clearwater the wire 2016 v3 - clearwater...

wirethe

LEARNING REVOLUTIONHow technology is transforming the global education market

Clearwater International’s TMT sector commentary 2016

Cloudex 20:20Awards celebration

Market turns2015 review

Into the futureTMT trends of 2016

Celtic tigerTech drives Ireland’s revival

M&A Review 2015

the wire | 2016

2welcome Changing landscape

The rise of the ‘unicorns’, start-ups valued at more than $1bn (¤900m), was the TMT story of 2015. But could they now be setting a different tone for the wider M&A market - one focused less on mega-deals and more on internal innovation and smaller, strategic buys in the mid-market?

With the average size of a TMT transaction falling slightly, there is some evidence this could already be the case and, if so, Private Equity will certainly be waiting in the wings to take full advantage.

As our review of M&A activity in 2015 shows, PE continues to show huge appetite for TMT assets - although trade buyers remain particularly active in the social, mobile, analytics and cloud (SMAC) category as larger groups look to keep pace with their start-up counterparts.

A perfect example is the online education sector which is being rapidly transformed by technological change. We have recently advised on two deals in this sector: the sale of Danish digital education publisher Clio Online to Bonnier, and the sale of British education fi nance specialist HCSS to Access Group.

You can read interviews with both companies - as well as with Irish entrepreneur Barry O’Callaghan, talking about his Rise Global business - in our special feature on technology in education.

Talking of Ireland, in this issue we also take a look at its thriving tech market and how it is helping to rebuild the Irish economy on fi rmer foundations after the global crash.

We also offer our own predictions on the key TMT trends of 2016, ranging from the growth of the cyber security and fi nancial technology markets through to the ever-increasing signifi cance of the Internet of Things as large industrial groups reposition their business models.

Carl HoughtonHead of TMT

The latest issue of the wire, our annual commentary on the TMT sector, looks at the deals that shaped 2015, Ireland’s tech revolution and technology in education.

the wire is published by Clearwater InternationalEditors: Jim Pendrill & Sarah Fernandez Design: www.creative-bridge.com Subscription: [email protected] part of this publication may be reproduced or used in any form without prior permission of Clearwater International.

“Trade buyers remain particularly active in the social, mobile, analytics and cloud (SMAC) category as larger groups look to keep pace with their start-up counterparts.”

the wire | 2016

3contents

2welcome

Contents4

analysis

f

7Ireland

12trends

8feature

14cloudex

f

Meet the teamCarl HoughtonInternational Head of TMT, UK+44 845 052 [email protected]

Per SurlandPartner, Denmark+45 51 90 40 [email protected]

John SheridanPartner, Ireland+353 1 517 [email protected]

José LemosPartner, Portugal+351 917 529 [email protected]

Dominic BoltonSenior Advisor, UK+44 845 034 [email protected]

Emma RodgersDirector, UK+44 845 052 [email protected]

Miguel Ángel LorenzoDirector, Spain+34 659 094 [email protected]

Casper Norre ChristensenAssociate, Denmark+45 22 95 33 [email protected]

Sam BeardAssociate – Deal Origination, UK+44 845 052 [email protected]

15deals

f

f

f

4analysis Market turns

2015 was a tale of ups and downs in the world of TMT.

On the one hand, 2015 was notable for the fact that the spike in deal volumes that we have seen since the market returned to form in 2012 came to an abrupt end as the number of global transactions fell around 8% overall. On the other hand, last year saw acres of coverage devoted to the staggering

proliferation of unicorns - start-ups valued at over $1bn (¤900m).

