BUSINESS SERVICES INDUSTRY UPDATE OCTOBER

Transcription

1 Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business.

2 HW&CO. DEAL SPOTLIGHT a portfolio company of has received a significant investment from Harris Williams & Co. served as the advisor to System One on its significant investment from Thomas H. Lee Partners. System One delivers specialized workforce solutions including staff augmentation, legal process outsourcing and ediscovery, recruiting services, managed service provider services and vendor management services. System One serves the energy, engineering, IT, commercial, scientific and clinical and legal markets nationwide. Read about it here. CONTENTS BUSINESS SERVICES UPDATE EQUITY TRADING OVERVIEW ECONOMIC TRENDS M&A MARKET TRENDS PUBLIC COMPARABLES GROUP OVERVIEW WHAT WE RE READING PRGX TO BUY LAVANTE PRGX Global, Inc. (Nasdaq:PRGX), an Atlanta, Georgia-based recovery audit and spend analytics company, has agreed to buy Lavante, Inc. Lavante provides procure-to-pay insights to clients through analytics-based products and services. Read about it here. LDISCOVERY TO ACQUIRE KROLL ONTRACK LDiscovery, LLC, a technology-enabled ediscovery services provider and agreed to acquire Kroll Ontrack in an all-cash transaction valued at approximately $410 million. Kroll is a corporate investigations and risk consulting firm. LDiscovery is a portfolio company of The Carlyle Group and Revolution Growth. The acquisition represents a continuation of the consolidation trend in the ediscovery industry. Read about it here. STROZ FRIEDBERG TO BE ACQUIRED BY AON RISK Aon Risk Solutions, the global risk management business of Aon plc (NYSE:AON), announced it has entered into an agreement to acquire Stroz Friedberg Inc., a leading global risk management firm based in New York City. Read about it here. BLACKSTONE AND BAIN CAPITAL IN TALKS TO ACQUIRE TEAM HEALTH HOLDINGS Team Health Holdings Inc. is rumored to be in talks with Blackstone and Bain in regard to a potential take-private transaction. Team Health, which has a market cap of $2.4 billion, offers outsourced temporary health care services, such as emergency care, hospital medicine and anesthesiology. Read about it here. Harris Williams & Co. is a leading advisor to the business services market. Our significant experience covers a broad range of end markets, industries, and business models. This particular report focuses on trends and metrics in the following areas: Business Process Outsourcing Consulting Human Resources Insurance, Legal, and Risk Services Marketing and Information Services Transaction Processing Education and Training Facility Services CONTACTS Derek Lewis Managing Director dlewis@harriswilliams.com +1 (804) Bob Baltimore Managing Director bbaltimore@harriswilliams.com +1 (804) John Klim Director jklim@harriswilliams.com +1 (804) Marshall Croft Vice President mcroft@harriswilliams.com +1 (804) Josh Garner Vice President jgarner@harriswilliams.com +1 (804) PAGE 1

