Q4 INDUSTRY UPDATE
In our 2016 outlook published at this time last year, we forecasted the Business Services industry to grow modestly in 2016, with the IT Services segment expected to be a strong force in the middle market, as entire industries transition to cloud computing and focus on digitizing their businesses. We expected Specialty Consulting to remain strong as well, with companies looking to improve operations and reduce inefficiencies.
Now that 2016 is complete, we can conclude that IT Services did in fact have a strong year, with our public basket posting a 10.3% average stock price increase, buoyed by a 9.6% Q4 increase (see chart on page 9). Top performers included ManTech International Corporation (39.72% increase) and Unisys Corporation (35.29% increase). The segment also produced 135 transactions, which was fourth among all Business Services segments.
As for Specialty Consulting, 2016 generated a 19.6% increase in our public basket, with a 10.5% Q4 increase driving strong growth for this segment as well (see chart on page 9). Navigant Consulting’s stock rose 63.01% in 2016, and ICF International spiked 55.23%. The Specialty Consulting segment finished third for Business Services segments in terms of transaction volume, with 224 deals announced in 2016. This segment has seen considerable consolidation over the past several years.
KEY Q4 TRANSACTIONS
December saw the announcement of a major IT outsourcing transaction, with the technology research and advisory firm Information Services Group’s (ISG) acquisition of Alsbridge. The move will form a 1,300-person firm with revenues targeted at $285-$300 million in 2017. ISG now will serve more than 700 clients and is expecting to gain $7 million in efficiencies over the first 18 months following the acquisition.
Another significant Q4 deal was Optiv Security being acquired by KKR. Optiv, which previously announced plans for an IPO, shifted gears when it received an offer from the prestigious PE group. Optiv is a leader in cyber security services segment, which was one of the hottest areas for M&A and investment in 2016 and is expected to continue to be hot in 2017.
Finally, Everyday Health, Inc., a provider of digital health marketing and communications solutions, entered into a merger agreement with Ziff Davis, LLC, a digital media company focused on the tech, gaming and lifestyle industries. Marketing service companies including digital advertising and media are expected to see substantial growth in the coming years.
DIGITAL ADVERTISING AGENCIES ARE POISED FOR 2017 GROWTH
With the large amount of digital opportunities available to companies through the internet, mobile and other mediums, marketing service companies and digital advertising agencies are looking to help clients differentiate their messaging to their users. By combining those digital opportunities with the enormous availability of data from users including detailed demographic data and location data, companies now are drowning in this ever-changing environment to reach their customers. Mobile has been, and is expected to be, the key frontier to understand…
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