Despite some notable tales of woe - such as Good Technology’s lowly $425m (¤350m) sale to Blackberry - these mythical creatures continue to thrive, defying critics’ ever-

increasing shouts of a bubble. And as they thrive, they perhaps set a different tone for M&A in the market - one which focuses less on the mega-deals which have defi ned the industry in recent years and more on internal innovation and smaller, strategic buys.

the wire | 2016

Acquirer Country Target Country Sub-Sector Deal Value ¤bn

Charter Communications US Time Warner Cable US Telecoms 70.1

BT Group UK EE UK Telecoms 17.2

Hutchison 3G Holdings Hong Kong Telefonica Europe UK Telecoms 14.1

Altice Netherlands Cablevision Systems US Telecoms 11.4

Nokia Finland Alcatel-Lucent France Telecoms 10.5

Charter Communications US Bright House Networks US Telecoms 9.7

Frontier Communications US Verizon Inc’s Wireline Operations US Telecoms 9.6

Fidelity National Info Services US Sungard Data Systems US Software 8.3

Intercontinental Exchange US Interactive Data Holdings US Media 7.1

Hedy Holding China Focus Multimedia Tech (Shanghai) China Media 6.4

Top 10 deals in the TMT market, 2015

5analysis

the wire | 2016

Market data

The average size of a TMT transaction with a disclosed value rose steadily from a recession-hit low of ¤44.3m in 2010 to a heady ¤145.4m in 2013. But it has since begun to fall again, settling at ¤87.9m in 2015, suggesting a renewed focus on mid-market acquisitions.

A review of the largest deals of the year also tells an interesting story. The top seven transactions in TMT in 2015 were in the telecoms market, an industry which stands apart from the rest of the sector as being characterised by larger acquisitions last year. These included BT’s ¤17.2bn acquisition of EE in the UK, and Charter Communication’s ¤70.1bn merger with Time Warner Cable in the US.

The largest non-telecoms deal was FIS Global’s ¤8.3bn acquisition of Sungard. Interestingly, the likes of software giants Oracle and SAP - which have consistently featured in recent years - are nowhere to be seen despite consistent rumours of their interest in Salesforce.com.

IPO story

The data on the IPO market also relates to the rise of the unicorns. 2015 saw the number of IPOs globally fall by around 40%, with Renaissance Capital reporting that US volumes were down by 39% and money raised was down 65% - representing the lowest levels since 2009.

Unlike in previous years, where we have seen a big debut from the likes of Facebook, Twitter or Alibaba, 2015 was the year without a major listing. Instead of heading to the public markets, big names such as Airbnb, Uber and Snapchat raised vast sums of money from investors, and in so doing have generated spectacular paydays for their founders without the hassle of trading as a public company.

Meanwhile, the list of the largest TMT deals in 2015 continued to be dominated by targets from North America and Western Europe. However, the number of transactions involving a target from the AsiaPacifi c region rose by around 6% between 2014 and 2015, whilst targets from the Rest of the World – including Africa, the Middle East and South America – remained stable at around 5% of the total market.

2015 was also the year in which innovative start-ups in TMT hubs such as Israel grabbed the attention of suitors worldwide in their pursuit of the next big thing.

Year Average Deal Size ¤m

2015 87.9

2014 102.9

2013 145.4

2012 64.7

2011 60.7

2010 44.3

2014 2015

Europe North America AsiaPac RoW

TMT market average deal values, 2010 - 2015

Deals by Target Location in TMT, 2014 - 2015

6analysis

the wire | 2016

Private Equity appetite

One theme that remained consistent between 2014 and 2015 was Private Equity’s huge appetite for TMT assets. While Silicon Valley-based investors were piling money into their latest unicorn or even a decacorn - a start-up valued at more than $10bn (¤9bn) - investors in the UK and Europe continued to see great potential in more mature industries such as Enterprise Resource Planning (ERP).

Over the last few years, we have seen a vast swathe of the mid-market ERP players - such as Exact and Unit4 - being taken into Private Equity hands and this theme continued into 2015. At the start of the year, US investor Accel-KKR made a rare foray into the UK market with its purchase

of Kerridge Commercial Systems (KCS) from NVM Private Equity, whilst the end of the year saw Industrial & Financial Systems (IFS) bought out by Swedish fund EQT, and Italy-based TeamSystem acquired by Hellman & Friedman.

In December, Clearwater International also completed the sale of HCSS, an education fi nance software specialist, to Access Group, a UK-based ERP consolidator backed by US investor TA Associates (see page 8). As with KCS and TeamSystem, the acquisition by TA represented a secondary buy-out for the group and this continuing appetite from Private Equity investors to back the mid-tier will drive further consolidation in the market as they look to expand geographically and sharpen their vertical focus.