3 12-month % Change in Stock Price BUSINESS SERVICES EQUITY TRADING OVERVIEW KEY TRADING STATISTICS 1,2 Sector Number of Companies Median Enterprise Value ($mm) Change in Stock Price 2016E 2017E 3 mos. 12 mos. EV/EBITDA P/E EV/EBITDA P/E Business Process Outsourcing 11 $5,323 (6.5%) (2.7%) 11.5x 20.3x 10.6x 15.4x Consulting 10 1, % 3.9% 10.1x 19.9x 10.5x 17.8x Human Resources 15 1,336 (1.6%) (9.9%) 7.6x 14.1x 7.6x 12.7x Insurance, Legal, and Risk Services 6 14,858 (2.0%) 15.0% 12.1x 20.5x 11.7x 15.7x Marketing & Information Services 29 6,686 (4.6%) 2.7% 13.3x 23.6x 12.7x 16.3x Transaction Processing 9 12,552 (7.0%) 5.9% 14.4x 26.3x 15.3x 19.5x Education & Training (1.4%) 0.9% 6.7x 15.8x 7.2x 17.0x Business Services Index 95 $5,323 (2.0%) 2.7% 11.5x 20.3x 10.6x 16.3x As of October 26, 2016 PUBLIC COMPANY SECTOR PERFORMANCE 1,2 20.0% 15.3x 16.0x 15.0% 14.0x 10.0% 12.7x 5.0% 0.0% (5.0%) 10.6x 7.6x 10.6x 10.7x 11.2x 10.5x 7.2x 12.0x 10.0x 8.0x EV/2016E EBITDA Multiple (10.0%) 6.0x (15.0%) (20.0%) Business Process Outsourcing Transaction Processing Human Resources Business Services Index Marketing & Information Services Insurance, Legal, and Risk Services S&P 500 Consulting Education & Training 4.0x 12-month % Change in Stock Price EV/2016E EBITDA Multiple As of October 26, 2016 PAGE 2

4 YOY Change BUSINESS SERVICES ECONOMIC TRENDS A SNAPSHOT OF KEY ECONOMIC INDICATORS U.S. GDP GROWTH 3 CONS. CONFIDENCE AND UNEMPLOYMENT RATE 4,5 (In trillions of chained 2009 dollars) % GDP $ % $16.0 $ % $ % $14.5 $14.0 (5.0%) $13.5 $13.0 Jun-08 Jun-10 Jun-12 Jun-14 (10.0%) Jun-16 Annual Percentage Grow th Consumer Confidence % % 8.0% % % % % Sep-08 Sep-10 Sep-12 Sep-14 Sep-16 Consumer Confidence Unemployment Rate Unemployment Rate Sources: (1) U.S. Bureau of Economic Analysis Sources: (2) The Conference Board and U.S. Bureau of Labor Statistics NON-FARM PAYROLLS (1-MONTH NET CHANGE) 5 U.S. INITIAL JOBLESS CLAIMS 6 (Payrolls in 000s) (Claims in 000s) (200) (400) (600) (800) (1,000) Sep 16: 156 Initial Claims 700, , , , , , ,000 0 Oct 16: 247,000 Sources: (3) Bureau of Labor Statistics Sources: (4) United States Department of Labor CONSUMER PRICE INDEX 5 ISM NON-MANUFACTURING INDEX 7 6.0% 5.0% 4.0% Sep 16 YOY Change: 1.5% Sep 16: % % 1.0% 0.0% -1.0% -2.0% -3.0% Sources: (5) Bureau of Labor Statistics Sources: (6) The Institute for Supply Management PAGE 3

