and Hadoop, Cassandra, Mahout), analytics (Cloudera, Hortonworks, MapR), opera-tions (MongoDB, Splice, Informatica, Splunk, VoltDB), cloud services (Amazon AWS, Google, Microsoft Azure), structured database (IBM DB2, Oracle, MySQL, Sybase, Microsoft SQL Server), data-as-a-service (DaaS) (Apigee, Topsy, Factual, FICO, Loquate), visualization (1010Data, Ayata, Tableau, SAS), ad media (Collective, DataXU, Rocketfuel), business intelligence (Autonomy, Domo, Oracle Hyperion, SAP) and many more.17

Source: KPCB Internet Trends 2015

Whats App Messenger Snapchat WeChat LINE KakaoTalk

Launched: Launched: Launched: Launched: Launched: Launched: 2009 U.S. 2011 U.S. 2011 U.S. 2011 China 2011 Japan 2010 Korea

• Fast messaging• MAU=800MM

• Messaging platform• MAU=600MM

• Ephemeral messages• DAU=100MM




5

INDUSTRY SPOTLIGHT

18 TechCrunch,CrunchNetwork,“IsAWSTheMostImportantEnterpriseCompany?”;Baird2015

19 IDCPredictions2015:AcceleratingInnovation—andGrowth—onthe3rdPlatform


CloudDatacenter spending growth will continue to shift toward cloud service providers and away from enterprises. Forrester fore-casts that by 2016 the global public cloud market will hit $118 billion, growing to over $200 billion by 2018. Amazon will come under attack but will hold or gain share. Many infrastructure-as-a-service (IaaS) players below the top 10 will drop out of the market; Google, Microsoft, IBM, Alibaba, and China Telecom will continue to gain share. The number of apps in major cloud marketplaces will double. The battle to lure developers to cloud platforms will drive new offerings in cognitive/machine learning and Internet of Things (IoT) services.

The cloud may represent the largest disruption of enterprise computing since the introduction of the personal computer and Amazon is currently the “king” of the cloud. Amazon Web Services (AWS) is dominating the public cloud market. AWS revenues may reach $7 billion in 2015, and is currently on a $10 billion run rate growing at 81% year over year. AWS has many advantages and leads the industry in execution. AWS op-erates at scale – a significantly larger scale than almost any of its

customers. AWS is able to operate processing and storage at costs lower than almost any other company. Adoption of AWS appears to have taken off with large customers like Bristol-Myers Squibb, Capital One, Hertz, AOL, John Deere, FINRA, and emerging ones like AirBnB, BrightRoll, Etsy, Foursquare, Netflix, Yelp, and many more. AWS continues to innovate and launch new product features almost weekly; it appears to be investing for the long term. AWS is much more than infrastructure. It is a complete platform capable of delivering robust new products and services with a comprehensive, scalable set of tools. Lastly, with the announcement of its joint venture with Accenture, Amazon is now in the IT consulting and systems integra-tion business. According to Baird, AWS will represent just 5% of data center spend this year and less than 1% of overall en-terprise IT spend. In other words, there is still significant room for growth as more enterprises embrace cloud technologies.18

Increasing adoption of cloud has prompted other technology leaders to aggressively step forward in this space by acquiring startups. In 2014, EMC acquired four cloud startups, namely Twinstrata, Maginatics, Spanning, and Cloudscaling. In 2015, IBM acquired Blue Box; Cisco acquired Piston Cloud; Microsoft acquired cloud security firm Adallom; Oracle acquired mar-keting cloud company Maxymiser; and HGST acquired Amplidata. While the leaders gobbled up small cloud startups, other startups like Box and Cloudera made their way into the cloud market. Box went public in January 2015 and Cloudera raised $900 million in funding in 2014.

IoT spending in 2015 will exceed $1.7 trillion, a 14% jump from 2014, driven by nearly 15 billion devices. By 2020, this will rise to $3 trillion and nearly 30 billion devices.19

Closing ThoughtsSignificant new IT services business will result from the growth of the 3rd Platform. Client companies in every industry will seek to expand their digital competencies beyond tactical, back-end, enterprise systems — and into more strategic, front-end, market and brand building solutions. Blurred lines between strategy, digital, marketing, and IT leadership may introduce a new set of challenges to established IT services companies, but they also give rise to an entirely new wave of opportunity with no end in sight. The IT services industry is well positioned to lead the way.



IT SERVICES INDUSTRY SEGMENTSIT OutsourcingIT outsourcing is the use of external service providers to effectively deliver IT-enabled business process, application service and infrastructure solutions for business outcomes. Forrester estimates that the global infrastructure outsourc-ing market is at $187.5 billion worldwide, with the North American market comprising approximately 58% of this total. A significant portion of this contract value is up for renewal during the next few years, opening up a historic opportunity for market share redistribution as well as con-tractual innovation.

Most traditional suppliers are experiencing only limited growth, or are actually shrinking. Taken as a group, the traditional suppliers have demonstrated flat market share growth at best. Cost savings alone is no longer the princi-pal motivation for outsourcing. Today’s buyers also want to increase revenues and improve the customer experience. This market will be disrupted by some untraditional pro-viders, notably those with strengths in cloud computing and service brokering.20

While India is still the undeniable leader in IT outsourc-ing, China, Mexico, Poland and Malaysia are emerging as global alternatives based on potential benefits such as the availability of skills, financial attractiveness and the busi-ness environment. Bulgaria, Brazil and Egypt are emerging as strong regional centers for customers also seeking the benefits of proximity.21

IT StaffingIT staffing companies provide recruiting and placement of qualified IT people to meet their clients’ temporary, flex-ible, and permanent headcount requirements. The US staffing industry is projected to grow 7% in 2015 to reach $116 billion and expand another 6% in 2016 to reach an all-time high of $121 billion, according to Staffing Industry Analysts (SIA) in its most recent forecast.22 IT staffing firms led all other professional staffing segments in terms of rep-resentation on SIA’s 2015 list of largest US staffing firms.23

IT ConsultingBy far the largest, and most diverse segment of the IT services market, IT consulting includes firms that provide: writing, testing and supporting custom software, planning and designing integrated hardware, software and commu-nication infrastructure; and on-site management of com-puter systems and data processing facilities. In 2015, the US IT consulting industry represents $377.4 billion in rev-enue, $30.6 billion in profits and $163.5 billion in wages from 431,982 businesses. Over the past five (2010–2015) years, IT consulting in the US grew 2.8% and is projected to grow 3.2% over the next five (2015–2020) years.

