Forecast 2019: Global Tech M&A Report

Introduction & Market Overview

Joel Espelien

Good morning, good day, everyone. Welcome to Forecast 2019. I'm Joel Espelien, President of Corum Group. We've got a ton of great content for you in the next hour so let's get right to our agenda. First I'll provide a few opening thoughts. Next, we're going to have a field report on a recent deal that just close. We'll also review our predictions for 2019 as well as grade ourselves on last year's prognostications. We also have our brand new top 10 tech M&A trends. You need to pay close attention to these. Next we've got our annual research report covering every sector of the market. Then we've got our luminary panel with Salesforce, IBM and Singularity University. Finally, we'll try to take some questions.

Before we start however, I'd like to address the market. We get asked where things are going on a daily basis. We talk to buyers and sellers across the global technology eco. I believe we are in a tale of two cities market, it was the best of times it was the worst of times. Whether you are glass half-empty or a glass half-full type of person the daily news feed has plenty of fodder for both personality types. But let's start positively for the glass half full crowd.

All the major world economies are still growing, US unemployment is low, growth and profits are solid, strategic and financial buyers are still sitting on record cash and technological change continues unabated. In terms of glass half empty, however, the US government is still shut down, recession clouds are looming, the UK is in danger of crashing out of the EU and Chinese growth has slowed even without the trade war with the US.

Don't be fooled by the rally over the past couple of weeks. 2019 is going to be a volatile year. Kane’s famous animal spirits are driving the market right now and those spirits are uneasy. In this environment, founders and CEOs at technology companies need to be looking at a few things. First, every leader needs to stress test their business, their business plan for 2019 and 2020. Is your cash sufficient? Are your customers and their customers going to hold up in a downturn? How about pricing and margin?

My current read based on our daily discussion with M&A buyers suggest buyers are both pickier and more anxious, which means smaller margin of errors going forward for sellers looking for an optimal outcome. At the same time, the tech M&A market window is still open. Smaller private companies that are well positioned with respect to our top 10 trends tend to power right through any macro headwinds.

Other companies face a real timing dilemma. They don't exit now, when? The next good market windows is five, six, seven years out. Are you ready, willing and able to wait? Some of you can't, which is why we're doing an entire event later this month on the challenges facing baby boomers technology business. And finally it should go without saying, volatile markets are unforgiving markets. Sellers need senior advisors they can trust to navigate these treacherous waters. So with that said let's get going and I'll turn things over to our EVP of Marketing, Tim Goddard. Tim?

 

Field Report

Tim Goddard

Thank you Joel. As you said, lots to get to. Let's dive right in and head over the water to Helsinki where Julius Telaranta recently closed a very exciting deal. Julius?

Julius Telaranta

It's my pleasure to announce the acquisition of our client Leiki by Double Verify. Leiki provides a leading independent cemented AI platform that offers a variety of software as a service solutions for brands and publishers. At its technological core, Leiki as a proprietary natural language analyzes anthology with over 200,000 topics powering text and audience interest analyzes, content discovery and user interest profiling and segmentation.

Leiki’s technology has numerous applications within the online advertising sector, including content recognition, content classification and recommendation and semantic search, in addition to intelligent user profiling based on interest and intent. Congratulations to the Leiki team.

 

Corum 2018 Prediction Scorecard

Tim Goddard

Thank you Julius. 

Now, let's jump into, as mentioned, some predictions. We're going to start by scoring ourselves on last year's predictions. Starting from the top, Arab money leading unexpected major tech acquisitions. While we did see some of this happen, I don't think we can say there was anything major. Do watch for some mentions of mini deals during our research report. Uber down round drives other unprofitable unicorn valuations.

I think overall the stock market picked that up. We'll see how the IPO goes and whether things change in sum. Next, more chip flaw surface. That happens, leading to M&A in response. Little bit less so there. So we give ourselves half credit on that one. Chinese buyers returning to the market with major deals. Similar, we did see more major deals out of Chinese buyers just last year than the year before but not was broadly as you might like and certainly not in the US.

So, again, partial credit. While we were right on on a number of these though. Enterprise blockchain applications beginning demonstrating value, certainly seeing that. Increasing related M&A, certainly seeing that as well. Still nascent, but definitely an increase. Amazon will make a major healthcare acquisition. They bought Pillpack in June for just under a billion dollars.

Repatriation leads to multiple high profile companies acquired for over 10 billion. Repatriation definitely happened. Its impacts have been complex but we did see many high profile companies acquire for more than 10 billion. RedHat and others, including just this week where very likely that repatriation, etc. did have an impact.

And finally, big name old line companies make first major tech acquisitions; we absolutely saw this.  We'll talk about that both in our trends and our research report coming up. But in particular we saw CPG companies for packaged goods (Kraft, Heinz, Colgate, Palmolive) all make their first acquisition in the tech sector. So, that's what we have for last year. Let's move forward 2019.

Let's walk through what we'll be scoring ourselves on here. First up, a high profile failure accelerates demand for AI safety measure. Next up, Disney's B2C lead drives tech M&A as Hollywood races to keep up. They'll be launching their streaming service in the fall. We expect that to go quite well and to drive more M&A. despite efforts, the US will not pass privacy or other big tech legislation.  But, there you have it.

But, what we will see instead under consumer and government pressure we will see social networks shift to B2B where things are a bit safer on the privacy side. E-sports industry, continuing to grow in size and power. We think they'll hit a major milestone of some kind this year. I think it'll be something we'll be able to point to clearly in a year.

Along with that we think Amazon will become a major player in the video game industry. They just announced their cloud gaming service. We think it's going to go farther than that. Next up, cyber-attacks go beyond physical breaches, begin to impact the physical world. Hopefully nothing too terrible but we do think we're going to see something.