5 Number of Deals BUSINESS SERVICES M&A MARKET TRENDS SELECT RECENT M&A TRANSACTIONS Date Target Business Description Acquirer 10/31/16 System One Provider of specialized workforce solutions and integrated services Thomas H. Lee Partners 10/24/2016 Masergy Communications, Inc. Masergy Communications, Inc. owns and operates a cloud networking platform to deliver private networks to enterprises Berkshire Partners LLC 10/24/2016 Analyze Re, Inc. Analyze Re, Inc. provides data analytics for the reinsurance and insurance industries Verisk Analytics, Inc. 10/21/2016 Kroll Ontrack, Inc. Kroll Ontrack, Inc. provides data recovery and electronic evidence services. LDiscovery LLC; The Carlyle Group LP 10/20/2016 Appirio, Inc. Appirio, Inc. provides cloud consultancy services. Wipro Ltd. 10/18/2016 The Ready Group Directalert LLC provides strategic marketing solutions to automotive retailers and distributors. AutoAlert, Inc.; HGGC LLC 10/06/2016 Cost & Compliance Associates LLC Cost & Compliance Associates LLC provides accounts payable recovery and contract compliance auditing services. PRGX Global, Inc. 10/04/2016 Vero Insurance, Inc. Vero Insurance, Inc. provides insurance services. Marsh & McLennan Cos. 10/03/2016 The Hecht Group, Inc. 10/03/2016 D4 LLC The Hecht Group, Inc. provides creative plan designs, competitive pricing and responsive personal services. D4 LLC provides designing customized ediscovery and managed services solutions. Alliant Insurance Services, Kohlberg Kravis Roberts & Co. Adecco Group AG 10/01/2016 Fundamental Insurance & Retirement Planning, Inc. Provider of insurance services The Hilb Group BUSINESS SERVICES M&A VOLUME (BY YEAR) 1,2 4,000 3,599 3,500 3,278 3,000 2,829 2,839 2,851 2,500 2,477 2,154 2,531 2,589 2,547 2,000 1,500 1, YTD Undisclosed <$100M >$100M & <$250M >$250M & <$500M >$500M & <$1.0B >$1.0B+ Source: FactSet (1) Represents all announced or closed M&A transactions in the United States and Canada (2) No transaction value provided for undisclosed deals PAGE 4

6 PUBLIC COMPARABLES PUBLIC COMPANY PERFORMANCE 1,2 Price at As a % of Market Enterprise EBITDA EV / LTM EV / 2016E ($ in millions, except per share data) 10/26/16 52-wk High Cap Value (EV) Margins Revenue EBITDA Revenue EBITDA Business Process Outsourcing Tata Consultancy Services Limited $ % $70,684 $65, % 3.8x 13.8x 4.1x 14.7x Cognizant Technology Solutions Corporation Clas % 30,875 27, % 2.1x 10.4x 2.2x 11.1x Wipro Limited % 17,185 14, % 1.8x 8.8x 1.9x 8.6x Computer Sciences Corporation % 7,780 10, % 1.6x 15.1x 1.2x 7.3x Genpact Limited % 4,936 5, % 2.1x 12.4x 2.2x 12.5x Computershare Limited % 4,415 5, % 2.9x 11.5x 2.9x 10.6x Convergys Corporation % 2,837 2, % 1.0x 6.9x 1.0x 7.9x ExlService Holdings, Inc % 1,568 1, % 2.1x 13.5x 2.2x 14.3x WNS (Holdings) Limited Sponsored ADR % 1,436 1, % 2.2x 11.8x 2.3x 11.3x TeleTech Holdings, Inc % 1,325 1, % 1.1x 8.1x 1.1x 8.5x Sykes Enterprises, Incorporated % 1,142 1, % 0.9x 8.9x 0.9x 7.4x Mean 84.3% $13,108 $12, % 2.0x 11.0x 2.0x 10.4x Median 83.5% $4,415 $5, % 2.1x 11.5x 2.2x 10.6x Consulting Accenture Plc $ % $71,872 $68, % 2.0x 12.9x 2.2x 13.1x FTI Consulting, Inc % 