UARTERLY • Q2 2016 - Bowstring Advisors€¦ · U.S. HCM M&A Transactions by Quarter (2012 –Q2...

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QUARTERLY UPDATE • Q2 2016

INSIDE THIS ISSUE: The First Word: U.S. Middle-Market M&A Shines Despite Global Uncertainty

With this crazy political season now in full swing, “Brexit” and terrorism/violence fears, Q2was volatile from a global perspective. Amidst this uncertainty, U.S. middle-market activityremained quite healthy. While total M&A activity again ticked down in Q2, middle-markettransactions (under $500 million in transaction value) accounted for nearly 70% of thetransaction volume. Valuations and leverage levels appear to be holding firm.

Transactions between $25 – $100MM accounted for over 25% of all transaction activity, thehighest proportion since 2012. Transactions from $100 - $500MM actually saw volumeincrease 22% in Q2 (over Q1). This is likely attributable to the slowing of the lower middle-market surge of the last couple of years – PE firms are beginning to move back up market.

MIDDLE-MARKET PRIVATE EQUITY TRANSACTION ACTIVITY

Once the Brexit fears subsided and with some very strong jobs data in July, the U.S. stockmarket enjoyed one of its strongest months in July. The stock market, typically a forward-looking indicator, seems to point to Wall Street seeing a solid second half ahead. Based onthese indicators, and our pipeline, our belief is that middle-market M&A activity will alsocontinue to be strong throughout 2016.

Healthcare and tech-enabled services, particularly those with segment leadership andrecurring revenue, continue to be hot segments for private equity investment. Two of ourrecent deals reflect this with Travel Nurse across America closing in March and Peoplenetclosing in July.

I hope you enjoy the rest of your summer and cheer on the USA at the Rio Olympics in August!

Jim Childs

The First Word 1

Market Update 2

Selected Transactions 3

Sector Updates 4

About CHILDS 10

CHILDS NEWS AND EVENTS

7/1/16CHILDS advises Peoplenet Corporation in its recapitalization

5/17/16 – 5/19/16CHILDS attends SHRM Conference in Washington, D.C.

5/17/16 – 5/19/16CHILDS attends SAPPHIRE Conference in Orlando, FL

5/17/16 – 5/19/16CHILDS attends ServiceNow Knowledge Conference in Las Vegas, NV

5/12/16CHILDS hosts its 7th Annual Growth Firm Conference in Atlanta, GA with 300+ attendees

4/25/16CHILDS advises Hire Dynamics in its recapitalization by MSouth Equity Partners

4/21/16 – 4/23/16CHILDS attends MD Expo in Dallas, TX

3/31/16CHILDS advises Travel Nurse across America in its recapitalization by Gridiron Capital

3/16/16 – 3/18/16CHILDS attends Channel Partners Conference in Las Vegas, NV

3/2/16CHILDS advises Inmark in its recapitalization by Quad-C Management

CHILDS ADVISORY PARTNERS

3438 PEACHTREE ROAD NEPHIPPS TOWER, SUITE 1400ATLANTA, GA 30326PHONE: 404.751.3000WWW.CHILDSADVISORYPARTNERS.COM

0

100

200

300

400

500

600

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016

<$100M $100M - $500M

2

LOWER MIDDLE-MARKET M&A UPDATE

1,282 1,361 1,407 1,610 1,694

679

701

864 691

861 843

392

720

794834

1027 902

382

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2011 2012 2013 2014 2015 2016*

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mb

er o

f T

ran

sact

ion

s

Under $25M $25M - $100M $100M - $500M

CHILDS Quarterly Update: Q2 2016

LOWER MIDDLE-MARKET U.S. PRIVATE EQUITY DEAL FLOW

Sources: Capital IQ, Dealogic, Pitchbook*Denotes deal flow as of Q2 2016

924 987 980

761 853

942 885 848

651 550

439 482 470

773

560 593 704 749

827 714 706

175

215 204

166

156

198

154 210

158

148

201 200 190

225

226 218

159

198

243

222 170

1,147

1,238 1,218

961

1,039

1,185

1,075 1,116

843

735 690

729 696

1,047

841 854

898

990

1,124

986

910

-

200

400

600

800

1,000

1,200

1,400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2011 2012 2013 2014 2015 2016