TA’s acquisition of Access early in 2015 was also the fi rst real indicator of another trend in the TMT market: whilst smaller mid-market transactions tend to be executed by domestic investors in the UK and Europe, US investors made their presence felt in deals with a value of more than ¤150m - paying prices that made it diffi cult for domestic counterparts to compete.

Whilst ERP was a familiar - and so attractive – market, we also saw investments into machine-to-machine player Wireless Logic by CVC, managed communications services business Six Degrees by Charlesbank Capital Partners, and employee benefi t solutions business Reward Gateway by Great Hill.

Target Activities Private Equity Investor Deal Size ¤m

Access Group ERP solutions TA Associates 309.8

Wireless Logic Machine-to-Machine platform as a service CVC Capital Partners n/d

Kerridge Commercial Systems ERP solutions Accel-KKR n/d

Fourth SaaS solutions for the hospitality industry Insight Venture Partners 275.0

Six Degrees Holdings Managed communication services Charlesbank Capital 247.9

Reward Gateway Employee benefi ts solutions Great Hill Partners 192.8

Selected US Private Equity Acquirers in the UK TMT Market 2015

So, what are we expecting to see in 2016? CVC’s acquisition of Wireless Logic for a rumoured eye-wateringly high multiple is a good indicator. Machine-to-machine technology and the potentially vast landscape of the Internet of Things (IoT) continues to dominate analysts’ column inches and should translate to more meaningful M&A in the year to come.

Perhaps most interestingly, we should expect to see new acquirers in TMT emerge as industrial groups redefi ne themselves in the Industry 4.0 category. Transactions such as Honeywell’s ¤4.7bn acquisition of Elster, a metering technology specialist, signal intentions to blur the traditional boundaries between the worlds of industrial manufacturing and technology and may drive some of the larger deals in the sector.

Activity will also continue to be driven by the broad social, mobile, analytics and cloud (SMAC) category as larger groups look to keep pace with their start-up counterparts.

And what of those unicorns? Many believe their values are artifi cially infl ated and need to be redressed but one thing is for sure - having shaken up the market in 2015, they look likely to set the tone again in 2016.

Future prospects

7Ireland

the wire | 2016

Strong rootsA booming TMT sector has helped turn Ireland into one of the world’s fastest-growing economies again, says Clearwater International partner John Sheridan.

The roll call could hardly be more impressive. Apple, Facebook, Google, Twitter, LinkedIn, Dropbox – just some of the big TMT names that have invested in Ireland over the past decade.

2015 saw a number of companies added to this growing list. Huawei, the Chinese technology group, bought a Dublin-based telecoms network management business from Amartus; Zalando, the online fashion company, opened a new tech centre in the capital; and Infosys, one of India’s biggest IT service providers, announced plans to establish a product research and development centre in Dublin.

All are drawn to Ireland’s well-known low corporate tax rate of 12.5% - but that only tells part of the story. Just as signifi cant is access to one of the strongest global tech talent pools in the sector.

Success breeds success too. On the back of the investments from Silicon Valley, Ireland has also become a magnet for smaller tech and social media fi rms as the tech cluster proves a fertile ground for home-grown start-ups.

The investment by Infosys only enhanced Ireland’s reputation. Its R&D centre will focus on FinTech research and development, and the facility will work

with customers, technology partners, universities and the start-up community in various areas of technology.

Huawei’s acquisition could blaze a trail for other Chinese fi rms to show interest in Ireland. Network equipment providers such as Huawei are moving their businesses into higher margin software and services, and the deal enables Huawei to accelerate its own work in cloud-based network management.

Cyber security

Another area where we are seeing growing interest from investors looking to tap into Ireland’s expertise is cyber security, arguably the biggest risk facing public and private sector organisations over the next decade.

Some of the leading worldwide security software companies now have major operations in Ireland including Tyco, Intel Security, FireEye, MasterCard and Trend Micro.

With the cyber security market estimated to grow signifi cantly, we expect to see continued investment in the sector - especially as North America and Europe are the leading cyber security revenue contributors globally.