IT Systems IntegrationThe systems integration services industry includes firms that integrate business software such as SCM, ERP, HRM, BI, and CRM systems without significant underly-ing data structure or processing changes. Industry esti-mates indicate the market for these services in the US in 2015 is approximately $200 billion. According to Tech-navio research, the widespread use of COTS packaged applications, technologies, and platforms among enter-prises is likely to drive market growth at a CAGR of 10.3% from 2014-2019.24

IT SecurityIT security services are those that provide protection of information systems against unauthorized access to or modification of information, whether in storage, processing or transit, and against the denial of service to authorized users or the provision of service to unauthorized users, including those measures necessary to detect, document, and counter such threats.25

20TheForresterWave™:GlobalInfrastructureOutsourcing,Q12015

21ATKearney,“TheRisingStarsofITOutsourcing”2014

22SIA,U.S.StaffingIndustryForecast:September2015Update

23SIA,ITstaffingfirmsfeatureprominentlyon2015LargestListAugust8,2015

24Technavio,GlobalEnterpriseApplicationSystemIntegrationMarket2015-2019,June2015

25NationalInstituteofStandardsandTechnology(NIST),2015

SECURITY

OUTSOURCING

CONSULTING

INTEGRATION

STAFFING



The worldwide IT security market continues to grow as defined by market sizing estimates that range from $75 billion in 2015 to $170 billion by 2020. Visiongain, a busi-ness intelligence firm in London, indicates that the global IT security market is estimated at $75 billion in 2015, as high-demand continues for IT security solutions. Gartner projects global spending of $101 billion on IT security in 2018. According to a report from MarketsandMarkets, the IT security market is estimated to grow to $170 billion by 2020, at a CAGR of 9.8% from 2015 to 2020.26 The aero-space, defense, and intelligence vertical continues to be the largest contributor to IT security solutions. North America and Europe are the leading revenue contributors, accord-ing to a report from TechSci Research in Burnaby, Canada. Asia-Pacific is rapidly emerging as a potential market for IT security solution providers, driven by emerging econo-mies such as China, India and South-East Asian countries, wherein rising cyber espionage by foreign countries is in-ducing the need for safeguarding cyber space. According to IDC, the hot areas for growth are security analytics (SIEM) (10%); threat intelligence (10%+); mobile security (18%); and cloud security (50%).27

MARKET PERFORMANCEOver the last ten years, IT services firms have outperformed the market. However, over the last two years, IT services firms have basically performed in-line with the market and have only recently (summer 2015) outperformed the S&P 500 (Exhibit 2). Firms with healthy fundamentals are seek-ing M&A transactions to meet growth objectives.28

VALUE DIFFERENTIATORSBuyers pay close attention to historical revenue, gross margins and EBITDA performance. However, they are also looking for companies with distinct advantages. We believe IT services companies with the following business model advantages are not only more competitive, but have shown to attract higher value.

Entrenched Customers Companies that successfully differentiate themselves based on service offerings, domain expertise, geo-graphic scale or delivery model generally develop highly entrenched relationships with customers. Demonstrated

by strong year-over-year revenue and gross margin perfor-mance, long term customer relationships with meaningful barriers to entry to competitors are attractive to buyers.

In-Demand Practices Companies that are serving their clients’ enterprise trans-formation, productivity and growth objectives, especially customer acquisition and market facing initiatives, are attractive targets. IT services companies that regularly re-view and renew their practice areas, and are aligned with in-demand technology partners and/or industry, regulato-ry compliance, are well positioned to attract buyer interest and value.

Partner Relationship AlignmentCompanies closely aligned with market leading software, infrastructure or other solutions partners, such as ERP, CRM or vertical industry solutions, are attractive to buy-ers. Typically, the knowledge and skills necessary to deliver complex engagements that augment partner resources command higher margins with reduced SG&A.

26http://www.marketsandmarkets.com/

27CSOONLINE“CybersecurityBusinessReport”,July2015

28CapitalIQ,CherryTreeresearch.MarketCapIndiceswithmixedcurrenciesareconvertedintoUSDusinghistoricalspotrates.HistoricalEquityPricingDatasuppliedby

FTSE™isatrademarkoftheLondonStockExchangeandTheFinancialTimesandusedbyFTSEInternational

Limitedunderlicense.CapitalIQislicensedbyFTSEInternationalLimitedtopublishtheFTSE.

Exhibit 2: Market Performance

Source: Capital IQ

S&P 500

S&P 500

IT Service Index

IT Service Index

10 Year

2 Year



Expansion PossibilitiesCompanies with the capacity to organically grow their business with focused investment in areas such as addi-tional sales capacity, geographical expansion and/or offer-ing new services to existing clients are attractive.

Operating Leverage Companies with operating leverage typically have lean selling, general and administrative (SG&A) expenses. As a result, revenue growth can lead to accelerated incremen-tal profits.

Recurring RevenueCompanies that have a higher mix of annual, recurring rev-enue in the form of business process, managed teams, sup-port, and maintenance fees are increasingly attractive to buyers, who especially value predictable top and bottom line performance and lower SG&A.

Gross MarginsCompanies with higher gross margins are typically reflect-ing an underlying added value that can reduce the likeli-hood of performance downturn as compared to more volatile, less profitable competitors and business sectors. This lower default risk contributes to higher business valuation characteristics, specifically to a higher price-to- revenue multiple.