Then finally, this is a trend we're seeing more and more of, robotic process automation is going to hit prime time with a $100m+ acquisition. So, a lot of these are based on or related to this top 10 technology trends that we put together every year synthesizing what we see in the market through our conferences that – conversations we have with buyers and, of course, there's the clients. We got a new list this year but I think it's pretty instructive. We've broken them down into fundamental concepts and the functional ones where those are applied in various specific areas and sectors.

So, let's jump right in with our top one, AI enablement, Ivan Ruzic based in New York. Ivan?

 

2019 Top Ten Disruptive Tech Trends: AI Enablement

Ivan Ruzic

In 2018, AI enablement became a mainstream. Facial recognition, medical diagnosis, autonomous vehicles, AI based recruiting, translation, even deepfakes and more. However, some spectacular pioneering application failures remind us that no matter how good your models are they're only as good as your data.

With AI creating new opportunities in every sector, it's no surprise high levels of AI M&A continued. Noteworthy deals include Google acquiring AI Matter, Microsoft acquiring Semantic Machines and Maluuba, Apple acquiring Silk Labs and RealFace, and Facebook acquiring Oslo.

Themes include mobile AI development platforms, computer vision, small footprint delivery platforms and increasingly natural language processing. Even non-tech companies are finally beginning to understand that to compete against the data driven competitors they must become better at leveraging their data. So it's no surprise that we're seeing more AI M&A activity from them as they try and bridge the technical competency gap.

Expect to see more activity as the buyers target companies with mobile AI technologies, AI enabled vertical solutions or unique data sets to fuel machine learning algorithms that help address the four Ps of AI – prediction, production, personalization, and promotion.

Tim Goddard

Thank you Ivan. Now down to Silicon Valley, Marc O'Brien, one our new trends, platform effects. Marc?

 

2019 Top Ten Disruptive Tech Trends: Platform Effects

Marc O’Brien

Last year on this webcast Peter Coffee noted that everything is a platform. From currencies to retail stores to restaurants and we're seeing this concept play out clearly in tech M&A. Salesforce itself is a product of the first wave of this platform effect, along with other tech giants and massive horizontal platforms. Today, multiple platform affects are consolidating a variety of solutions and verticals, seeking to own entire user life cycles.

A recent high profile example is Adobe's transformation into a vertically integrated marketing platform capped by its acquisition of Marketo for nearly $5 billion. In smaller markets this is exemplified by platform like the Brands Family. Property, therapy administer brands all backed by blue chip private equity firms. At Corum we saw the platform effect drive deals, both by PE backed companies like Certified, acquiring Cattell for its expense management platform. And Irwin buying Analytics DS for its data management platform, as well as Strategic Buyers with Agilent acquiring Genome to extend its digital lab platform for genomic.

This trend is driving new deal flow in digital transformation in long quiet sectors like ed tech, legal tech, dub tech, as well as many other. We expect this to continue and accelerate in 2019.

Tim Goddard

Thank you Marc. Some great insights there. Now, over to Peter Prince in London to talk us through one of our most widely impactful trends, composite commerce.

 

2019 Top Ten Disruptive Tech Trends: Composite Commerce

Peter Prince

As online/offline behavior merges and traditional retailers adopt increasingly sophisticated technologies, we're seeing the overarching mega trend of composite commerce crystallize and make a major impact in tech M&A. The big story is Walmart with 10 tech acquisitions in 2018, including the largest ever e-commerce purchase of India's Flipkart for $16 billion.

Walmart is making acquisitions like a tech company. Expect more retailers to follow, as retailers are all becoming tech companies. They just haven't realized it yet. CPG players also entered the market with P&G, Nestle, and Colgate-Palmolive doing their first tech deals in 2018. Indeed, Nordstrom, L’Oréal, and Ulta Beauty each did two tech deals. So what's all the fuss about?

All consumer facing businesses are coming to terms with the fact that getting the consumer's eye and wallet had become ferociously competitive and ever smarter technology has become ever more necessary. With sophisticated analytics connected to digital signage, websites, mobile devices, and more with not only product offers but direct payment options the game is really about how long can you actually stay attached to your money.

Tim Goddard

Thank you Peter. Let's move forward to Dave Levine based in Vancouver on IoT software.

 

2019 Top Ten Disruptive Tech Trends: IoT Software

Dave Levine

From fire hydrants to industrial requirement to home appliances, everything we touch is becoming connected. Innovation is accelerating as shifts become miniaturized, voice enablement becomes ubiquitous and AI predicts behavior based on data from connected devices. There's no shortage of IoT M&A activity with over 100 transactions last year. Notably Cubic Corp acquired a traffic intersection management company, Gridsmart, for $89 million and Merc acquired Antelliq from a private equity first for nine times revenue, a $2.4 billion transaction in the animal tracking sector.

These deals provide new indications of the surge in acquisitions we'll see moving forward. The big players have entered the IoT market in full force and placed their bets early. The next wave of IoT software deals will be about carefully triggered vertical solutions leveraging the data from billions of devices. CEOs in this space will need to be sprinting to maintain product market bid, as companies such as GE have begun exiting the market by divesting their IoT platform in giants such as salesforce, integrate and market their IoT platform with their CRM juggernaut.

Tim Goddard

Thank you Dave. Now to Jim Perkins on data science monetization. Jim.

 

2019 Top Ten Disruptive Tech Trends: Data Science Monetization

Jim Perkins

Increased concerns around consumer privacy have changed the landscape. But firms able to navigate those issues while still implementing data science proactively remain in high demand. We've discussed how this trend, creating and enhancing monetization opportunities rather than simply reducing costs and improving efficiency, first emerged in the gaming sector where Asian firms were the pioneers optimizing free to play models by monitoring player behavior.