Future prospects

With the Irish economy growing by 6% last year, and commentators equally bullish about 2016, short-term prospects for the economy look extremely positive. But is the boom sustainable?

To many people, the strength of the country’s TMT sector is precisely a sign of a far more viable Irish economy - one that isn’t built upon the risky foundations of housing.

Crucially, there is also far more balance in the fi nancial system which points towards more long-term stability. Financial structures are now perceived to be much more robust, while there are an impressive range of stable global equity funds looking to invest in the country in areas such as the TMT market. Arguably, the biggest risk for Ireland would be if it lost its 12.5% corporation tax rate but there is no sign of that happening for the moment.

In terms of the TMT market, all the big names have invested heavily in their Irish operations - and although they face challenges right now, with strong wage infl ation in the sector, they are laying down very strong roots for the future.

8feature Tech driver

Driven by technology, the education sector is being transformed. We spoke to three companies leading the charge.

For proof of how the education sector is being transformed by technology, a look at the rise of Danish start-up Clio Online is a good starting point.

The business is a classic 21st century IT company with entrepreneurial founders who have taken full advantage of rapidly emerging new technologies to shake up an entire sector.

The SaaS company was founded a decade ago by three friends (pictured below), two of whom – history graduates Janus Benn Sørensen and Louise Herping Ellegaard - were then working in a Copenhagen museum. The pair realised that there was a market for making history far more interactive and with friend Lasse Guldsborg, who had a background in IT, the trio struck upon the idea of launching an online learning portal.

The original business target was to secure 25% of the Danish student market within a year, but Clio comfortably surpassed the figure thanks to its strong first-mover position. “Our history product caught on so quickly that we eventually copied the model into all subjects, realising that we needed to go big before others started copying what we were doing,” says Guldsborg. “It was a struggle, but it was the right thing to do.”

The company would go on to achieve annual growth rates of more than 50%, with revenues strongly boosted by public subsidies of up to 50% for schools buying digital educational material. The business is now in 90% of state schools in Denmark, with an average school taking about five of its products.

the wire | 2016

Clio Online is a leading Danish SaaS publisher of digital educational material, covering the entire elementary school curriculum. In 2015, it was acquired by Scandinavian media group Bonnier in a deal advised by Clearwater International.

Global education business Rise Global is run by Irish entrepreneur Barry O’Callaghan who previously built up one of the largest educational publishers in the world, HMH, before the economic crash.

HCSS Education is a UK education finance specialist, providing software solutions, training and consultancy services for schools. In 2015, the business was sold to Access Group in a deal advised by Clearwater International.

Technology driver

Clio has been particularly successful because its product is a crossover between web-based educational content and a learning platform.

As Guldsborg explains: “We don’t just provide content but functionality - it’s an all-inclusive package. Instead of using old text books which are out of date from the moment they are printed, our students can use our exciting and interactive products. There are many different ways of learning and no two students are the same. Having a digital model means you can frame the product around individual students far better than a textbook can. It’s very easy for teachers to use and they can also share resources and teaching methods.”

Exciting and interactive products are precisely the drivers behind Rise Global, another success story in the rapidly evolving global education market. As chief executive Barry O’Callaghan remarks: “We are big users of technology and software that engages kids.”

The global English language provider was borne out of the restructuring of US education publisher Houghton Mifflin Harcourt (HMH) which saw former Chief Executive O’Callaghan negotiate the rights to use HMH’s IP in markets outside the US and Europe. “HMH have thousands of products so what we did was cherry-pick what we wanted, particularly around digital assets and specific pieces of software that allowed us to build a very good English programme,” he says.

In each market across the world, Rise Global has customised and further enhanced its suite of products. “Each market has slight nuances but fundamentally it is the same thing: an English kindergarten programme and an after-school elementary programme

teaching English through curriculum in a very immersive and rigorous environment, and using software to capture data and monitor progress.

“The key difference is that our products are much more immersive than those of competitors. They are not just about getting children ready for tests, they are far more holistic. This is not only about teaching grammatical language - it is about learning the nuances of English so that you can then speak academic English, not just some abstract version.”