VALUATION METRICSThe trend in revenue and EBITDA multiples of IT services firms increased over the last three years. However, we expect EBITDA multiples may experience pressure due to internal investments required to drive revenue growth.29 As outlined in the charts below, valuations of publicly-trad-ed IT services and consulting companies have returned to pre-recession levels.30

29 EquiteqLTD.TheGlobalConsultingM&AReport2015

30 CapitalIQ,CherryTreeresearch

Larger businesses are often rewarded a “size premium” over comparable smaller ones in the same segment. Our public company median valuations are higher in general because of the large companies included in the public statistics.

Exhibit 4: Public Company Valuations — Median Statistics

($ in millions) Enterprise Value /

Number of Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Revenue GrowthCompany Name Companies Cap Value Revenue Gross Profit EBITDA Margin Margin Rev. Gross Prof EBITDA 1-Year 3-Year

SUMMARY

STAFFING 12 $651.4 $718.2 $1,748.3 $509.9 $65.8 18.7% 4.2% 0.4x 2.0x 10.3x 1.5% 1.4%

SYSTEMS INTEGRATION 8 $1,438.6 $1,435.4 $1,238.9 $321.3 $139.3 27.0% 10.9% 1.1x 4.3x 10.3x 6.8% 8.1%

CONSULTING 9 $588.7 $929.5 $802.7 $267.7 $105.2 38.6% 11.7% 1.3x 3.5x 10.6x 3.5% 3.5%

OUTSOURCING 17 $5,087.9 $5,465.2 $3,274.3 $948.9 $388.6 33.7% 18.1% 2.6x 7.9x 13.3x 14.3% 10.4%

SECURITY 5 $137.9 $111.8 $160.2 $48.0 $14.3 30.0% 10.0% 1.1x 4.6x 11.1x 20.8% 11.2%

ALL COMPANIES 51 $1,371.0 $1,342.3 $1,066.7 $308.7 $123.4 31.3% 10.9% 1.3x 4.0x 10.9x 8.2% 7.2%

Exhibit 3: Valuation Metrics

Source: Capital IQ

Historical Median EV/Revenue

Historical Median EV/EBITDA



A key observation of the data over the past three years has shown that top performers in terms of growth, gross mar-gins, EBITDA and/or recurring revenue appear to result in higher multiples.

Valuation Observations

• Of all companies, the top 50% with regards to revenue growth had a median EBITDA multiple of 13.3x. The bottom 50% had a median EBITDA multiple of 10.3x.

• Of all companies, the top 50% with regards to gross margin percentage had a median EBITDA multiple of 13.3x. The bottom 50% had a median EBITDA multiple of 10.1x.

• Of all companies, the top 50% with regards to EDITDA margin percentage had a median EBIT-DA multiple of 12.7x. The bottom 50% had a median EBITDA multiple of 10.1x.

• Typically, outsourcing and consulting have more recurring revenue than staffing and systems inte-gration; the EBITDA margins for the higher recur-ring revenue businesses are higher.

M&A OUTLOOKThe outlook for M&A activity within the IT services indus-try appears very good for those companies with strong underlying fundamentals, differentiated business models, in-demand services offerings, or specialized industry focus. We believe strategic buyers in this industry will rely on M&A for revenue and earnings growth to keep pace with overall market return expectations.

We believe this is a good time for IT services companies to evaluate their strategic options, including:

• Re-capitalization with the right financial partner to either de-risk the founder(s), or pursue strate-gic growth through add-on acquisitions

• Sale of the company

• Hybrid process: re-capitalization to fuel growth plans, remaining open to possible sale event

BUYERS AND DEAL STRUCTURESUnderstanding buyer profiles and motivations are impor-tant when considering strategic options. Historically, ap-proximately 85% of IT services M&A buyers were catego-rized as strategic and 15% were categorized as financial or private equity.

Strategic BuyersGrowth is typically the goal for strategic buyers. Strate-gic buyers are defined as operating companies looking to add to existing operations. Typically, strategic buyers are able to pay a higher price than financial buyers due to the potential realization of revenue and/or cost synergies. They are knowledgeable in industry and operating per-formance metrics. Many times, the best potential strate-gic buyers are sometimes closest competitors, partners or customers. Strategic buyers should have a good market, service offerings and cultural fit, as well as the capacity and capability to close a transaction. Financial buyers can be competitive on price when making their first strategic, platform purchase.

Exhibit 5: M&A Comps — Median Statistics

($ in millions)

Number of Enterprise Enterprise Value/ Target Statistics Transactions Value Revenue EBITDA Revenue EBITDA EBITDA %

SUMMARY

STAFFING 8 $39.3 0.8x 6.0x $164.1 $5.3 5.3%

SYSTEMS INTEGRATION 30 $32.1 0.7x 11.4x $46.2 $15.1 5.4%

CONSULTING 10 $87.2 1.6x 13.3x $50.7 $4.8 14.6%

OUTSOURCING 13 $285.4 0.7x 7.7x $332.8 $50.4 14.2%

SECURITY 4 $16.5 2.6x 17.7x $6.4 $4.1 14.3%

ALL TRANSACTIONS 65 $41.0 1.0x 8.9x $59.0 $10.9 7.9%

COMPANIES ARE REWARDED FOR:

Growth

Gross Margin

EBITDA

Recurring Revenue



Financial Buyers—Private EquityFinancial buyers are typically seeking a straight return on capital. Financial buyers are defined as groups that invest in or buy and sell companies. They are most likely to be private equity (PE) firms that manage funds made up of institutional limited partners, corporations, and family of-fices. Typically, they are efficient, professional investors that will likely show interest but are less likely to pay premium prices. Financial buyers should have previous investment experience in asset-light companies of similar size and scope, preferably technology and/or service industries, plus a track record of working with management post transaction.

Financial buyers are attracted to IT services because of the market size and growth prospects. In addition, these busi-nesses typically consume very little of the profits generat-ed on fixed or working capital. Therefore, free cash can be used to pay back the interest and capital on the loans that are an integral part of PE investments. Cherry Tree’s experi-ence shows that PE transactions would typically include a higher percentage of the value structured as debt.