But it's not just gaming. Gurobi Optimization, acquired by Thompson Street Capital, provides complex data analysis tools for pricing optimization for the enterprise generally. But narrow sectors have also been fertile ground. In ad tech, fertilizer giant Nutrien paid $63 million for weather analytics firm Agrible to help farmers maximize crop production.

In pharma, supply chain analytics firm Integicehn bolted on pricing software maker MCT to turn their data into actionable government pricing insights for drug manufacturers. And in entertainment, Warner Music acquired Sodatone which uses streaming, social and live performance data to find the superstars of tomorrow. Companies that provide data science monetization tools or that monetize their own data well continue to be in high demand.

Tim Goddard

Thank you Jim. Now shifting to the second set. Let's start with Rob Griggs based in Minneapolis on focused IT services. Rob.

 

2019 Top Ten Disruptive Tech Trends: Focused IT Services

Rob Griggs

Specialization has become the path to premium valuation in the services space, especially when accompanied by faster development and delivery, integration of core data principles, and platform work integrated with bigger and better analytics making data actionable, driving best practices and accomplishing client goals.

We are seeing expertise in block chain and distributive ledger, provided process automation, unified post back applications like Node.js or typescript, rapid development, open source platform and frameworks, structured and unstructured data, business analytics. Scalability and performance and many other areas, driving world strategies and diversification amongst the global surfaces providers need to grow existing skillset to attract and keep client relationships.

Additionally, integrators with focused expertise in complex ecosystems like Salesforce, ArgoSoft Dynamics, AWS, SAP and Oracle, services firms in key sectors like security, automotive, and healthcare, plus firms that specialize in destructive trends like AI, IoT and logistics will each be aggressively pursued by an expanding universe of acquirers.

Tim Goddard

Thank you Rob. Now on to health tech continuum, Steve Jones. Steve?

 

2019 Top Ten Disruptive Tech Trends: HealthTech Continuum

Steve Jones

One of the exhilarating things about the constructive trends is the interplay between them. The evolution of AI, data science monetization and platform effects are critical to M&A activity across the health tech continuum. Both wearables, patient education, preventative care and integrated treatment, providers are gathering more information and data than ever before.

Now they're deploying systems to leverage that data into a holistic view of the patient. This reflects the shift in emphasis towards satisfactory patient centered outcomes versus a least cost treatment plan for acute relief. Traditional inpatient health systems need a unified view of patients across the continuum of care long after they've left their facilities and can only accomplish this by integrating with distributed services in post-acute and payer of care settings.

This is only driving demand to empower patients to participate in their own care with solutions like patient communication and education systems bridging the gap across virtualize care providers. Health tech providers driving continuity, ubiquitous access to patient data and a holistic view of patient care will be M&A targets in high demand as providers try to keep pace of changes in growth in this high tech market.

Tim Goddard

Thank you Steve. Now, to HQ and Dan Bernstein on Regtech systems Dan.

 

2019 Top Ten Disruptive Tech Trends: Regtech Systems

Dan Bernstein

Market uncertainty reminds us that nothing is certain except death and taxes. And along with taxes, reputation, whether national, international, state, providence, local or something even more complex. As technology becomes more necessary to navigate this landscape the value of that technology increases, perhaps, especially in uncertain times.

This is exemplified by BC Partners acquiring Oregon based NAVEX Global for $1.2 billion. A leading provider of governance, risk management and compliance software, itself originally formed in an M&A roll up including Corum client, Policy Tech. Regtech impacts diverse sectors, including legal tech, education, safety, law enforcement and financial regulation. In just a couple of representative examples, Cooper Software, a leader in corporate business span management, extended into risk management by acquiring HyperOs, a division of Opus and Campus Management acquired Education Partners in the ad tech regulations space for financial aid verification and compliance.

We look forward to more activity in this space as other verticals continue to be transformed by the necessity of tighter and more effective compliance and governance solutions that can only be provided by acquiring highly specialized innovative software companies.

Tim Goddard

Thank you Dan. Now, over to Amsterdam and our managing director for Corum Group International, Jon Scott, on small logistics. John.

 

2019 Top Ten Disruptive Tech Trends: Smart Logistics

Jon Scott

Customers today are more demand. Businesses can no longer afford to hold large inventories and consumers want their e-commerce shipments yesterday. This can only happen through massive applications of new technology, smart logistics. A diverse set of global buyers is racing to acquire and apply this technology, competing in an $8 trillion industry climbing to 15 trillion by 2023. Smart logistics includes data driven software platforms that automate the management of shipping and storage, fleet management, supply chain management and more.

Key data inputs come increasingly from connected IoT sensors, given the massive volume of data that logistics represents there's a significant need for robust analytics and artificial intelligence. Disclosed spending on supply chain management and logistics software acquisitions more than doubled in 2018 with the largest deal being the 1 billion take private of commerce at a 10 times revenue multiple.

In addition to traditional supply chain acquirers, in 2018 companies like JDA Software, Siemens, FedEx, Stamps.com, Truckstop.com, and IBM all acquired smart logistics companies. The IBM acquisition of former Corum client Onique was a good representation deal. It brought together smart logistics with IoT and predictive analytics in asset intensive industries.

Tim Goddard

Thank you Jon. And now finally another new trends here. Jeff Brown with blue collar software. Jeff.

 

2019 Ton Ten Disruptive Tech Trends: Blue Collar Software

Jeff Brown

We're seeing increased demand for companies building tech for workers outside the corporate offices. Over 60% of workers fall into these blue collar skilled labor industries. Working in the field, making, selling, moving, expecting, maintaining and fixing stuff across multi-billion dollar industries like construction, agriculture, transport, hospitality, retail and many others.

Technology shifts behind this trend include smartphone everywhere, better wireless connectivity and easily deployed customizable cloud software, all enabling new workflows for quotes, billing, scheduling, navigation, compliance, safety and more to empower a more productive workforce.