Guldsborg says one of the biggest challenges in the market is keeping products up to date. “IT becomes old really quickly and there are a lot of new innovative companies approaching the market from an IT angle which are constantly raising the bar, with ever-improving algorithms and tactics for

gamification and adaptive learning. We have to constantly renew our products and have invested heavily in our entire platform to make it more interactive and ensure that it can be used on any device, screen size and browser. Having made that investment, we now have the right platform to scale the business further.”

Guldsborg believes we are only scratching the surface of how significant IT can be in

education. “Over the next 10 to 20 years, we will see a revolution in learning. The big publishing players have had a good thing going for a long time with books, but they now run the risk of falling behind if they do not start to act. They are looking to invest in new technologies and this will lead to more consolidation in the market, such as we have seen with McGraw-Hill partnering with Area9, and Pearson partnering with Knewton.”

O’Callaghan echoes the point. “The challenge remains - particularly in Asia - that if you put all of your IP online, you will simply watch your business model disappear. Pure online learning doesn’t work, there has to be some kind of blended offering. I think the big challenge for the large publishers is that they will have to cannibalise some of their existing revenue streams to enter this business. At some point, they have got to say: ‘You can have our books for free’.”

Infrastructure

Technology is also playing a growing role in the day-to-day running of schools and colleges, creating huge opportunities for nimble tech players in the market.

Howard Jackson’s background was in local authority education in the UK. As far back as the 1990s, he could see the burgeoning opportunities in the schools sector for more independent financial

9feature

the wire | 2016

“Over the next 10 to 20 years, we will see a revolution in learning. The big publishing players have had a good thing going for a long time with books, but they now run the risk of falling behind if they do not start to act.”Lasse Guldsborg, Clio Online

advice and set up his own education consulting business.

For many years, Jackson used fairly sophisticated Excel tools to carry out long-term financial planning but eventually realised that he needed to put the products onto a wider platform.

With the launch of HCSS Education in 2003, he brought programmers into the business for the first time and today HCSS has a suite of cloud-based, centrally-hosted software applications built using the .Net technology stack.

The company provides education establishments with the financial tools to implement and manage processes with complex workflows, including the development of five-year financial plans, scenario modelling and in-year updates for all legal requirements. It is also about to launch an accounting software package specifically for the education sector.

HCSS’s products are now used by more than 6000 schools across England and the software is delivered through a modular cloud portal where additional products can be added easily. “The cloud infrastructure is highly resilient and scalable, allowing us to increase or decrease resources quickly as demand dictates,” says Jackson.

He says a key landmark for the business was in 2012 when it made the leap to the SaaS model. “We had to convince all of our clients to move across to a hosted web service but the fact that every single one did shows the faith they had in us. One of the hardest things we have ever had to do was to convince schools of the safety of keeping data in the cloud. But we knew we had to make this move, we could see the way the wind was blowing.”

Jackson says one of the key drivers is that more and more people are working flexibly, so need a solution that enables them to access data accordingly. “Having a hosted service enables people to access data from anywhere in the world.”

Global opportunities

For all three companies, the global opportunities offered by this fast-changing educational landscape are immense.

Rise Global has built up extensive operations across the Far East, initially growing rapidly across China where at its peak it was educating 50,000 students at 140 centres. However, O’Callaghan says the fact that foreign individuals or companies are not allowed to own domestic education assets in the country proved a major hurdle. “There was cash trapped

inside Rise China which I wanted to extract so I ran a process to sell the business.”

Since selling the Chinese business to Bain Capital in 2013 for $145m (¤133m) -14x EBITDA - Rise has been targeting other Far East markets such as South Korea, Japan, Vietnam, Thailand, Singapore, Indonesia and the Philippines. The Far East business is run from Singapore where Rise works with partners across different markets, in some cases on a JV basis. As he adds: “What I learnt from China is that it is very hard to manage a business remotely. From a risk alignment perspective, what we do is find local operators with whom we can co-invest as the IP and education experts.”