Platforms—Financial Buyers with Strategic InterestsPlatforms are PE backed IT services companies, viewed by its owners as a starting point for growth, seeking tuck-in or add-on acquisitions. These buyers are typically seeking ac-cretive growth through industry or geographical expansion, expansion into adjacent market offerings, or acquisition of attractive client portfolios. They seek to leverage a plat-form company’s management, back office and infrastruc-ture to drive maximum synergies with these transactions. Platforms are as efficient as financial buyers and as knowl-edgeable as strategic buyers.

Deal StructuresIT Service transactions come in a variety of structures. Many sellers are able to achieve all cash transactions, par-ticularly when a good portion of the ownership is not ac-tive in the business. For those situations where ownership desires to continue to hold some equity in the going-for-ward company, or where the large owners are also critical leaders and participants of the management team, struc-tures are likely to be a bit more creative and can include a mix of the following areas:

• Cash, both on completion and at agreed upon dates

• Equity in the acquiring company

• Earn-out, based on future performance, normally in cash compensation

• Changes in compensation, particularly above-market salaries or equity partnership with acquirer

DUE DILIGENCE CONSIDERATIONSCompanies considering M&A must be prepared for buyer due diligence. They should pay close attention to historical and projected financial and operational performance re-porting, including revenue forecasting, gross margin analy-sis, utilization, collections, opportunity pipeline, contract-ing, human capital management, and accounting audit results. A few of the accounting due diligence observations outlined by McGladrey for IT services companies include:

• Revenue recognition, especially when target has multiple large or lengthy projects that include per-formance payments, deferred revenue and cus-tomer deposits. Also, bundled service packages that include multiple element arrangements, such as software re-sales.

• Partner and owner compensation, including all types of compensation, such as salary, bonus, divi-dends and perquisites.

• W-2 versus 1099 employees and reporting.

• Employee utilization analysis and net realization by employee.

• Employee turnover and ability to hire and retain qualified professionals, including an analysis of severance practices, to establish “normal business” levels of severance payments if the company oper-ates a semi-variable staffing model.31

Middle Market • M&A Specialists

301 Carlson Parkway, Minnetonka MN 55305

(952) 893.9012 • [email protected]

www.cherrytree.com

31 McGladreySpotlightonBusinessProductsandServices,Q32015



Exhibit 6: IT Services Performance Index— Selected Public Companies


Number of Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Rev. GrowthCompany Name Companies Cap Value Revenue Gross Profit EBITDA Margin Margin Rev. Gross Profit EBITDA 1-Year 3-Year

STAFFING 12 $651.4 $718.2 $1,748.3 $509.9 $65.8 18.7% 4.2% 0.4x 2.0x 10.3x 1.5% 1.4%

SYSTEMS INTEGRATION 8 $1,438.6 $1,435.4 $1,238.9 $321.3 $139.3 27.0% 10.9% 1.1x 4.3x 10.3x 6.8% 8.1%

CONSULTING 9 $588.7 $929.5 $802.7 $267.7 $105.2 38.6% 11.7% 1.3x 3.5x 10.6x 3.5% 3.5%

OUTSOURCING 17 $5,087.9 $5,465.2 $3,274.3 $948.9 $388.6 33.7% 18.1% 2.6x 7.9x 13.3x 14.3% 10.4%

SECURITY 5 $137.9 $111.8 $160.2 $48.0 $14.3 30.0% 10.0% 1.1x 4.6x 11.1x 20.8% 11.2%

ALL COMPANIES 51 $1,371.0 $1,342.3 $1,066.7 $308.7 $123.4 31.3% 10.9% 1.3x 4.0x 10.9x 8.2% 7.2%

SUMMARY


Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Rev. GrowthCompany Name TICKER Cap Value Revenue Gross Profit EBITDA Margin Margin Rev. Gross Profit EBITDA 1-Year 3-Year

ManpowerGroup Inc. NYSE:MAN $6,288.9 $6,253.2 $19,497.1 $3,313.5 $784.5 17.0% 4.0% 0.3x 1.9x 8.0x -6.7% -2.4%

Mastech Holdings, Inc. AMEX:MHH $32.7 $46.1 $113.5 $20.7 $4.8 18.2% 4.2% 0.4x 2.2x 9.6x 0.4% 7.3%

CDI Corp. NYSE:CDI $168.4 $132.3 $1,066.7 $196.4 $24.8 18.4% 2.3% 0.1x 0.7x 5.3x -4.4% -0.9%

Adecco S.A. SWX:ADEN $12,731.2 $14,277.9 $23,416.3 $4,392.1 $1,226.4 18.8% 5.2% 0.6x 3.3x 11.6x 6.9% 0.5%

Kelly Services, Inc. Nasdaq GS:KELY.A $534.3 $575.5 $5,527.0 $900.6 $65.4 16.3% 1.2% 0.1x 0.6x 8.8x 1.0% 0.0%

Volt Inform. Sciences AMEX:VISI $189.3 $308.3 $1,562.6 $239.8 $9.0 15.3% 0.6% 0.2x 1.3x 34.4x -10.9% -10.0%

Randstad Holding NV ENXTAM:RAND $10,852.0 $11,494.2 $20,338.8 $3,780.2 $860.7 18.6% 4.2% 0.6x 3.0x 13.4x 8.2% 2.3%

Computer Task Group NASDAQ:CTG $116.7 $85.3 $387.2 $73.7 $14.8 19.0% 3.8% 0.2x 1.2x 5.8x -3.6% -2.1%

RCM Technologies Inc. NASDAQ:RCMT $62.7 $80.1 $188.9 $51.9 $10.4 27.5% 5.5% 0.4x 1.5x 7.7x 2.0% 9.8%

Kforce Inc. NASDAQ:KFRC $768.4 $860.9 $1,282.5 $397.4 $66.2 31.0% 5.2% 0.7x 2.2x 13.0x 11.8% 6.5%

