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Competitive landscape drives recent technology M&A deals

After a lull in merger and acquisition activity, a slew of buyouts show channel firms shoring up resources, expanding geographic reach and pushing into vertical markets.

Merger and acquisition (M&A) activity is picking up in the channel as companies look to strengthen skill sets in key technologies, geographies and vertical markets.

Transactions involve a range of companies, including managed services providers (MSPs), cloud services providers and business process outsourcing firms. Deals may be localized or international in scope. Consider the following recent M&A moves:

  • In June, Aldridge, an MSP and professional services firm based in Houston, acquired Clyde Bennett & Associates, an electronic medical records reseller in Austin, Texas. Just a few weeks earlier, Aldridge purchased IS Support Inc., an MSP located in Houston.
  • In July, Fruition Partners, a Chicago-based IT services company focused on service management, acquired Partners in IT Ltd., a company based in the United Kingdom. Both companies specialize in ServiceNow's IT service management platform, which resides in the cloud.
  • Also this month, Teleperformance, a French outsourcing firm, agreed to purchase Aegis USA Inc., an outsourcing and technology company with operations in the U.S., the Philippines and Costa Rica. The transaction is valued at $610 million, according to Teleperformance.

Such transactions stand in contrast to the first half of 2013, which saw the number of deals decline. During that period, quarterly deal volume slipped below 2009 levels, when the recession was still underway, according to PricewaterhouseCoopers' U.S. Technology Deal Insights report. Published earlier this year, the report said deal activity picked up sharply during the second half of 2013, adding that 2014 appears "well positioned to resurrect the headier days of technology M&A."

While the deal report covers the technology industry in general, it refers to several areas that PricewaterhouseCoopers believe will see increased M&A activity. Those areas include cloud technology, big data and companies providing industry-specific solutions in such segments as healthcare.

While an improved economy provides a better foundation for deal-making, other factors are also at play. The maturation of some IT industry segments, such as managed services, contributes to consolidation. In addition, the entry of large IT services companies into areas once considered niche markets compels smaller companies to acquire greater mass.

Expanding skills, resources

A desire to expand the pool of expertise available to support a particular technology is one factor influencing the current technology M&A phase. Fruition Partners' purchase of Partners in IT provides an example. The acquisition extends Fruition Partners' reach as a global ServiceNow systems integrator, according to the company. The combined operation now employs about 300 practitioners who provide ServiceNow cloud deployment services and service management consulting.

[Organic regional expansion] is a very expensive endeavor. An acquisition is a great way to do it.
Mark Learyvice president, Aldridge

Marc Talluto, CEO of Fruition Partners, said he believes that his company has four times the number of ServiceNow implementation specialists as the nearest competitor. The company's resource expansion comes as global integrators begin to move into the ServiceNow space.

"In the last two years in the ServiceNow ecosystem, we have seen KPMG and Deloitte and now Accenture -- very large names -- coming in," Talluto said.

Talluto said the larger firms have accelerated their commitment as their customers seek to transition from legacy IT service management products to ServiceNow. The push into ServiceNow contrasts with the early days of the ServiceNow ecosystem: He said there were only three ServiceNow partners in 2009.

Fruition Partners' purchase isn't the only ServiceNow-centric deal. Last year, Cloud Sherpas, an Atlanta-based cloud services provider, acquired Navigis, which provides consulting and advisory services to customers deploying ServiceNow.

Teleperformance's pending Aegis USA acquisition, meanwhile, aims to grow its call center operations. Aegis USA runs customer contact centers that handle voice and chat communications as well as social media monitoring. According to a Teleperformance statement, the business to be acquired encompasses 19,000 full-time employees across 16 call centers. The deal is expected to close in the third quarter of 2014.

Peter Ryan, principal analyst with technology research and advisory firm Ovum's IT Services team, suggested that Teleperformance aims to build a larger pool of resources at a time when competitors are doing the same. Ovum is a division of Informa Telecoms & Media Ltd.

"Defensively, it helps Teleperformance shore up capacity in an industry where consolidation has been pervasive over the past 24 months," Ryan said.

In some cases, channel partners are purchasing the technology itself, rather than the service providers supporting a technology. In June, Intelligent Decisions Inc., an integrator based in Ashburn, Virginia, purchased the "rights, assets and intellectual property" associated with Quantum3D Inc.'s ExpeditionDI product line, the company reported. Quantum3D is a San Jose, California, maker of visual communications technology. ExpeditionDI is a simulation product for infantry training.

The purchase complements Intelligent Decisions' business in simulation and training, the company noted. ExpeditionDI was one of a number of technologies Intelligent Decisions used to build the Dismounted Soldier Training System, a virtual training solution for the U.S. Army. Now that the company has acquired ExpeditionDI, it can extend that platform to meet other customers' needs, said Clarence Pape, vice president of simulation and training at Intelligent Decisions. He said potential customers for the technology include law enforcement and emergency management personnel.

"This [acquisition] will allow us to develop solutions that will extend the offering into those types of markets," Pape explained.

Geographic coverage

Geographic expansion also drives recent technology M&As. Aegis USA, for example, would provide Paris-based Teleperformance with a larger U.S. presence and the opportunity to cash in on the improving economy.

Ryan said Teleperformance will be in a strong position to take on higher call volumes as U.S. consumer activity increases through the coming months. That growing volume, he noted, will compel enterprises to seek out contact center partners to help them deal with both demand and high levels of customer care.

The acquisition will also boost Teleperformance's presence in Costa Rica and the Philippines, where Aegis USA also has operations. Ryan said those countries "already have a strong commercial and cultural affinity with the U.S."

Fruition Partners' purchase of Partners in IT also has a geographic component. Talluto said ServiceNow has gained customers among the Global 2000, which makes it more important to provide coverage beyond the U.S.

"We are starting to see customers with IT departments and user bases spanning New York, Chicago and London," Talluto said.

The goal, he said, is to provide consistent delivery in different geographic regions.

At the local level, Aldridge's purchase of Clyde Bennett & Associates lets the company expand beyond its core markets in Houston and Dallas-Fort Worth. The company now can target small and medium-sized businesses in the Austin area.

Mark Leary, vice president of Aldridge, said it's very difficult to enter a new market and try to grow the business organically.

"It is a very expensive endeavor," Leary said of organic regional expansion. "An acquisition is a great way to do it."

Leary said Aldridge pursues both organic growth and growth-via-acquisition goals. He said the company has been conducting one to four acquisitions per year.

Vertical leap

An acquisition can also help a company enter a new vertical market or scale up activity in an existing vertical specialty.

The Teleperformance/Aegis USA transaction includes a vertical dimension.

"There are obvious vertical benefits to this deal for Teleperformance, especially in U.S. healthcare and travel/tourism, two sectors that Ovum expects will grow their use of [customer relationship management] outsourcing over the next five years," Ryan said.

The Clyde Bennett & Associates acquisition in June provides Aldridge with an expanded health IT focus. The acquired company focuses on small to midsize practices, typically in the five to 300 user range, Leary noted. Those users represent nurses and administrative/billing staff as well as doctors. Clyde Bennett & Associates offers healthcare IT consulting, software -- it partners with McKesson Corp. -- and managed services.

Leary said Aldridge previously had some healthcare customers, such as optometrist practices, but not on the scale of Clyde Bennett & Associates' customers.

"This is the first time ... we are deep in that industry," Leary said.

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