Recent Corum deals are trade tech for the timber industry logistics, exact time for time capture sold to Providence Equity, and StabiPlan, SaaS for mechanical, electrical and plumbing engineers sold to Trimble. Construction and energy have been early movers. Deals from Q4 2018 alone include the sell by GE of Service Max field service management to Silver Lake Partners, Thoma Bravo’s acquisition of PEC Safety for contractor management sold for $225 million at nine times revenue and 22 times EBIDTA and Autodesk’s purchase of PlanGrid for $875 million, almost nine times revenue. Ours to watch in 2019 include, Trimble, Hexagon, Bentley, Galtech Group or even Autodesk. And keep an eye on private equity too.

Tim Goddard

Absolutely, Jeff. Thank you very much. And on that note, let's go now to our 2018 annual research report with Elon Gasper, Amber Stoner, Yasmin Khodamoradi, Amanda Tallman, Becky Hill, and Matt Rung. Elon?

 

2019 Corum Research Report

Elon Gasper

Thanks Tim. We start with the late year public market action as most major indexes were thrown off record highs into annual losses and even bear market territory in a sea change of sentiment with interest rate, trade and recession worries. Over the year US tech climbed the most then lost the most and still booked a net gain.

Overseas markets generally took the largest losses, China with its slowest growth in decades. But steep declines came amid tightening US monetary policy seeking a return to normalcy and quick rebound like happened in the 80s when I was a Corum client, rather than the long-lasting impacts like the financial crisis and the .com crash. But, it's an unexplored economic train here. So, tech execs who can't risk enduring another long downturn should seek an experienced advisor right away to help them test the M&A market while the window of opportunity remains open, which it still is and smart money is taking advantage of it.

Our Corum Index showed increased deal volume in size with a record number of billion-dollar sellers deciding not to double down, going it alone in these times. DC is selling more too for the first time in six year. And here at Corum we're seeing increasing divestiture action from the corporate side too. Both smart money taking something off the table.

Our top strategic acquires list stayed remarkably stable. Lead again by Constellation Software, its 38 tech deals. The highest in over a decade. With Accenture in second place again too. Most top acquirers reflect secular trends resistant to public market gyrations. Several clusters here. Yasmin?

 

2019 Corum Research Report: Rollups, Leaderboard, Megadeals

Yasmin Khodamoradi

Consolidators Constellation, WiseTech, J2 Global and newcomer Keywords are rolling up small to mid-size tax firms. Constellation, for instance, continued its strategy of growth by acquisition across its sprawling structure of subsidiaries in markets ranging from e-commerce to automotive, healthcare and real estate. A set of services heightened buying up both tech and talent were led by Accenture. Tech giants are down to three, a notable multiyear trend with gaming deals pushing Microsoft in third place.

And a new entry in Walmart, fending off Amazon, in composite commerce with 10 tech deals including the largest ever in e-commerce. Sixteen billion for India's Flipkart. Walmart was just one of dozens of large traditional companies active in the top M&A market in 2018. Maybe for the first time but not the last.

Elon Gasper

Besides Walmart, Siemens more than doubled, Hexagon’s nearly did too. And the rest of the list was the least volatile in many years. The top PE buyers ranks were stable too. The same top four in order as 2017. This list still lead Providence climbed to fifth place. We'll unpack the rest in part two of our annual report four weeks from today. Back to mega deals.

Last year's record, 88, totaled $317 billion. Vertical led for a third year in volume, infrastructure, and value; each about 30% of the total. Internet and consumer have diminished over the years as they became kill zones where giant firms make sure upstarts are destroyed competitively or bought if necessary before they reach a threatening size.

Yasmin Khodamoradi

In the internet sector job listings and workplace reviews platform Glassdoor was purchased for $1.2 billion at seven times revenue as Japan Recruit Holdings, owner of Simply Hired and Indeed. An infrastructure application and data integration software provider MuleSoft was acquired for $6.6 billion and 22 times revenue by Salesforce. In the consumer sectors streaming music pioneer Pandora was bought for over $3 billion by satellite radio operator Sirius XM to expand beyond cars into homes and mobile.

Elon Gasper

In IT services, DST Systems was bought for over $5 billion by its rival, financial software giant, SS&C, in the largest of its three mega deals last year. In vertical, MINDBODY, ERP SaaS for salons and fitness studies, sold for $1.9 billion to Vista Equity. Focused essentials, picky, a compelling formula. In horizontal, a transformative double play on SAP paying $2.4 billion, almost 10 times revenue for CallidusCloud to boost its CRM cloud offerings. In luring survey and engagement innovation Qualtrics offed the IPO market for $8 billion, a hefty 21 times revenue.

These mega deals matter to smaller sellers. Not only as value benchmarks and demand indications but because they disrupt markets. Vetting up demand for tuck ins and competitive bolt-ons, plus isolate and push other players toward exit, with cascade effects.

Yasmin Khodamoradi

Three year value trends in our six markets show sales multiples for Horizontal rose and held their lead. At the bottom of both charts, IT Services reverted to its traditional 1x revenue, 10x EBITDA, in line with our midyear forecast. The five other EBITDA multiples narrowed into a four-point range in the teens: Horizontal again led, Internet returned to the pack and the market returned to a standard view of the relevance of profits.

Elon Gasper

That matches our recent conversations with buyers regarding a smaller margin of error for sellers financial components. A deep dive now into our six markets and 30 subsectors starting with horizontal. Amber?

 

2019 Corum Research Report, 6 Sectors: Horizontal

Amber Stoner

Valuations in the Horizontal sector rose until dipping in November; however, sales multiples remain higher than the beginning of the year, while EBITDA multiples took a slight hit from January 2018 numbers. Most subsectors saw valuation multiples drop in line with the market downturn, though the SCM and Payments subsectors are up from a year ago.