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mb

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<$100M $100M - $500M

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RECENT CHILDS TRANSACTIONS


Note: CHILDS represented company listed on top half of tombstone

July 2015

has been acquired by

July 2015


May 2015

has been recapitalized by

May 2015

has acquired

August 2015


September 2015


Highlands Ventures Holdings, LLC

August 2015


September 2015


September 2015


September 2015


October 2015


October 2015


October 2015

has acquired

October 2015

has acquired

November 2015



October 2014October 2014

has been recapitalized byhas been acquired by

November 2014

A Portfolio Company of RLH


March 2015

December 2015


December 2015


December 2015


December 2015


A Portfolio Company of MidOceanPartners

January 2016

has acquired

February 2016


March 2016


A Portfolio Company of Snow Phipps

March 2016


April 2016


March 2015


July 2016

has been recapitalized

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PUBLIC COMPANY ANALYSIS

INDUSTRIAL SERVICES SECTOR UPDATE


Note: Public company data as of July 20, 2016

In this update, we focus on the environmental services market, a large$500+ billion segment of the Industrial Services landscape that isexpected to double global GDP growth in 2016 continuing its strongrecent growth trajectory. The outsized growth in the sector is drivenby a convergence of positive industry tailwinds and strong seculartrends, including increased regulatory oversight, rising corporateawareness, and rapidly aging infrastructure. Trends include:

Increasing regulatory complexity: The environmental regulatorylandscape amongst federal, state, and local entities is incoherentand constantly shifting creating compliance difficulties for bothsmall and large companies. In response, many companies areoutsourcing environmental compliance functions to firmsspecializing in specific areas, such as waste management andrestoration services.

Rising emphasis on environmental compliance andsustainability: High-profile environmental accidents andmounting investor activism are forcing executives to acknowledgea company’s potential environmental impact and illustrate thenecessary guidelines/tools in place to mitigate the associated risk.Corporate environmental liabilities and associated costs cansignificantly damage a firm’s financial performance and brandstrength. As a result, corporate leadership is increasingly focusedon implementing modernized environmental policies based on riskreduction and sustainability.

Positive outlook on infrastructure spend: The aging U.S.infrastructure is environmentally deficient and inadequate to meetthe needs of modern cities and states. The recent water crisis inFlint, Michigan illustrates the critical need for increased spendingon federal and state infrastructure and enhanced tools/technologyto adequately test and measure environmental impact.

The trends highlighted above coupled with increased outsourcing willdrive continued demand for environmental services. We expect to seerobust M&A activity as providers attempt to capitalize on theunderlying growth, industry disruption, and highly fragmentedcompetitive landscape.

Date Closed Buyer Target Target Description

6/30/16 Solterra Recycling Solutions Bridge Disposal Services Provides solid waste, recycling, and disposal services

6/17/16 The Sterling Group Evergreen Industrial Services Provides environmental and industrial cleaning solutions

6/6/16 Waste Connections, Inc. Red River Waste Solutions Provides waste and recycling collection services

5/25/16Russell Reid Waste Hauling &Disposal

Aqua Resources Provides water treatment services

5/19/16 Waste Harmonics, LLC Consolidated Waste Management Provides waste management and recycling programs

5/17/16 Roark Capital Solterra Recycling Solutions Provides waste and recycling collection services

5/16/16 Waste Recovery Enterprises Sivart Services Provides roll-off and compaction services

4/9/16 Parkson Corporation FilterONE USA LLCEngages in the manufacturing, installation, and maintenance ofmunicipal and industrial wastewater treatment equipment

7.6x8.0x

10.2x 10.4x11.1x

0.0x

3.0x

6.0x

9.0x

12.0x

Rental /Route-Based

Industrial /Infrastructure

EnvironmentalServices

FacilitiesServices

Distribution &Logistics

Forward Year EV/EBITDA

70

75

80

85

90

95

100

105

110

115

120

Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16Facilities Services Rental / Route-Based

Environmental Services Distribution & Logistics

Industrial / Infrastructure S&P 500 Index

RECENT M&A TRANSACTIONS - ENVIRONMENTAL SERVICES SECTOR

Valuation Multiples

Last Twelve Months Indexed Stock Price Performance

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Public Valuation Multiples


U.S. HCM M&A Transactions by Quarter (2012 – Q2 2016)

The M&A market for HCM companies remained strong in Q2 albeit lower from recent highs in 2015. In the staffing sector, M&A volumecontinues to be led by professional skill sets and healthcare.

Staffing and Education/Training stocks have lagged the broader S&P 500 continuing to hint at cycle concerns from investors. Most publiccompanies are trading below stock highs of 6-12 months ago.

HR Services stocks have continued to outperform given a confluence of industry trends as companies focus on engagement, deployment,advancement and technology solutions to fundamentally improve operations.

We continue to see strong demand from both strategic acquirers and financial sponsors to invest in HCM companies. In April 2016, CHILDScompleted another HCM transaction with the successful majority recapitalization of Hire Dynamics by MSouth Equity Partners.