With an estimated billion people outside of the US learning English, the company isn’t just focusing on the Far East. It also has operations in the Middle East, and is

10feature

the wire | 2016

“Pure online learning doesn’t work, there has to be some kind of blended offering. I think the big challenge for the large publishers is that they will have to cannibalise some of their existing revenue streams to enter this business.”Barry O’Callaghan, Rise Global

11feature

the wire | 2016

“One of the hardest things we have ever had to do was to convince schools of the safety of keeping data in the cloud. But we knew we had to make this move.”Howard Jackson, HCSS Education

about to launch JVs in Mexico and Brazil too. “The global population is rising and English has won out as the global language, so that demand will carry on growing,” says O’Callaghan. “As I constantly remind my own children, if you are a native English speaker then you are part of the lucky club. Academically, you have something that 80% of the world seeks.”

HCSS’s services are in more demand than ever thanks to the significant growth of the academy schools programme in the UK which gives schools far more control of their own finances. Jackson says the long-term political tailwinds are now very strong in terms of giving schools more independence. “We took a bit of a gamble a few years ago on the future growth of the academy programme, but we have been proved right and the investment we made then is now paying dividends for us.”

However, there are plenty of global opportunities for HCSS too. “The US is of particular interest to us,” adds Jackson. “In the UK, schools have far more financial independence than in America - where local and state authorities are still very much in control of budgets - so there is a great opportunity for us over there. We are starting to look at the overseas British schools market too.”

M&A activity

The rapid growth of these markets has, unsurprisingly, ignited considerable M&A interest.

For instance: Clio Online was recently sold to Bonnier, a leading name in Scandinavian media. Guldsborg says although Clio could have financed more international growth itself, it lacked the experience to roll products out globally. “We knew the Danish market inside out but had no experience of

transcending borders. We wanted a partner that was already present in the markets we wanted to enter in northern Europe and which had the expertise we needed.”

Clio’s aim is to now repeat its Danish success in other Scandinavian markets. In some markets it will use its existing technical platform and translate educational content itself, while in others it may supply the platform to publishers which then develop

content themselves. Another big market is corporate e-learning. “Our platforms work well for companies too and this is an exciting new area for us,” adds Guldsborg.

Seeing the future potential, Jackson decided to bring new investment into HCSS in 2015, culminating in its recent sale to Access Group, the UK-based ERP consolidator. “We now have the infrastructure and investment we need to meet our ambitions, as there was no way we could build the business to where we believed it could go on our own,” he adds. “Access has the experience we need in terms of building up and investing in businesses, and exactly the same ambition and vision as us. It now has a lot of SaaS businesses across many sectors and was also particularly keen to increase its exposure to the education market.”

He says the new owners see a huge opportunity with the new accounting software package. “This will be the biggest product we have ever launched.”

O’Callaghan says he has no immediate plans to sell any other parts of the Rise empire. “The only thing I am mindful of is structuring the business in such a way that it has the flexibility to be either sold in pieces or as a whole. From a M&A perspective, IT companies undoubtedly have an eye on this market as for-profit education remains a largely untapped frontier when it comes to technology.”

Per Surland, Partner, Denmark

What was the most signifi cant TMT deal of 2015?

For me, it would have to be the

deal we have just closed with Zitcom - a Danish hosting and cloud solutions provider that has been sold to HgCapital. This is a signifi cant transaction and there will be more deals in this space. Globally, I would go for the Dell/EMC deal - a very interesting transaction related to hosting. It is a huge deal and we will see other large players starting to look at this area where scale is so important.

What will be the key TMT trends this year?

The sector across Europe is very hot right now and I expect this to continue into 2016. The next big thing will be IT security related businesses. We have seen a few deals in this space and this is something that all big PE fi rms are looking at. As more and more information goes online and the security threats get ever bigger, companies need to stay one step ahead. The fi nancial tech market also remains very strong.

What will be the key challenges in the sector?

The sector has to be wary of overheating like it did in 2000 and there are signs that it is getting too hot again. The returns in the IT industry have been very good over the past few years, so it is no surprise that investors are piling in again. However, the old adage remains true - investors need to take a hard look at whether the asset is worth the price.

What are the prospects for emerging markets?

The most interesting market remains India because of its strong background and industry knowledge in the IT and software arena. It also has a strong consultancy market so there is potential there too. The other BRIC countries all have their own problems at the moment in terms of poor growth.