Within SCM we saw activity in Smart Logistics, where Spanish customs solutions provider Taric was picked up for over 5 times revenue by top acquirer WiseTech, which also paid nearly $30 million for Trinium Technologies, a provider of intermodal trucking management systems.

And transportation management SaaS company Cloud Logistics was bought by E2open to complement its transportation forecasting solutions.

High demand for advanced analytics and BI tools drove deals as well with data science firm Angoss being acquired for $24.5M at over 2x sales by predictive analytics company Datawatch which was itself bought by Altair Engineering for $176M, at 4x revenue.

M&A in conversational AI was notable for the number of cross-border transactions. Sellers ranged from Chile-based conversational AI CRM firm, Intelligens, to Singapore virtual assistant developer flexAnswer.

We also saw consolidation in the expense management space. K1-backed Certify made two acquisitions in 2018, starting with real-time expense tracking & reporting company Abacus, and then rolled up Corum client Captio, as it challenges SAP-owned Concur.

We saw a streak of deals in the workforce management space, highlighting its diverse aspects: from hiring to employee retention. TextRecruit, an AI-powered communications platform for employers, was acquired by recruitment software provider iCIMS.  

Rallyteam, which leverages machine learning to match employees with in-house opportunities, was picked up by Workday to build on its earlier SkipFlag purchase.And staff hiring tools developer WorkPop was acquired by Cornerstone OnDemand to complement its recruiting solution.

Finally, in payment processing, PayPal spent $2.2B for Sweden’s digital payments firm iZettle to strengthen its presence in Europe and Latin America.  PayPal also shelled out $400M at 4.4x revenue for payout platform Hyperwallet to fill out its suite of payment solutions to ecommerce platforms and marketplaces.

And payment processing firm Forte was bought for $85M by billing solutions provider CSG to advance its monetization capabilities.

 

2019 Corum Research Report, 6 Sectors: Vertical

Yasmin Khodamoradi

Valuations in the vertical sector were on a rollercoaster last year with sales multiples ending 25% lower than the beginning of the year. Financial services and AEC were the value leaders, maintaining gains while other sectors dipped with a larger market. As Jeff described, the blue collar software trend encompassing the digitization of traditionally underserved industries like construction, energy and agriculture, drove multiple acquisitions last year.

In the AEC vertical Trimble acquired Corum client Stabiplan, then construction management firm e-Builder for half a billion and over nine times revenue. Fortive spent $775 million for pricing data and procurement software maker Gordian Group. In another Corum deal ExakTime, which specializes in workforce management solutions for construction and field services was purchased by Providence Equity. And Autodesk spent $275 million on bidding management sales provider Building Connected.

Trends in blue collar software also drove deals in ag tech, particularly with non-traditional buyers. For instance, the digitization pharming unit of Bayer was bought for over $2 billion by chemicals manufacturer BASF to enhance their biotech and digital farming activities. Agronomic data management startup Agrible was picked up for $63 million by Canadian fertilizer giant Nutrien in its first ever software acquisition. And AgSync which helps farms management their mobile assets was acquired by provision agriculture company Reven.

In ag tech, much of the resurgence in M&A activity can be attributed to high demand for successful applications of artificial intelligence, such as China’s acquisition of AI enabled writing feedback provider WriteLab or Oracle’s acquisition of AI financial aid management SaaS Vocado.

The health tech space saw significant consolidation in the past year, driven in part by saturation in the EA drug market and a shift toward patient centered models consistent with our health tech continuum trend. For example, Allscripts paid $100 million for pharma unicorn Practice Fusion and sold Netsmart for $525 million to prove equity. Post-acute EHR specialist MatrixCare sold for $750 million to respiratory devise maker RedMed. And the biggest health tech deal of the year, Veritas Capital, acquired leading SaaS provider Athena Health for $5.7 billion to combine it with Verance, the value based division of GE they purchased for $1 billion earlier in the year.

M&A also continued in the patient engagement and value based care sector. Both key components of the health tech continuum, in particular patient management companies like HealthGrid, Message Beam and Wellpass were in demand. Finally in automotive, Volkswagen and BMW continue the trend of major auto makers becoming mobility services providers with the acquisitions of telematics and connectivity SaaS provider Wireless Car and mobile parking payment app Parkmobile respectively.

Moving on to consumer, how did that sector perform Becky?

 

2019 Corum Research Report, 6 Sectors: Consumer

Becky Hill

Valuations in the consumer sector were relatively stable for 2018 with a significant increase in September and a sharp drop the following month. Non-gaming consumer valuations did increase but with no significant EBITDA. As usual, the majority of consumer deals were in the gaming subsectors, particularly in Europe where THQ make three gaming acquisitions -- German Koch Media, Swedish BugBear and Swedish Coffee Stain.

There were also a number of other global gaming deals. Finnish mobile gaming company Small Giant games was acquired for $560 million by Zynga. US based mobile and VR games developer Seismic Games was picked up by Pokémon Go creator Niantic. In India, mobile games developer Next Wave Multimedia was purchased by gaming company Nazara Technologies. And Hong Kong publisher Animoca Brands paid nearly $5 million for Pixowl.

However, Microsoft was the most active studio acquire, pocketing seven gaming companies for additional Xbox inclusives, which pushed it to the number three strategic acquirer overall. In the gambling world, Sky Betting was bought for $4.7 billion by Poker Stars owner Stars Group, claiming it creates the world's largest public online gaming company.

Slovenian online gambling platform, Oryx Gaming, was acquired for $8.7 million by Breaking Data to leverage its Facebook audience assets into this horse betting market. Swedish online casino, Mr. Green, was picked up for more than $308 million by UK bookmaker William Hill to strengthen its European presence.

In the entertainment space, digital channel provider RLJ Entertainment was acquired for $274 million by AMC Networks, a subsidiary or China’s conglomerate Wanda Group, to extend its direct to consumer subscription services. Music streaming consolidated and music service Stingray bought Qello Concerts for $12 million. And Beatport bought DJ streaming service Pulselocker.