1,855 2, % 1.2x 10.0x 1.2x 10.5x Advisory Board Company % 1,615 2, % 2.7x 14.6x 2.8x 12.5x CEB Inc % 1,563 2, % 2.4x 10.6x 2.5x 9.5x Huron Consulting Group Inc % 1,221 1, % 2.2x 10.3x 2.2x 11.1x Navigant Consulting, Inc % 1,103 1, % 1.3x 8.9x 1.5x 10.4x ICF International, Inc % 874 1, % 1.0x 10.8x 1.0x 10.7x CBIZ, Inc % % 1.0x 9.0x 1.0x 9.0x Resources Connection, Inc % % 0.7x 8.1x 0.7x 7.2x CRA International, Inc % % 0.7x 9.1x 0.7x 5.2x Mean 86.8% $8,144 $8, % 1.5x 10.4x 1.6x 9.9x Median 90.1% $1,162 $1, % 1.2x 10.1x 1.4x 10.5x Human Resources Willis Towers Watson Public Limited Company $ % $17,410 $20, % 3.4x 0.0x 5.3x 24.4x Randstad Holding NV % 9,486 10, % 0.5x 9.9x 0.5x 10.2x ManpowerGroup Inc % 5,373 5, % 0.3x 6.9x 0.3x 7.3x Robert Half International Inc % 5,138 4, % 0.9x 7.6x 1.0x 7.7x Hays plc % 2,476 2, % 0.4x 8.0x 0.4x 8.5x 51job Inc Sponsored ADR % 1,975 1, % 4.0x 13.6x 4.2x 12.4x On Assignment, Inc % 1,949 2, % 1.1x 10.0x 1.3x 10.8x Insperity, Inc % 1,546 1, % 0.5x 11.6x 0.5x 12.1x Korn/Ferry International % 1,197 1, % 0.8x 4.8x 1.0x 7.2x TrueBlue, Inc % % 0.3x 5.6x 0.3x 5.7x Kelly Services, Inc. Class A % % 0.1x 7.4x 0.1x 5.8x Kforce Inc % % 0.5x 7.8x 0.5x 7.4x SThree plc % % 0.3x 5.1x 0.3x 5.5x Heidrick & Struggles International, Inc % % 0.4x 5.1x 0.5x 4.7x Barrett Business Services, Inc % % 0.4x 8.2x 0.4x NA Mean 74.4% $1,347 $3, % 0.9x 7.4x 1.1x 9.3x Median 76.7% $1,546 $1, % 0.5x 7.6x 0.5x 7.6x As of October 26, 2016 PAGE 5

7 PUBLIC COMPARABLES PUBLIC COMPANY PERFORMANCE 1,2 Price at As a % of Market Enterprise EBITDA EV / LTM EV / 2016E ($ in millions, except per share data) 10/26/16 52-wk High Cap Value (EV) Margins Revenue EBITDA Revenue EBITDA Insurance, Legal, and Risk Services Marsh & McLennan Companies, Inc. $ % $32,763 $36, % 2.8x 12.2x 2.8x 12.8x Aon plc % 28,735 34, % 3.0x 13.2x 2.9x 13.6x Willis Towers Watson Public Limited Company % 17,410 20, % 3.4x x 24.4x Arthur J. Gallagher & Co % 8,586 9, % 1.7x 12.1x 1.8x 10.7x Brown & Brown, Inc % 5,151 5, % 3.2x 9.7x 3.3x 10.1x Crawford & Company Class B % % 0.6x 6.3x 0.6x 7.2x Mean 91.6% $15,536 $17, % 2.5x 10.7x 2.8x 13.1x Median 93.2% $12,998 $14, % 2.9x 12.1x 2.9x 11.7x Marketing & Information Services Thomson Reuters Corporation $ % $29,657 $37, % 3.1x 11.1x 3.1x 11.3x WPP Plc % 26,506 32, % 1.7x 10.6x 1.8x 10.9x Moody's Corporation % 19,527 20, % 5.9x 13.2x 6.0x 13.1x Omnicom Group Inc % 18,776 21, % 1.4x 9.6x 1.4x 9.8x Experian PLC % 18,286 21, % 4.7x 13.6x 4.6x 13.5x Nielsen Holdings Plc % 16,359 23, % 3.8x 13.4x 3.9x 12.9x IHS Markit Ltd % 15,781 16, % 14.8x 35.6x 13.1x 30.8x Equifax Inc % 15,360 18, % 6.3x 18.4x 6.8x 19.8x Publicis Groupe SA % 15,183 17, % 1.7x 9.8x 1.7x 9.8x Verisk Analytics Inc % 13,759 15, % 7.5x 15.6x 7.7x 16.0x Alliance Data Systems Corporation % 11,874 28, % 4.2x 15.2x 4.5x 16.6x Wolters