On Assignment Inc. NYSE:ASGN $1,942.4 $2,730.6 $1,934.0 $622.3 $194.3 32.2% 10.0% 1.4x 4.4x 14.1x 14.9% 37.3%

Robert Half International NYSE:RHI $6,881.0 $6,569.1 $4,923.4 $2,030.6 $600.3 41.2% 12.2% 1.3x 3.2x 10.9x 11.7% 7.2%

25th Percentile $155.5 $120.5 $896.8 $165.7 $13.7 17.9% 3.4% 0.2x 1.3x 7.9x -3.8% -1.2%

Median $651.4 $718.2 $1,748.3 $509.9 $65.8 18.7% 4.2% 0.4x 2.0x 10.3x 1.5% 1.4%

Mean $3,380.7 $3,617.8 $6,686.5 $1,334.9 $321.8 22.8% 4.9% 0.5x 2.1x 11.9x 2.6% 4.6%

75th Percentile $6,436.9 $6,332.2 $9,019.5 $2,351.3 $646.3 28.3% 5.3% 0.6x 3.1x 13.1x 9.1% 7.2%

STAFFING


Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Rev. GrowthCompany Name TICKER Cap Value Revenue Gross Profit EBITDA Margin Margin Rev. Gross Profit EBITDA 1-Year 3-Year

Sopra Steria Group ENXTPA:SOP $2,187.9 $2,917.3 $3,704.9 $427.6 $315.5 11.5% 8.5% 0.8x 6.8x 9.2x 135.8% 44.2%

Reply S.p.A. BIT:REY $1,024.4 $1,000.6 $763.2 $124.0 $100.3 16.2% 13.1% 1.3x 8.1x 10.0x 11.9% 13.0%

Cap Gemini S.A. ENXTPA:CAP $15,312.7 $13,794.9 $12,338.6 $3,093.3 $1,344.5 25.1% 10.9% 1.1x 4.5x 10.3x 9.0% 3.2%

Ciber, Inc. NYSE:CBR $251.6 $265.2 $830.9 $215.0 $25.9 25.9% 3.1% 0.3x 1.2x 10.3x -4.5% -1.8%

Tieto Oyj HLSE:TIE1V $1,852.9 $1,870.3 $1,646.9 $461.8 $178.3 28.0% 10.8% 1.1x 4.0x 10.5x -4.0% -6.8%

CGI Group, Inc. TSX:GIB.A $11,110.7 $12,481.5 $8,163.3 $2,554.2 $1,404.3 31.3% 17.2% 1.5x 4.9x 8.9x -2.8% 34.7%

Perficient Inc. NASDAQ:PRFT $544.5 $597.7 $445.5 $151.0 $55.0 33.9% 12.4% 1.3x 4.0x 10.9x 13.9% 16.6%

Edgewater Technology NASDAQ:EDGW $86.1 $65.9 $105.8 $38.4 $5.0 36.3% 4.7% 0.6x 1.7x 13.2x 4.5% 3.3%

25th Percentile $471.3 $514.6 $683.8 $144.2 $47.8 22.9% 7.6% 0.7x 3.4x 9.8x -3.1% 1.9%

Median $1,438.6 $1,435.4 $1,238.9 $321.3 $139.3 27.0% 10.9% 1.1x 4.3x 10.3x 6.8% 8.1%

Mean $4,046.4 $4,124.2 $3,499.9 $883.2 $428.6 26.0% 10.1% 1.0x 4.4x 10.4x 20.5% 13.3%

75th Percentile $4,418.6 $5,308.3 $4,819.5 $984.9 $572.8 31.9% 12.6% 1.3x 5.4x 10.6x 12.4% 21.1%

SYSTEMS INTEGRATION




Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Rev. GrowthCompany Name Ticker Cap Value Revenue Gross Profit EBITDA Margin Margin Rev. Gross Profit EBITDA 1-Year 3-Year

Unisys Corporation NYSE:UIS $594.2 $500.5 $3,274.3 $734.3 $181.8 22.4% 5.6% 0.2x 0.7x 2.8x -2.4% -5.3%

Computer Sciences Corp. NYSE:CSC $8,490.8 $8,933.8 $11,697.0 $2,501.0 $1,015.0 21.4% 8.7% 0.8x 3.6x 8.8x -9.9% -7.9%

Atos SE ENXTPA:ATO $7,887.7 $7,737.7 $10,934.1 $1,338.0 $1,258.4 12.2% 11.5% 0.7x 5.8x 6.1x 15.5% 4.1%

Virtusa Corporation NASDAQ:VRTU $1,522.9 $1,342.3 $501.6 $182.4 $66.2 36.4% 13.2% 2.7x 7.4x 20.3x 19.8% 19.6%

EPAM Systems, Inc. NYSE:EPAM $3,707.8 $3,502.1 $812.8 $308.7 $123.4 38.0% 15.2% 4.3x 11.3x 28.4x 28.4% 28.9%

Genpact Limited NYSE:G $5,087.9 $5,465.2 $2,386.3 $948.9 $388.6 39.8% 16.3% 2.3x 5.8x 14.1x 9.3% 10.4%

Accenture plc NYSE:ACN $61,579.7 $57,757.7 $31,047.9 $9,809.2 $5,146.2 31.6% 16.6% 1.9x 5.9x 11.2x 3.5% 3.7%

Tech Mahindra Limited NSEI:TECHM $8,179.3 $7,808.5 $3,738.5 $1,106.4 $645.4 29.6% 17.3% 2.1x 7.1x 12.1x 19.9% 60.6%

Hexaware Tech. Ltd. NSEI:HEXAWARE $1,138.2 $1,080.4 $450.6 $121.0 $81.4 26.9% 18.1% 2.4x 8.9x 13.3x 17.5% 18.2%

