A Revenue Rocket perspective by CEO Mike Harvath.

Given all the activity in M&A in the IT services market, and as a service to its partner community, Microsoft will be hosting a session on M&A at the Worldwide Partner Conference in Orlando, Florida July 12-16. This session will be part of the General Session on Partner Profitability and the Impact on Shareholder Value. It will take place on Wednesday, July 15 from 3:30-4:30 pm, and will be hosted by Brent Combest, Director, Partner Profitability & Compete, Microsoft Worldwide Partner Group.

I am privileged to serve on the panel along with Mark Seeley, President of Intellinet, Nicholas Vossburg, Director of Cloud Services at Comparex AG, and formerly CEO of Bearing Point, and John Havlick, Executive Vice President at Comparex AG. This looks to be a terrific opportunity for partner executives eager to get some hands-on insight and experience on how best to navigate their way through an M&A, which is on a tear of late.

As we write this newsletter we have just received a copy of The Global Consulting Mergers and Acquisitions Report 2105, from Equiteq, a global M&A advisory firm. This report validates the tremendous M&A activity in the broad consulting industry, as well as specifically in IT consulting. Among the findings contained in this report are:

• Consulting sector M&A deals increased 13% in 2014 vs. 2013, with deal volume in the IT consulting sector growing 15%.

• IT has historically represented the largest proportion of the overall consulting M&A market. This is due to the high level of innovation that occurs in the broader IT industry relative to other consulting sectors, which drives the continuous need for larger firms to acquire new capabilities, and drives the demand for new, innovative IT consulting firms to enter the market.

• The report indicates strong buyer demand continuing into 2015, although some uncertainty may have an effect on volumes and values in the latter half of the year.

• Across the global consulting industry, a large majority (70%) of M&A volumes are small value deals, of less than $40MM, with 35% of reported acquisitions under $5MM.

• In 2014, there was an upward trend in EBIDTA and revenue multiples, highlighting a seller’s market where demand from buyers is exceeding supply of sellers in the market, ultimately keeping values high.

• On average, between 50%-60% of the deal price is paid up front with the remainder as earn-out over two to three years.

• Transactions in IT consulting are driven by consultancies with strong capabilities in business intelligence, data analytics, cyber security, cloud-based delivery and smart mobile.

• In value terms the trend in revenue multiples of IT consulting firms continued to increase in 2014, while EBIDTA multiples fell in line with the two-year trend. This is most likely explained by the fact that firms in the IT industry typically drive revenue more aggressively than profits, as the ongoing demand for innovation drives the need for internal investments.

• Microsoft, SAP and Oracle are the largest vendors that IT consulting firms focus on, and as such advisors and system integrators of ERP systems continue to make up a large and constant proportion of deals. Microsoft expertise continues to be the largest vendor capability associated with IT consulting M&A deals.

Net, net, it’s a good time for Microsoft partners to be thinking M&A. Deal activity is high propelled by the continuous demand for innovative technologies, particularly those offered by Microsoft.

For those headed to WPC, please join us if you can at the M&A session and/or our reception.

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A conversation with Brent Combest