In ride sharing, Korean carpool startup LUXI was pocketed for more than $23 million by web giant Kakao to complement its taxi hailing service. Russian carpooling platform Beep Car was bought from Mail.RU by rival BlaBlaCar. And Brazil's ride hailing app 99 was picked up by a Chinese car booking group DiDi Shuxing to expand into Latin America, bringing DiDi back into competition with Uber.

What happened in internet Amanda?

 

2019 Corum Research Report, 6 Sectors: Internet

Amanda Tallman

After a jump off January the internet market multiples steadily dropped across nearly all subsectors had the lowest point since 2016 by the end of the year. Still deal flow continues, driven by the composite commerce trend and consistent consolidation in the travel and leisure subsector. Including food delivery, the Berlin based Delivery Hero sold its German business to Takeaway.com for a bit more than a billion at almost nine times revenue shifting its focusing emerging market.

Food delivery M&A seems to have been overtaken by meal kit delivery from such movers like Hello Fresh competing with grocery stores such as Kroger and Carrefour. Also in the food tech space, AI startup Wellio was acquired by US food giant Kraft Heinz to help them start a digital hub. Traditional retailers went on a shopping spree seeking new ways to connect with their audience.

L’Oréal acquired South Korean clothing retailer Nanda and alternate reality developer Modiface.

Ulta followed suit picking up two AI grossing companies.  Nordstrom rolled up texting tool developer MessageYes and digital selling platform BevyUp to boost its personalization expertise; and David’s Bridal bought Seattle based online gift registry startup BluePrint.

The growing pet care sub sector also unleashed a number of composite commerce deals, with CPG giants Nestle and Colgate-Palmolive making deals both directly and through subsidiaries.  Connected pet tech in particular was in demand even seeing a megadeal, with Merck acquiring Antelliq.

In the e-commerce arena, we saw some big players expanding into new regions.  In addition to Walmart’s Flipkart acquisition, Alibaba did deals in Turkey and South Asia, Ebay did a deal in Japan.  And Chinese retailer lightinthebox acquired ezbuy in Singapore, putting the seller’s CEO at the helm of the acquirer.

Private equity also did opportunistic deals in this space, picking up retailers in Latin America, the Nordics, and Asia. Ticketing consolidation continued globally with acquisitions of traditional ticketing websites as well as crowd funding and blockchain technology. Travel booking deal flow remained steady with M&A happening around the world including notable deals in the middle east on both the buy and sell side.
The more traditional US players were active too, as Booking bought two companies including tour and activities software provider FareHarbor for roughly $250 million and just a day later, TripAdvisor also entered the local activities space with its acquisition of Iceland’s Bokun.

 

2019 Corum Research Report, 6 Sectors: Infrastructure

Amber Stoner

Infrastructure sector multiples ended 2018 at 12-month lows after a steady year. However, most subsectors defied the changing market landscape, with Security particularly resistant to the turbulence.

Late last year, AI-based cybersecurity firm Cylance was bought for $1.4B at nearly 11x revenue, by pivoted smartphone pioneer BlackBerry.  Other security deals of note included phishing security training solutions provider Wombat Security, bought for $225M, 5.6x revenue, by Proofpoint to shore up its threat intelligence suite.  Israel's Vaultive, which develops solutions to protect privileged cloud accounts, was acquired by CyberArk for $19M, at 9.5x revenue, to expand its encryption portfolio.  And Palo Alto Networks and Mimecast both made 2 acquisitions in the space.

Identity and access management companies were of particular interest among security deals last year with buyers including KPMG, Amdocs, and others.   Secure access software developer Bomgar was acquired by Francisco Partners and then bolted on Avecto and BeyondTrust.  Employee identity protection firm InfoArmor was snapped up for $525M, almost 9x revenue, by Allstate in the largest software acquisition by an insurance company in a decade.

Open source solutions drew buyer interest as well. CoreOS, creator of an operating system for containerized environments, was picked up for $250M, over 16x revenue, by Linux powerhouse Red Hat and announced late last year, of course, RedHat being bought for $34B by IBM in the largest pure software acquisition to date.

The RegTech trend drove deals in business continuity. Continuity Logic, which develops disaster recovery and risk management SaaS, was acquired for $7.5M by sales enablement platform Fision to enhance their data capture capabilities.  Backup and recovery software provider Strategic BCP was bought by Australian risk management giant SAI Global to expand its integrated risk management portfolio.  And Sungard sold its enterprise continuity software business, Assurance, to Resurgens Technology Partners.

Instrument maker AMETEK made 5 acquisitions in 2018, including paying $525M, at over 3x revenue, for mobile asset management SaaS company Telular for its IoT capabilities.  Finally, in incident and application monitoring, Boston-based OpsGenie, which provides a platform to help DevOps and IT manage critical alerts and incidents, was bought for $295M by Atlassian.

Application monitoring SaaS provider Netsil was picked up for $70M by virtualization specialist Nutanix in response to the growing demand for fixing misbehaving containerized applications.   Which also influenced the acquisition of container-based application monitoring SaaS provider CoScale by ALM company New Relic in its first deal in three years.

How did IT Services fare Matt?

 

2019 Corum Research Report, 6 Sectors: IT Services

Matt Rung

Last fall, IT Services valuations in developed markets declined sharply after a 3 year climb, with emerging markets following suit. Acquisition leaders continue to be giants like Accenture, that racked up 23 companies across 4 key areas.  Such as...in product design services: hardware engineering firm MindTribe.  In Integration & Consulting: Oracle-based PrimeQ. In Digital Marketing, 3D-enabled content creator Mackevision.  And in AI-Based Analytics, Kogentix.