Hire Dynamics is an industry leading staffingprovider with 12 branch offices and 22 on-site locations throughout the Southeast.

Serves more than 550 clients and offers workto more than 22,000 individual including 300veterans.

Specializes in contact centers, manufacturingfacilities, logistics/e-commerce and officesupport.

CHILDS Advisory Partners served as theexclusive financial advisor to Hire Dynamics.

In April 2016, MSouth Equity Partnersrecapitalized Hire Dynamics, allowing theowners to achieve partial liquidity while alsoparticipating in the future growth of theCompany.

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Staffing HR Services Index Education & Training S&P 500 Index

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500

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015 2016


July 2016

12.1x

13.3x

6.8x

10.3x 11.2x

13.3x

6.3x

10.6x

9.2x

14.1x

5.7x

10.3x

8.9x

14.7x

6.2x

11.0x

–

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

Staffing HR Services Education & Training S&P 500 Index

Q3-2015 Q4-2015 Q1-2016 Q2-2016


HUMAN CAPITAL MANAGEMENT SECTOR UPDATE


Pending Randstad France SA AUSY SA Technology consulting and engineering

7/7/16 Quad-C Management Rainbow Education Holdings Early learning education provider

7/5/16 TransForce K.A.S. Personnel Services Commercial truck driver and other transportation personnel

7/1/16 Recruit Holdings Simply Hired Builds and operates job search engines

6/7/16 Construction Labor Contractors Skilled Labor Solutions Skilled construction workers and HR management services

RECENT M&A TRANSACTIONS

CHILDS Deal Case Study: Hire DynamicsLast Twelve Months Indexed Stock Price Performance

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HEALTHCARE SERVICES SECTOR UPDATE


Note: Public company data as of July 20, 2016* Closed after Q2-2016

7.9x

9.9x10.6x 10.7x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

Hospitals Outsourced Services Alternate SiteProviders

Home Healthcare


Valuation Multiples

60

70

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100

110

120

Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16

Outsourced Services HospitalsAlternate Site Providers S&P 500 IndexHome Healthcare


Coming off a quarter with the slowest M&A activity in recent years,the 2nd Quarter was notable for the first rollout by the Centers forMedicaid and Medicare Services (CMS) of a mandatory bundledpayment program, holding hospitals financially accountable for thequality and cost of a joint replacement episode of care. What has beendiscussed in theory for years has now begun, however small at first.

Investments in and attention to business models and combinationsthat drive improved patient outcomes through coordinated care anddrive down delivery costs should therefore continue at an acceleratedpace.

Intrinsic to this is the ever-constant pressure on outsourcedhealthcare services providers to maintain the size and scope not onlynecessary to keep up with the hospital and payor consolidation but tomaintain some semblance of leverage at the negotiation table.

Investors should thus remain focused on key macro plays such as:

Care Continuum Combinations, i.e.

- Kindred-Gentiva

- Envision-AmSurg

ACO ecosystems

RCM solution providers

Traditional hospital outsourced services business will also continue tobenefit from provider consolidation and tight budgets. The currentacquisition trends; however, suggest attention is best focused on thosewho have already achieved at least regional scale or those whopossess unique value due to niche dominance or geographic scarcity.

These firms offer the best opportunity for multiple exit lanes andpremium valuations.


6/28/16 Change Healthcare MCK’s Technology SolutionsNew company to offer health plans and provide a suite of end-to-end financial and payment solutions

6/15/16* Envision Healthcare (EVHC) AmSure Corp. (AMSG)Leading ambulatory surgery center and physician practicemanagement company

6/2/16 TeamHealth Tri-City Emergency Medical Emergency medicine physician practice in southern CA

4/4/16 Wellstar Health Systems Tenet Hospitals Five acute care hospitals in the greater Atlanta area

3/31/16 Gridiron Capital Travel Nurse across AmericaLeading travel nurse staffing provider to hospitals and healthcarefacilities


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7/13/16* Evolent Health, Inc. Valence Health, Inc.Provides value-based care solutions for hospitals, health systems,and physicians

6/13/16 The Hearst Corporation MedOK, Inc.Develops and delivers cloud-based care, quality, and compliancesoftware solutions for health plans

5/4/16 Warburg Pincus LLC DocuTAP, Inc.Electronic medical record, practice management, and RCM softwaresolutions for the urgent care and on-demand primary-care markets

4/28/16 GE Healthcare Limited Caradigm USA LLCProvides solutions for population health management includingdata control and healthcare analytics

4/14/16 Navihealth, Inc. Curaspan Health GroupProvider of discharge and care transition solutions for coordinatedcare


HEALTHCARE TECHNOLOGY SECTOR UPDATE


The Affordable Care Act has, since day one, spurred faster and morewidespread adoption of technology and software by healthcareproviders and payors of all shapes and sizes as they adapt to andattempt to keep up with the new yet ever-evolving regulatory andcompetitive landscape.