Kluwer NV % 11,615 13, % 2.9x 11.2x 3.0x 11.8x Interpublic Group of Companies, Inc % 8,964 10, % 1.3x 9.6x 1.3x 9.3x CoStar Group, Inc % 6,815 6, % 8.5x 39.2x 9.4x 49.3x Informa Plc % 6,606 8, % 4.4x 13.6x 4.5x 14.1x FactSet Research Systems Inc % 6,188 6, % 5.7x 16.4x 6.0x 16.7x Dun & Bradstreet Corporation % 4,545 5, % 3.5x 12.7x 3.6x 12.5x Fair Isaac Corporation % 3,774 4, % 4.8x 20.0x 5.0x 17.8x CoreLogic, Inc % 3,569 5, % 2.9x 12.9x 3.3x 12.1x Havas SA % 3,354 3, % 1.5x 10.1x 1.5x 9.5x UBM PLC % 3,345 3, % 2.9x 10.2x 2.4x 9.0x DST Systems, Inc % 3,226 3, % 1.8x 10.1x 1.9x 8.7x Morningstar, Inc % 3,065 2, % 3.7x 11.6x 3.7x NA Acxiom Corporation % 1,910 1, % 2.2x 16.2x 2.2x 12.9x comscore, Inc % 1,680 1, % 4.3x 61.0x 4.3x 16.5x Viad Corp % % 0.8x 11.4x 0.8x 10.9x Forrester Research, Inc % % 1.7x 16.1x 1.8x 16.5x QuinStreet, Inc % NM 0.3x NM 0.3x 11.7x Harte-Hanks, Inc % % 0.3x 16.9x 0.3x 3.6x Mean 84.3% $9,358 $11, % 3.7x 16.6x 3.8x 14.6x Median 89.7% $6,606 $6, % 3.1x 13.3x 3.3x 12.7x Transaction Processing Automatic Data Processing, Inc. $ % $39,617 $38, % 3.3x 15.1x 3.4x 16.5x Fidelity National Information Services, Inc % 24,636 34, % 4.2x 14.2x 5.3x 17.2x Paychex, Inc % 20,097 19, % 6.5x 15.2x 6.9x 16.2x Global Payments Inc % 11,321 15, % 4.7x 17.6x 7.3x 23.0x Western Union Company % 9,652 11, % 2.2x 9.1x 2.1x 8.3x Total System Services, Inc % 9,368 12, % 3.8x 14.4x 5.0x 15.3x Vantiv, Inc. Class A % 9,325 12, % 3.6x 15.2x 7.2x 15.1x Jack Henry & Associates, Inc % 6,280 6, % 4.6x 13.2x 4.8x 13.5x VeriFone Systems, Inc % 1,774 2, % 1.3x 9.1x 1.3x 7.8x Mean 87.3% $14,675 $17, % 3.8x 13.7x 4.8x 14.8x Median 90.8% $9,652 $12, % 3.8x 14.4x 5.0x 15.3x As of October 26, 2016 PAGE 6

8 PUBLIC COMPARABLES PUBLIC COMPANY PERFORMANCE 1,2 Price at As a % of Market Enterprise EBITDA EV / LTM EV / 2016E ($ in millions, except per share data) 10/26/16 52-wk High Cap Value (EV) Margins Revenue EBITDA Revenue EBITDA Education & Training Pearson PLC $ % $7,530 $9, % 1.5x 8.1x 1.4x 7.6x John Wiley & Sons, Inc. Class A % 3,002 3, % 2.0x 9.4x 2.0x 9.8x Grand Canyon Education, Inc % 2,000 1, % 2.3x 7.3x 2.5x 7.7x DeVry Education Group Inc % 1,474 1, % 0.6x 4.0x 0.6x 4.0x Scholastic Corporation % 1,314 1, % 0.6x 4.8x 0.6x 9.7x Capella Education Company % % 1.6x 7.2x 1.6x 7.2x Strayer Education, Inc % % 1.1x 6.1x 1.1x 5.3x K12 Inc % % 0.3x 2.9x 0.3x 2.9x GP Strategies Corporation % % 0.9x 11.6x 1.0x 11.5x American Public Education, Inc % % 0.6x 2.8x 0.6x 2.8x Bridgepoint Education, Inc % 321 (1) 6.4% NM NM NM NM Franklin Covey Co % % 1.4x 9.9x 1.4x 9.6x Cambium Learning Group, Inc % % 2.2x 8.9x NA NA Lincoln Educational Services Corporation % % 0.5x 3.6x 0.2x 3.9x ITT Educational Services, Inc % % 0.1x 0.9x 0.1x 1.0x Mean 75.9% $1,254 $1, % 1.1x 6.3x 1.0x 6.4x Median 84.9% $472 $ % 1.0x 6.7x 1.0x 7.2x Facility