Deals in Focused IT services were seen in: software platforms, tech trends, and specific subsectors.  Turning first to representative ecosystem integrators...

Cincinnati-based Microsoft partner: Cardinal Solutions was acquired for $79M by Insight Enterprises.  Oracle-focused Cedar Consulting, specializing in HR transformation services, was acquired by Version 1 to expand its footprint in the UK.  Salesforce consulting partner: CloudinIT out of New Zealand was acquired by Deloitte.  And AWS specialist (“Rain Cloud”) REAN Cloud was purchased for $120M by Hitachi Vantara.

There were a number of cross-border acquisitions of Custom Software Development companies throughout the year as well.  In the UK, Northgate Public Services was acquired for nearly $645M by Japan's NEC Corporation.  NPS then went on to make two more acquisitions, including one just last week.  Innovation product designer Continuum was purchased for a bit more than $50M by EPAM - in its largest deal ever.

With more deals across the US and Europe...

In particularly high demand were firms focused on one or more disruptive trends...with IOT and AI driving deals world wide.  AI-based systems developer Softweb Solutions was snapped up by embedded solutions distributor Avnet to add AI to its ecosystem and bolster IoT capabilities.  IoT technical service provider Trusource Labs was acquired by Singapore’s Everise to expand its help desk offerings and product experiences.  And Boston-based IoT products designer Essential Design was nabbed by PA Consulting.

Looking at firms focused within specific sectors...there was significant interest across the automotive landscape - from car sales specialists, to telematics and security, to autonomous vehicles...

Elon Gasper

And in the first mega deal of 2019, no not the largest now after Fiserv’s yesterday, DXC paid $2 billion at a hefty two times revenue for Luxoft in a consolidation driven by Luxoft’s access to scarce digital talent and low cost labor locations, then driven to an 86% premium. Almost double its public market value upon exit. A great way to start 2019. Hey Tim?

 

2019 Annual Luminary Panel: Salesforce

Tim Goddard

Indeed. Indeed. Thank you Elon. Now let's jump to our luminary panel. Looking forward to having a nice diverse set of perspectives. We got Peter Coffee, the VP of Strategy at Salesforce; Henry Hu in corporate development at IBM and Reese Jones, a Silicon Valley futurist, entrepreneur and lots of other things, co-founder of Singularity University, among a lot of other titles.

So, let's just into this right now with Peter's thoughts. Peter, the question for all three of our panelists is what are the trends and things that an audience of CEOs should be looking at as they consider their strategic options for 2019, in particular starting with maybe the Corum set trends that's not a foundation because we talked about those already. Peter?

Peter Coffee

I look forward to starting each year with this even because it's such a useful focusing device for things that have gone in many directions during the year before. Going to 2019 I'm sure we'll hear various people say that this is the year of blockchain or the year of 5G or the year of everyday AI or the year of some other specific technology. And some of those are included or implied by this year's Corum list of disruptive technology trends and it's a good list.

But it also challenges us to ask if there's any shared idea that's valuable to identify and keep in mind. I think it's the idea of working backwards from the future instead of forward from the present. Because when we try to go forward from where we are now we fall into traps of incremental improvement and doing an old thing better until after it's become the wrong thing entirely.

For example, a bigger, faster database of the familiar kind stops being an improvement in a world where data originates globally in real time in communities of shared interest but with limited mutual trust. We need to distributed, shared truth models to address that need. Blockchain in its related model like Altherium are no longer fringed technologies when counties in Nevada are using them for birth and marriage records. And when China is rolling out a blockchain base interbank training platform.

If you start to thinking years from now and work back toward today you'll be designing for a connection rich and cooperative environment which is indisputably where we'll be living. The same is true for the changing mission of the networks that make it all possible. Late last year Marcus Weldon at Bell Labs called the internet of today a blip with a circular logic in which advertising supports it and it's there for optimized for shopping.

Making that shopping net go faster is not a path to where we should know we'll need to be. What makes 5G interesting is that we'll start to change the definition of what the internet does with much more emphasis on lowered data latency and greater data quality so we can use it to run our factories and drive our trucks and cars. Working backward from that vision will drive better decisions than what we'll get if we just move forwards from where we are now.

All of the Corum top 10 trends is presumed an environment of cooperative trust in our data and reliable measurement and action for doing the things that our data informs. These are the supporting structures for the skyline of that future. And we'll do well to remind ourselves that we're building for that future and not just renovating the past.

Tim Goddard

Great. Thank you Peter. Now, Henry, what are thoughts?

 

2019 Annual Luminary Panel: IBM

Henry Hu

Thanks Tim and Corum team. Many in the audience probably have the same questions I do. These 10 technology trends sound great but how will they help my business succeed and make a potential exit. My recommendation is don't focus on which technology buzzword can help you sell your company, focus instead on which technology can help you build a better business.

Technologies are tools, not an end goal. The goal is to use the tools to solve problems and add value to others. Technology trends reflect the market demand and supply for such tools. What drives market demand though are the real world problems. I recommend you consider the following three set of questions as you explore strategic options.

Number one, how compelling are the problems that you can solve now? An example of compelling problems may be to fight financial crimes and help banks avoid millions of dollars of losses and potential fines. Number two, how compelling is your current solutions? Peter Field, co-founder of PayPal said for a new technology to breakthrough in the market it needs to have 10 X improvement over the existing value proposition.

Can you make your solution the simplest and most effective to solve a problem? If we continue on the example of fighting financial crimes, can you leverage a blockchain platform to facilitate financial transactions. Use AI to track criminals and significantly improve transaction safety at lower costs. Number three, if you want to grow your business for the long term how can you build a compelling economic mode for your company?