M&A activity and investment focus in the space remains in full-stridewhile demand grows unabated for solutions that help medicalprofessionals manage core areas such as:

Quality of Care / Care Coordination

Efficient use of Patient Data

Coding, Billing, and Finance

Patient Engagement

Clinical Data Capture

As more and more and businesses implement and utilize tools in theseareas, a recognizable shift is underway as these companies search forrobust analytical solutions. Capturing data, streamlining processes,and improving productivity are noble goals in and of themselves, butusing all the information in a meaningful way to drive both betterpatient outcomes and bottom-line results is the evolutionary secondwave not even close to cresting. Investment and focus in this segmentis following suit.

Lastly, the shift toward consumerism along with the proliferation ofmobile devices and cloud connectivity continue to steer significantinvestment in patient-facing technology.

Valuation Multiples

12.9x

15.4x

11.5x

12.0x

12.5x

13.0x

13.5x

14.0x

14.5x

15.0x

15.5x

16.0x

EMR/PM Clinical/Admin


60

65

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105


EMR/PM Clinical/Admin S&P 500 Index

Note: Public company data as of July 20, 2016* Closed after Q2-2016


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IT & PROFESSIONAL SERVICES SECTOR UPDATE


The IT & Professional Services sector continues to see strong M&Aactivity, with volume up quarter over quarter and year over year in Q22016. Sustaining this activity is the continued rapid evolution andadoption of new technologies, creating attractive investmentopportunities for financial buyers and buy versus build dilemmas forstrategics.

This quarter, we are highlighting the momentum in cybersecurity M&Aactivity that we have seen over the past several quarters.Cybersecurity firms provide cyber consulting and managed securityservices, which often include a combination of security testing andassessments, compliance assessments, security monitoring andalerting, and device management. The market is $7 billion andgrowing 16% a year. While cybersecurity has been around fordecades, several factors are driving this recent uptick in growth andgrowth projections, including:

Increased use of e-commerce and digital data

Heightened regulatory requirements that mandate periodicaudits and remediation

Mobile and cloud environments

Increased frequency of security breaches and cybersecuritythreats

From what we have seen, both strategic and financial buyers areattracted to the sector growth and growing number of new entrants tothe space.

Recent Cybersecurity M&A Transactions

Investcorp acquires Coresec Systems

Optiv (AF Security Holdings) acquires Adaptive Communications, Evatix, & Advancive Technology Solutions

CenturyLink acquires netAura

ViaWest acquires AppliedTrust

Level 3 acquires Black Lotus (The IRC Company)

Carlyle acquires Coalfire Systems

Valuation Multiples



7/5/16 CSC / Fruition Partners Aspediens Holdings Provides technology-enabled solutions for the service-managementsector, and operates as a partner of ServiceNow

6/30/16 J2 Global Overvault, LLCOne of four companies that J2 has acquired in Q2. Overvaultprovides online backup services for small to medium businesses

6/22/16 EPAM Systems DextrysProvides enterprise outsourced software and mobile applicationdevelopment and testing services

6/6/16 New MainStream Capital Avaap, Inc. Healthcare IT consulting firm focused on ERP systems forhealthcare organizations, specifically Infor/Lawson

4/28/16 HIG Capital AVI-SPL, Inc.Designs, builds, integrates, and supports audio visual (AV) andvideo collaboration solutions for various sectors worldwide

4/21/16 PayScale MarketPayProvider of employee comp market pricing, automated salarysurvey management, market intelligence data analytics & reporting


70

80

90

100

110

120

130

Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16

Consulting Services Managed Services/Hosting Federal IT Services

Systems Integrators / VARs S&P 500 Index BPO

6.5x

9.2x9.8x 9.9x

11.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

SystemsIntegrators/VARs

Federal ITServices

BPO ConsultingServices

ManagedServices/Hosting


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7/5/16 KKR & Co. Epicor ERP, retail solutions and retail distribution application software

6/27/16 Infor Predictix Cloud, predictive and machine learning solutions for retailers

6/13/16* Microsoft LinkedIn Online professional social network

6/1/16 Tyler Technologies ExecuTime Software Cloud-based enterprise workforce management solutions

5/20/16 Ultimate Software Vestrics SaaS human capital analytics software and solutions

SOFTWARE SECTOR UPDATE


Note: Public company data as of July 20, 2016* Announcement date

The M&A market for software companies remained strong in Q2 despite headwinds for the larger M&A markets. M&A volume in Q2 forsoftware companies in the U.S. increased 6% over Q1 to 347 transactions. This volume is consistent with levels in 2014 and 2015.