What will be the ‘must-have’ product of 2016?

iPhone 7. Microsoft Surface books have also re-entered the market and seem to have landed at a level where they can gain some traction.

12trends Into the future

What will be the key tech trends of 2016? Members of Clearwater International’s TMT team share their views.

the wire | 2016


BT Group’s acquisition of

EE because it was a real game changer for the telecoms industry in Europe. Not only did it make the importance of the ‘four play’ offering very clear, with BT paying a big price to get back into mobile, but it also sparked a wave of consolidation activity amongst operators in Europe which is reshaping the market.


The buzz around the Internet of Things (IoT) shows no sign of going away and I would expect this trend to drive some really interesting consolidation activity. Perhaps most interestingly, we are beginning to see large industrial groups reposition themselves in the technology landscape to tap into the trend so they should start to be serious acquirers of technology businesses in 2016. Aside from IoT, we should expect to see SMAC (social, mobile, analytics and cloud) continue to drive really interesting activity.


The key question everyone in TMT is asking today is when is the bubble going to burst. The proliferation of unicorns and even decacorns has had most analysts getting increasingly concerned that we are heading for a crash with regard to TMT valuations, particularly given the Federal Reserve’s recent interest rate hike. The

Per Surland, Partner, Denmark

Emma Rodgers, Director, UK

13trends

the wire | 2016

challenge for this type of business will be to demonstrate that there is some sound reasoning behind the billion dollar price tags in order to avoid them quickly becoming yesterday’s news.


Some North American and Western buyers have had their fi ngers burnt acquiring businesses in emerging markets where cultures may be very different and which can be geographically diffi cult to operate. I think that the emerging markets will remain an area of interest for acquirers, but we may see them exercise more caution than previously when considering these new markets.

What will be the ‘must-have’ product of 2016?

I always look to January’s Consumer Electronics Show to tell us what we are going to be clamouring for later in the year. This year, we saw the Adidas SmartRun watch on display which I like the look of. It’s a device which helps runners improve their performance with real-time coaching.

Emma Rodgers, Director, UK


Undoubtedly Dell’s $67bn (¤60bn)

acquisition of EMC. The biggest ever tech merger was a landmark deal for the sector and a sign of the times given the unusually large volume of mega-deals completed in 2015 across several sectors.


The cyber security market will continue to be a hotbed of deal activity. Trade players have been active in the past year, driving valuations to frothy levels. The move to the cloud, ever bigger and higher profi le hacks, and data leaks will continue to fuel M&A activity in the area from both trade players seeking to acquire expertise and PE looking for value over the medium term.


Valuation will continue to be a challenge for fi nancially wary buyers. Headline valuations for loss-making unicorns are pointing towards an impending detachment from underlying fundamentals. The hunt for yield in the current low interest rate environment could continue to push values to unsustainable levels, particularly for mobile technologies.


At a macro level, increasing interest rates in the US could potentially lead to capital fl ows away from EMs and back into the US. The rising cost of the dollar also does not bode well for EM countries with dollar denominated debt. On a positive note, the increasing demand for consumer electronics amongst the growing Asian middle class is unlikely to abate over the coming 12 months. EM economies based on sound fundamentals or directly correlated to US growth will likely fare better than others over the course of 2016 - India and Mexico have both been name checked as good growth prospects this year.

Will US corporates continue to be the key driver of M&A activity?

Large US tech fi rms have the deepest pockets and some of the most demanding shareholders who continue to seek earnings and capital value growth. There remains a large amount of dry powder amongst Private Equity fi rms which are keen to deploy capital in high-growth sectors in TMT, particularly around mobile.

John Sheridan, Partner, Ireland

14cloudex Celebration

Our 2015 Cloudex 20:20 awards brought together executives from leading cloud companies across the UK for a night of celebration to toast excellence in the industry.

Our four winners at our awards were described as ‘clear disruptors’ in their markets which had scaled quickly to take advantage of their positions as pure-play companies.