Luxoft Holding, Inc. NYSE:LXFT $2,081.8 $2,022.6 $556.3 $240.0 $101.8 43.1% 18.3% 3.6x 8.4x 19.9x 30.3% 0.0%

MindTree Limited BSE:532819 $1,935.6 $1,807.4 $604.5 $200.9 $113.2 33.2% 18.7% 3.0x 9.0x 16.0x 19.0% 21.7%

Cognizant Tech. Sol. NASDAQ:CTSH $38,162.6 $35,658.6 $11,319.8 $4,538.6 $2,254.8 40.1% 19.9% 3.2x 7.9x 15.8x 17.9% 18.7%

Wipro Ltd. BSE:507685 $22,356.7 $19,401.6 $7,454.9 $2,329.7 $1,638.9 31.3% 22.0% 2.6x 8.3x 11.8x 6.9% 14.4%

Tata Consultancy Srvcs NSEI:TCS $77,305.2 $73,969.8 $15,492.3 $5,215.2 $4,018.8 33.7% 25.9% 4.8x 14.2x 18.4x 14.3% 21.3%

Syntel, Inc. NASDAQ:SYNT $3,797.0 $3,001.8 $949.4 $375.0 $283.0 39.5% 29.8% 3.2x 8.0x 10.6x 5.6% 10.2%

Infosys Limited NSEI:INFY $40,499.7 $36,096.2 $9,024.0 $3,351.0 $2,536.0 37.1% 28.1% 4.0x 10.8x 14.2x 5.8% 8.2%

Rolta India Limited BSE:500366 $250.8 $944.7 $594.2 $255.7 $184.5 43.0% 31.1% 1.6x 3.7x 5.1x 5.1% 0.0%

25th Percentile $1,935.6 $1,807.4 $604.5 $255.7 $123.4 29.6% 15.2% 1.9x 5.8x 10.6x 5.6% 3.7%

Median $5,087.9 $5,465.2 $3,274.3 $948.9 $388.6 33.7% 18.1% 2.6x 7.9x 13.3x 14.3% 10.4%

Mean $16,739.9 $15,707.7 $6,519.9 $1,973.9 $1,178.7 32.9% 18.6% 2.5x 7.4x 13.5x 12.1% 13.3%

75th Percentile $22,356.7 $19,401.6 $10,934.1 $2,501.0 $1,638.9 39.5% 22.0% 3.2x 8.9x 16.0x 19.0% 19.6%

OUTSOURCING


Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Rev. GrowthCompany Name Ticker Cap Value Revenue Gross Profit EBITDA Margin Margin Rev. Gross Profit EBITDA 1-Year 3-Year

Forrester Resrch Inc. NASDAQ:FORR $563.4 $452.6 $314.0 $187.6 $33.9 59.7% 10.8% 1.4x 2.4x 13.3x 3.5% 2.2%

FTI Consulting, Inc. NYSE:FCN $1,736.8 $2,207.8 $1,757.8 $612.4 $208.1 34.8% 11.8% 1.3x 3.6x 10.6x 2.8% 3.3%

Gartner Inc. NYSE:IT $6,969.7 $7,327.2 $2,074.0 $1,261.9 $332.3 60.8% 16.0% 3.5x 5.8x 22.1x 9.3% 10.4%

Huron Consult. Grp. NASDAQ:HURN $1,371.0 $1,822.4 $802.7 $299.9 $136.9 37.4% 17.1% 2.3x 6.1x 13.3x -0.4% 10.2%

ICF International Inc. NASDAQ:ICFI $588.7 $941.2 $1,103.7 $426.3 $105.2 38.6% 9.5% 0.9x 2.2x 9.0x 12.3% 7.0%

Information Srvs Grp. NASDAQ:III $145.9 $185.6 $210.4 $84.6 $18.8 40.2% 8.9% 0.9x 2.2x 9.9x 1.2% 3.4%

Navigant Consulting NYSE:NCI $762.0 $929.5 $817.2 $267.7 $125.4 32.8% 15.3% 1.1x 3.5x 7.4x 12.6% 4.8%

Resources Connection NASDAQ:RECN $559.7 $447.5 $595.5 $229.6 $57.0 38.6% 9.6% 0.8x 1.9x 7.8x 2.9% 1.4%

The Hackett Group, Inc. NASDAQ:HCKT $409.2 $411.2 $223.4 $84.2 $26.2 37.7% 11.7% 1.8x 4.9x 15.7x 9.7% 3.5%

25th Percentile $559.7 $447.5 $314.0 $187.6 $33.9 37.4% 9.6% 0.9x 2.2x 9.0x 2.8% 3.3%

Median $588.7 $929.5 $802.7 $267.7 $105.2 38.6% 11.7% 1.3x 3.5x 10.6x 3.5% 3.5%

Mean $1,456.3 $1,636.1 $877.6 $383.8 $116.0 42.3% 12.3% 1.6x 3.6x 12.1x 6.0% 5.1%

75th Percentile $1,371.0 $1,822.4 $1,103.7 $426.3 $136.9 40.2% 15.3% 1.8x 4.9x 13.3x 9.7% 7.0%

CONSULTING


Market Enterprise LTM LTM LTM Gross EBITDA LTM LTM LTM Rev. GrowthCompany Name Ticker Cap Value Rev Gross Profit EBITDA Margin Margin Rev. Gross Profit EBITDA 1-Year 3-Year

Comp S.A. WSE:CMP $71.4 $106.4 $160.2 $48.0 $14.3 30.0% 8.9% 0.7x 2.2x 7.4x 12.0% 11.2%

LAC Co., Ltd. JASDAQ:3857 $300.7 $282.5 $273.6 $59.6 $27.4 21.8% 10.0% 1.0x 4.7x 10.3x 0.4% 2.1%

NCC Group plc LSE:NCC $950.9 $1,027.7 $204.2 $62.4 $42.8 30.6% 21.0% 5.0x 16.5x 24.0x 20.8% 15.1%

Nixu Oyj HLSE:NIXU $29.9 $24.6 $17.6 $16.3 $1.6 92.6% 8.9% 1.4x 1.5x 15.6x 21.1% 2.7%