Valuation multiples for publicly traded software companies have rebounded after the market lows in Q1, but have yet to reach the peak levelsin 2015. As of the end of Q2 2016, human resource technology and SaaS companies continue to trade at significant market premiums of 5.9xand 5.6x revenue, respectively.

The CHILDS enterprise software, SaaS and HR technology indices have also regained momentum after significant declines in Q1. The indicesare near highs established in mid-2015.

We continue to see strong demand from both strategic acquirers and financial sponsors to invest in software companies. In July 2016, CHILDScompleted another HR technology transaction with the successful majority recapitalization of Peoplenet.

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2012 2013 2014 2015 2016

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Enterprise Software SaaS HR Technology S&P 500 Index

Peoplenet is a leading provider of workforcemanagement (WFM) SaaS solutions to thecontingent labor market in the U.S., with aspecific focus on time and attendance,expenses, and scheduling.

Blue-chip customer base includes leadingstaffing agencies.

Partners and integrates with leading WFMsoftware providers such as Bond, ADP andAvionte.

CHILDS Advisory Partners served as theexclusive financial advisor to Peoplenet. Wereceived multiple indications of interest andletters of intent as part of the process.

In July 2016, Peoplenet sold a majority interest,allowing the owners to achieve partial liquiditywhile also participating in the future upsideopportunity.

has been recapitalized

July 2016

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

Enterprise Software SaaS HR Tech

Q3 2015 Q4 2015 Q1 2016 Q2 2016

Public Valuation MultiplesU.S. Software M&A Transactions by Quarter (2012 – Q2 2016)

CHILDS Deal Case Study: PeoplenetLast Twelve Months Indexed Stock Price Performance


10

CONTACT INFORMATION

SECTOR FOCUS

OUR SERVICES

ABOUT CHILDS ADVISORY PARTNERS

CHILDS Advisory Partners provides exceptional investment banking services to high‐performing middle-market businesses. Our uniquecombination of sector expertise, process excellence, and a deep, experienced team allows us to achieve successful outcomes for our clients.Collectively, our senior bankers have executed over 450 M&A and financing transactions. CHILDS is a member of FINRA and SIPC and is aregistered broker‐dealer.

Sales and Recapitalizations – CHILDS works with management teams, financial sponsors, and special committees to provide crucial insights into the intricacies and nuances of sale processes

Strategic Acquisitions – Our disciplined methodology coupled with our industry relationships makes CHILDS an ideal buy‐side partner

INDUSTRIAL

SERVICESTECHNOLOGY

HUMAN CAPITAL

MANAGEMENT

IT & PROFESSIONAL

SERVICES

BUSINESS SERVICES

SERVICES SOFTWARE

Jim ChildsCEO

(404) [email protected]

Ross DeDeynManaging Director

Healthcare(404) 751-3018

[email protected]

Tom DonahueManaging Director

Technology(617) 290-5433

[email protected]

Don HolbrookManaging Director


[email protected]

Cooper MillsManaging DirectorBusiness Services(404) 751-3003

[email protected]

Scott RhodesManaging Director


[email protected]

Jason WallaceManaging DirectorBusiness Services(404) 751-3020

[email protected]

Alan BuglerDirector

Business Services(404) 751-3004

[email protected]

Dave PhillipsDirector

Business Services(904) 292-9305

[email protected]

MERGERS & ACQUISITIONS

CAPITAL

RAISES

FINANCIAL & STRATEGIC ADVISORY

Our proprietary knowledge database consists of active debt and equity investors including senior and mezzanine debt and growth equity

CHILDS is continuously in the market assisting its clients to raise capital for a multitude of purposes including organic growth, acquisitions, and one‐time owner dividends

HEALTHCARE TECHNOLOGY

CHILDS can act as a strategic consultant to help leadership teams develop their strategic road map in order to create and enhance shareholder value

We can undertake a detailed analysis of a company’s tangible and intangible valuation drivers as a separate undertaking or as a precursor to an M&A assignment


UARTERLY • Q2 2016 - Bowstring Advisors€¦ · U.S. HCM M&A Transactions by Quarter (2012 –Q2...

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Transcript of UARTERLY • Q2 2016 - Bowstring Advisors€¦ · U.S. HCM M&A Transactions by Quarter (2012 –Q2...