Speed of developing new solutions can be a mode. If it takes too long on your own, maybe partner with a tech and service provider. You and your partners can apply those 10 technologies to drive network effects, and lower operational costs. These will become your real economic mode. When you are solving a compelling problems with a compelling solutions and building a compelling economic mode you will attain prosperity for your venture. A rewarding asset may come as one of the benefits.

More important benefit will be that you leave a legacy, creating a legendary solution for a grand challenge, making the world a better place. Thank you.

Tim Goddard

Thank you Henry. Now, over to Reese Jones who's currently I believe in Switzerland. Reese what are your thoughts?

 

2019 Annual Luminary Panel: Singularity University

Reese Jones

I think the hot topic for this year I'd like to mention is AI going into almost everything. And AI is basically software learning from data. And Bill Gates used to use the term softer software which is adaptive software. And Sundar Pichai the current CEO of Google has said AI will be as important for humanity as the invention of either fire or electricity. And that's a pretty high accolade for the impact is likely to have and they've made Google AI first company in the same way as other companies are defining their vision as mobile first.

This kind of smarter software can monitor people. For example, in connected health, tracking their data that can be compared against patterns that are recognized in other people who based on their disease state what has changed in their data. So, for example, listening to your voice mail, AIs can now recognize just from the tone of your voice the likelihood of whether you're getting Parkinson's Disease or not. And this type of thing broadly applied to medicine and health will have a big impact.

And then, data security is an issue that many data breaches of companies holding data bout people happen in the past year and these are likely to continue. Security is still an issue and people volunteer their data into these systems but there's starting to be more public blow back as to how that data is treated and violated. And the US, we have credit scores for people that based on their history of paying back money that they borrowed and credit score allows you to buy a house or get a car or other types of things that people view as normal.

China has added to that a social credit score which not only is your financial history but your behavior as a citizen and they are intending to rank the citizens based on how good or bad they are. These rankings will allow you to get on planes or colleges or other types of things. One of the applications is a distributed decentralized enforcement of good citizen policy. So, for example, walking in a crosswalk against the light your face is recognized, your violation is recognized, your name and face are put up on a big screen to embarrass you for the bad act and your social credit score goes down which makes it difficult to live in the future.

So these kind of things are broadly impacting society in many ways, and those are both business applications and things that will likely result in cultural change and various kinds of blow back.

Tim Goddard

Yeah, thank you Reese. I think we are seeing some of that blow back already. It'll be interesting to see how that plays out. So, in the audience, if you have a question please do send them in. one of the things that we're seeing questions a lot about are just how do all this stuff impact my particular market. Everything from defense market to mental health and things like that.

Peter, any thoughts on how people should be when they're looking at these specific things in this sorts of specific markets what they should be thinking about?

 

2019 Annual Luminary Panel: Further Thoughts

Peter Coffee

I had a conversation recently at PARC which used to be Xerox PARC, of course the birthplace of so many things, where I shared a comment from Harvard Business that said lots of people think they have a strategy and what they actually have is a plan or worse yet just a goal. That strategies generate plans. That to me I probably need to put it on a t-shirt.

A strategy means that over a wide range of foreseeable conditions you don't have to start from scratch and say what are we going to do. Your strategy is a family of plans. It's an equation to resolve and the parameters change. I think the thing that's going on right now is everybody needs to be thinking parametrically about things like well what happens in China, what happens with Brexit, what happens with this. Your own prediction, for example, there won't be major US privacy legislation passed this year.

Well just yesterday Senator Rubio introduced a bill for privacy legislation that would pre-empt the patchwork of state rule. How do you prepare yourself for that? So I think right now the question is not what's the best plan but what's the most resilient strategy that accommodates the widest range of possible plans. And when you're talking about things like defense and health and other you have to triangulate, you have to start reminding yourself the defense department is one of the world's largest consumers of health services.

The degree to which what you used to think of as automobile manufacturing companies are now becoming integrated transportation services providers with a manufacturing arm kind of like IBM Global Services being a consulting company with a hardware building arm. It really does require looking at things through wide angel lenses and not through microscopes.

Tim Goddard

I think that comment on resilience is really relevant. And, again, it echoes what we're hearing.  So, on that note, Henry, any thoughts along these lines?

Henry Hu

I'm sorry, my audio went out a bit. Can you repeat the question again? Apologize.

Tim Goddard

Sure. Sure. I think Peter was talking about the importance of parametric plan and resilience business models and so forth. You hit on that a little bit in your first talk but I was wondering if you're seeing some of that in particular sort of as we go into this new year as being even more relevant.

Henry Hu

Yeah, certainly I recommend the companies considering strategic options continue build, enhance the, I call it, economic mode but you can call it resiliency, especially in this uncertain times. So, whether it's IT, whether it's speed of development or the product, because essentially all these critical and will help your case when you eventually try to sell a company. And in the meantime to increase your competitive advantage or mode or resiliency then technology can help you if you can leverage that it to your advantage. You need to build it and partner with someone else to enhance it.

Tim Goddard

Yes, I think that's really important. Then Reese we'll send that sort of same question to you, just this concept of importance of resilience. How do you see that playing out from a technology …

Reese Jones

Well resilience is, of course, important and from a business strategy point of view many companies are designing for a global marketplace and to reach to every country. With recent protectionism type of activities like trade wars and change in governments in many different countries the designing for a global market is somewhat challenging. Once of the perks I've heard is to use a spotted cow strategy which is you design for the cow, which is the global market, and then you put spots on the cow where your design has changed to deal with certain countries like China or others that may be of issue in particular.

Tim Goddard

That's great. Thank you very much. Again, lots of questions about specific markets. We'll have folks reach out to you individually to discuss that further. Right now we have come to the end of our time. Thank you so much to all of our panelists for joining us. Thanks to everybody for hanging in through our audio issues. We will again make sure you get slides and the printed report as that comes out. Hope to see you at one of our live educational events in the near future. With that let's go to our close. Hope to see you back next month for the private equities panel.