However Emma Rodgers, Director at Clearwater International, said the overall quality of entries had been extremely high. “It is clear that the cloud industry continues to grow impressively in the UK, which is now home to a number of players who are really disrupting their respective markets.”

Winner

Our overall winner was Skyscape Cloud Services, a supplier to the UK government’s G-cloud framework since its launch in 2012. The company is delivering genuine and tangible cost savings to the state and lived up to its billing as our ‘one to watch’ winner from our awards in 2013.

Since then, the migration to cloud services by the UK government has increased significantly and the whole G-cloud process accelerated as more government departments gain confidence in G-cloud services.

Skyscape President Phil Dawson said: “It is becoming the norm. The benefits of cloud services are very difficult to ignore now and there is far more confidence in the product as the benefits become more widely understood. If you are not embracing the cloud, you are missing out on its potential to transform.”

Our judges said the company stood out not only in terms of its size, reach and financial growth, but also because of its first-mover advantage and the disruptive nature of what it is doing.

Runners-up

Our runner-up was Acturis, a business which offers efficiencies to insurance brokers by building, hosting and distributing electronically priced insurance products.

In recent years, the company has continued to roll out new products and moved into new areas such as: more bespoke high premium user interfaces and insurance products; high volume aggregator lines; and mobile and tablet user interfaces for simplified web views.

Its customers include a string of blue-chip commercial brokers and insurers across the globe, although the company’s SaaS model also allows it to scale down to small start-up businesses.

In third place was Fairsail which provides global cloud HRMS (Human Resource Management Systems) to the mid-size market across all sectors, built on the Salesforce1 platform. The company’s Workforce eXperience user interface allows staff to access and interact with the system from any location, enabling global policies to be tailored to meet local country needs and compliance requirements.

the wire | 2016

One to watch

Our ‘one to watch’ was Kimble Applications which operates in the Professional Services Automation (PSA) market, helping professional firms improve business performance through management solutions.

In particular, the Kimble system helps accurately predict sales pipeline and provides the information required for fast and accurate invoicing. The system can be used by all employees, via browser or mobile device, and integrates the sales, operations and delivery elements into one ERP solution. Its customers are primarily management and IT consulting, or the consulting divisions of high-tech firms.

Our judges described this as a very exciting market opportunity with significant international opportunities. “The company is fast growing, very innovative, and investing heavily. They are tackling a complicated problem but have an excellent solution,” they commented.

We are now taking nominations for our Cloudex 20:20 2016 awards. For further details, please contact us at [email protected]

15dealsAward-winning education fi nance

software business

Clearwater International advised the shareholders of HCSS Education on its sale to Access Group

HCSS Education

Leading hosting business based in Denmark

Clearwater International advised Zitcom on the sale to UK-based HgCapital

Zitcom

SaaS company which develops, publishes and markets interactive digital K – 12 educational materials

Clearwater International advised the shareholders of Clio Online on the sale to Swedish publishing group Bonnier

Clio Online

UK’s leading e-procurement solution provider

Clearwater International advised the shareholders of Wax Digital on the sale to August Equity

Wax Digital

Developer and worldwide marketer of SaaS-based collaboration solutions

Clearwater International advised the shareholders on the sale of the business to RIB Software AG

Byggeweb

UK’s leading supplier for the design, delivery and support of highly secure network and communication infrastructure

Clearwater International advised Electranet on its sale to Capita plc

Electranet

the wire | 2016

Denmark-based corporate parent of a collective of prestigious sound & audio technology brands

Clearwater International advised on the cross-border sale of TC Group to MUSIC Group of the Philippines

TC Group

Global provider of software solutions for building information modelling

Clearwater International advised on the sale of CSC to Trimble Navigation

CSC

Publications, advertising and content marketing for private companies and public bodies

Clearwater International advised Datagraf on the sale to Aller Media

Datagraf

International reach,Excellent client outcomes

WWW.CLEARWATERINTERNAT IONAL .COM

AARHUS • BARCELONA • BEIJING • BIRMINGHAM • COPENHAGEN • DUBLINLISBON • LONDON • MADRID • MANCHESTER • NOTTINGHAM • PORTO • SHANGHAI

clearwater the wire 2016 v3 - clearwater...

Documents