Services Compass Group Plc $ % $29,355 $33, % 1.2x 13.4x 1.3x 13.7x Sodexo SA % 17,263 18, % 0.8x 11.5x 0.8x 11.7x Cintas Corporation % 11,187 12, % 2.4x 12.5x 2.6x 13.4x Aramark % 9,117 14, % 1.0x 11.3x 1.0x 11.1x ISS A/S % 7,249 9, % 0.8x 11.9x 0.8x 12.0x Rentokil Initial plc % 5,253 6, % 2.4x 10.3x 2.6x 11.4x EMCOR Group, Inc % 3,421 3, % 0.5x 9.1x 0.5x 9.7x Berendsen plc % 2,600 3, % 2.0x 6.7x 2.1x 6.6x ABM Industries Incorporated % 2,138 2, % 0.5x 14.1x 0.5x 10.7x G&K Services, Inc., Class A % 1,871 2, % 2.1x 13.1x 2.2x 13.7x FirstService Corp % 1,529 1, % 1.3x 15.8x 1.4x 16.9x Comfort Systems USA, Inc % 1,020 1, % 0.6x 8.4x 0.6x 9.2x MITIE Group PLC % 914 1, % 0.4x 5.2x 0.4x 5.4x TRC Companies, Inc % % 0.7x 12.0x 0.7x NA Mean 92.4% $8,945 $10, % 1.4x 11.4x 1.4x 11.4x Median 93.0% $6,251 $7, % 1.1x 11.7x 1.1x 11.6x As of October 26, 2016 PAGE 7

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10 HARRIS WILLIAMS & CO. BUSINESS SERVICES SOURCES (1) Factset (2) Thompson Reuters (3) U.S. Bureau of Economic Analysis (4) The Conference Board (5) U.S. Bureau of Labor Statistics (6) U.S. Department of Labor (7) Business Wire DISCLOSURES Harris Williams & Co. ( is a preeminent middle market investment bank focused on the advisory needs of clients worldwide. The firm has deep industry knowledge, global transaction expertise, and an unwavering commitment to excellence. Harris Williams & Co. provides sell-side and acquisition advisory, restructuring advisory, board advisory, private placements, and capital markets advisory services. Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. THIS REPORT MAY CONTAIN REFERENCES TO REGISTERED TRADEMARKS, SERVICE MARKS AND COPYRIGHTS OWNED BY THIRD-PARTY INFORMATION PROVIDERS. NONE OF THE THIRD-PARTY INFORMATION PROVIDERS IS ENDORSING THE OFFERING OF, AND SHALL NOT IN ANY WAY BE DEEMED AN ISSUER OR UNDERWRITER OF, THE SECURITIES, FINANCIAL INSTRUMENTS OR OTHER INVESTMENTS DISCUSSED IN THIS REPORT, AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY STATEMENTS MADE IN THE REPORT OR FOR ANY FINANCIAL STATEMENTS, FINANCIAL PROJECTIONS OR OTHER FINANCIAL INFORMATION CONTAINED OR ATTACHED AS AN EXHIBIT TO THE REPORT. FOR MORE INFORMATION ABOUT THE MATERIALS PROVIDED BY SUCH THIRD PARTIES, PLEASE CONTACT US AT THE ABOVE ADDRESSES OR NUMBERS. The information and views contained in this report were prepared by Harris Williams & Co. ( Harris Williams ). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable, but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams judgment and are subject to change without notice. The financial instruments discussed in this report may not be suitable for all investors, and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams prior written consent. Copyright 2016 Harris Williams & Co., all rights reserved. PAGE 10