Secunet Security Ntwrks XTRA:YSN $137.9 $111.8 $98.8 $24.3 $10.1 24.6% 10.2% 1.1x 4.6x 11.1x 35.7% 14.4%


Median $137.9 $111.8 $160.2 $48.0 $14.3 30.0% 10.0% 1.1x 4.6x 11.1x 20.8% 11.2%

Mean $298.2 $310.6 $150.9 $42.1 $19.2 39.9% 11.8% 1.9x 5.9x 13.7x 18.0% 9.1%


SECURITY



Exhibit 7: Selected IT Services M&A Activity

($ in millions)

Date Enterprise Enterprise Value / Target Statistics Announced Target Acquirer Value Revenue EBITDA Revenue EBITDA EBITDA %

10/06/15 EdgeRock Technology CDI $35.3 0.8x $44.0

10/05/15 Access Data Consulting General Employment Enterprises $15.0 0.7x 6.0x $21.0 $2.5 11.9%

09/29/15 Vision Technology Services BG Staffing $20.8 5.3x $3.9

05/11/15 Creative Circle On Assignment $600.0 2.7x $226.0

04/28/15 Atterro Recruit Holdings $37.5 0.1x 3.8x $256.0 $10.0 3.9%

12/04/14 Veredus Hays $55.0 8.3x $6.6

08/28/13 Analysts International American CyberSystems $41.0 0.4x $102.3 $1.1 1.1%

03/20/12 Apex Systems On Assignment $686.5 1.0x 14.3x $705.2 $47.9 6.8%

Median $39.3 0.8x 6.0x $164.1 $5.3 5.3%

STAFFING SEGMENT M&A

($ in millions)


08/07/15 Syzygy WPP $100.3 1.8x 18.2x $57.0 $5.5 9.7%

06/17/15 Descom Solteq $26.0 0.7x 8.9x $39.6 $2.9

03/16/15 Solstice Consulting St Ives $74.1 3.0x $24.5 $4.0 16.4%

11/03/14 Sapient Publicis $3,376.4 2.4x 19.2x $1,383.1 $176.1 12.7%

09/02/14 Nurun Publicis $114.4 0.9x $127.2

02/11/14 Forwardthink Group Perficient $46.0 1.5x $30.0

05/17/13 Acquity Group Accenture $284.9 2.0x 13.9x $140.3 $20.5 14.6%

09/20/12 Lbi International Publicis $533.6 1.9x 12.6x $286.6 $42.2 14.7%

04/20/12 Ideas International Gartner $13.7 1.5x 6.0x $9.1 $2.3 25.4%

01/26/12 Pixelpark Publicis $56.2 1.3x $44.3 ($0.3) -0.6%

Median $87.2 1.6x 13.3x $50.7 $4.8 14.6%

CONSULTING SEGMENT M&A

($ in millions)


08/27/15 Galmont Consulting SQS Software $21.8 1.3x $17.1

07/16/15 eBay Enterprise Sterling Partners, Permira $925.0 0.7x $1,240.0

05/21/15 Phoenix IT Group Daisy Group $285.4 0.9x 7.0x $332.8 $40.7 12.2%

04/27/15 iGATE Capgemini $4,453.6 3.5x 17.9x $1,288.1 $248.8 19.3%

01/22/15 Symphony Teleca Harman $780.0 2.1x 13.0x $370.0 $60.0 16.2%

12/18/14 Xerox, IT Outsourcing Business Atos $1,100.0 0.7x $1,500.0

05/26/14 Bull Atos $599.1 0.4x 6.9x $1,708.0 $87.4 5.1%

11/18/13 InTechnology Managed Services Redcentric $104.7 1.7x 8.3x $62.1 $12.6 20.3%

06/10/13 Trustmarque Solutions Dunedin $66.9 0.3x $206.4

04/08/13 CompuCom Thomas H. Lee Partners $1,100.0 0.5x $2,300.0

02/14/13 Northgate Managed Services Capita $100.8 0.5x $219.6

09/17/12 Maxima Holdings Redstone $18.9 0.4x 6.1x $43.4 $3.1 7.2%

07/31/12 CIBER, IT Outsourcing Business Savvis $19.0 0.3x $60.0

Median $285.4 0.7x 7.7x $332.8 $50.4 14.2%

OUTSOURCING SEGMENT M&A



($ in millions)


10/05/15 UXC Computer Sciences Corporation $300.1 0.6x 11.4x $487.1 $26.3 5.4%

09/23/15 Infovide-Matrix Asseco Poland $36.0 0.6x $59.0 ($1.2) -2.1%

09/18/15 Market Street Solutions Perficient $5.3 0.5x $10.0

07/29/15 Advanced Tech Inte Group Logicalis $42.0 0.3x $133.0

06/08/15 SystemsUp iomart Group $19.1 3.1x $6.1

06/01/15 ProSoft Technology Kellton Tech Solutions $14.0 0.4x $40.0

04/30/15 Trissential The SQS Group $30.9 1.0x $32.3

01/09/15 Sofgen Tech Mahindra $30.0 0.7x $45.0

12/18/14 Zeon Solutions Perficient $38.5 1.7x $23.0

12/08/14 Evry Apax Partners $1,023.3 0.6x 6.8x $1,827.3 $150.7 8.2%

11/28/14 Crimsonwing KPMG $32.6 1.2x 16.1x $26.5 $2.0 7.6%

08/12/14 Oakton Dimension Data $156.3 1.0x 13.2x $150.0 $11.9 7.9%

06/11/14 Cambridge Technology Prtnrs Atos $27.1 0.6x $47.4

05/08/14 Trifecta Technologies Perficient $13.7 1.7x $8.0

04/08/14 Steria Sopra $938.4 0.4x 6.6x $2,191.8 $142.9 6.5%

04/01/14 BioPharm Perficient $17.6 1.2x $15.0

03/28/14 Groupe Telindus France Vivendi $130.6 0.4x 8.6x $331.4 $15.1 4.6%

11/13/13 Catapult Systems CSI Innovations $41.0 0.7x $62.3

10/14/13 CoreMatrix Systems Perficient $31.5 2.1x $15.0

10/08/13 MSN Communications TDS $40.0 0.4x $99.0

05/17/13 Clear Task Perficient $11.6 1.5x $8.0

05/02/13 TriTek Solutions Perficient $18.5 1.0x $19.0

04/08/13 Alti SA Tata Consultancy Services $84.7 0.5x $166.1

09/10/12 Lodestone Infosys $349.9 1.5x $232.8

07/02/12 Northridge Systems Perficient $14.4 1.2x $12.0

06/11/12 Vital Support Systems TDS $45.0 0.6x $76.0

06/01/12 Nascent Systems Perficient $16.5 1.0x $17.0

05/31/12 Logica CGI $3,379.0 0.6x 18.7x $5,930.0 $180.6 3.0%

03/30/12 Computer Software Innovations Harris Computer Systems $17.9 0.3x $58.5 $0.2 0.3%

02/09/12 Pointbridge Solutions Perficient $22.0 1.3x $17.0

Median $32.1 0.7x 11.4x $46.2 $15.1 5.4%

SYSTEMS INTEGRATION SEGMENT M&A

($ in millions)


06/02/15 nSense F-Secure $20.0 2.6x $7.8

03/24/15 Accumuli NCC Group $72.6 2.5x 17.7x $28.6 $4.1 14.3%

08/20/12 Intrepidus Group NCC Group $11.0 3.3x $3.3

08/02/12 Matasano Security NCC Group $13.0 2.6x $5.0

Median $16.5 2.6x 17.7x $6.4 $4.1 14.3%

SECURITY SEGMENT M&A

© Cherry Tree & Associates | November 2015

ABOUT CHERRY TREE

History and Background

Cherry Tree is a private investment banking and wealth management firm headquartered in Minneapolis, Minnesota. Our firm special-

izes in serving middle market companies and their owners, whether private, public, or divisions of larger corporations. Founded in 1980,

Cherry Tree managed several successful institutional private funds focusing on platform acquisitions. Those funds led to over 300 financ-

ings, 26 public offerings, and 41 company divestitures. In 1996, the firm diversified into investment banking services to take advantage of

our long history and position in the market. Then, in 2003 we added wealth management to our operations by acquiring and then grow-

ing an existing business. Our professionals have collectively been members on over 80 boards of directors, worked with over 250 different

companies, and advised on hundreds of financings and M&A transactions.

Broad Market Expertise

Cherry Tree has been working with middle market companies for over 35 years. Our core M&A activity is in Sell-Side engagements with

middle market companies where ownership wants to achieve some liquidity goals or desires to recapitalize their business to better position

their company for future growth. Additionally, we represent Buy-Side clients attempting to add acquisition strategies to complement

their organic growth efforts. Finally, we are experts in the capital markets, having previously managed four private funds in the 1980s

and 1990s. Our firm has been primarily focused on investment banking transactions since 1996 and has an exceptional team of dedicated

investment banking professionals. Most of our Managing Directors have had C-level operating experience in their backgrounds as CEOs or CFOs, and collectively represent more than 200 years of transaction and operating experience.

Research

We distinguish our firm by conducting comprehensive research and publishing our findings in reports that provide an in-depth analysis

on selected industries and overall market conditions. For each client assignment, we apply our internal research capabilities to become

knowledgeable in the client’s industry as the foundation to providing the highest value to our clients. Some of our industry research is sponsored by our clients that have an interest in specific industry segments.

Contacting Cherry Tree

For more information, please contact one of our professionals listed below, or visit our website at www.cherrytree.com.

Elmer Baldwin, IT services lead David Latzke Mik Gusenius

Managing Director Managing Director Director

[email protected] [email protected] [email protected]

952.253.6001 952.253.6032 952.253.6005

ImportantDisclosures

Theinformationincludedinthispublicationhasbeenobtainedfrompublicsources,andisnotbaseduponprivateorconfidentialCherryTreeinformation.CherryTreegathersitsdatafromsourcesitconsidersreliable.However,itdoesnotguaranteetheaccuracyorcompletenessoftheinformationprovidedwithinthispublication.Anyopinionspresentedreflectthecurrentjudgmentoftheauthorsandaresubjecttochange.CherryTreemakesnowarranties,expressedorimplied,regardingtheaccuracyofthisinformationoranyopinionsexpressedbytheauthors.Officers,directors,partnersofCherryTreeandCherryTreeproprietaryinvestmentfundsmayhavepositionsinthesecuritiesofthecompaniesdiscussed,andcertainaffiliatesofCherryTreemayrecommendtospecificclientsthepurchaseandsaleofsecuritiesdiscussedinthepublication.Thispublicationdoesnotconsti-tutearecommendationwithrespecttothesecuritiesofanycompanydiscussedherein,anditshouldnotbeconstruedassuch.CherryTreeoritsaffiliatesmayfromtimetotimeprovideinvestmentbankingorrelatedservicestothesecompanies.LikeallCherryTreeemployees,theauthorsofthispublicationreceivecompensationthatisaffectedbyoverallfirmprofitability.Weundertakenoobligationtoupdateanyinformationinthispublication.

TheITServicesPerformanceIndexisahypotheticalindex,anddoesnotreflectanactualinvestmentportfolio.ComparisonsbetweentheITServicesIndexandotherindicesareforillustrativepurposesonly.CorrelationsinperformanceinformationfortheITServicesPerformanceIndexandotherindicesshouldnotberelieduponasindicativeofrisksinvolvedinowningorholdingaportfolioofsecuritiessimilartotheITPerformanceServicesIndex.Pastperformanceshouldnotberelieduponasindicativeoffutureperformance.

q3 2015 information technology services tree it services q32015.pdf · the overall big data and...

Documents