IT Services, Cloud and Managed Services

M&A Update

Q4 2016 October 31, 2016

Technology and Digital Media Investment Banking + M&A Advisory

Table of Contents

M&A Market Brief .............................................................................................................................................................................................. 3

Global M&A YTD 2016 ................................................................................................................................................................................... 4

Global M&A Deal Value — Quarterly Comparison ................................................................................................................... 4

IT Services, Cloud and Managed Services M&A Drivers for 2016-2020 .................................................................. 5

Notable IT Services M&A Transactions, Q4 2016 ...................................................................................................................... 8

Publicly Traded IT Services Firms Valuation Table (as of 12/31/16) ......................................................................... 9

M&A Spotlight .................................................................................................................................................................................................... 11

Verizon Sells Data Centers to Equinix for $3.6 Billion ......................................................................................................... 11

Windstream and EarthLink to merge in $1.1 billion transaction .................................................................................. 12

United Internet buys Deutsche Telekom’s Strato for 600 mln euros ..................................................................... 13

DISCLAIMER

The information contained herein is of a general nature and is not intended to address the circumstances of any particular company,

individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such

information is accurate as of the date it is received or that it will continue to be accurate in the future. We perform our own research

and also use third party research. No one should act on such information without appropriate professional advice after a thorough

examination of the particular situation. This is not an offer or recommendation to buy or sell securities nor is it a recommendation

to merge, acquire, sell or exit a specific company or entity. We do not hold any equity or debt position in any of the securities listed

herein as of the date of this report.

Sources for our research and data include: PitchBook, MergerMarket, Wall Street Journal, Company Websites, SEC Filings, Bloomberg, TechCrunch

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M&A Market Brief IT Services, Cloud and Manged Services M&A Activity surges in Q4 as compared to Q3 2016

Worldwide

• Despite a series of politicalshockwaves, global M&A activity(17,369 deals, US$ 3.2tn)managed to reach its thirdhighest deal value since 2007(US$ 3.7tn), despite valuedropping 18.1% compared to 2015(18,039 deals, US$ 4.0tn), with 670fewer deals announced. Theoutlook for 2017 remains uncertain,with Brexit negotiations, the natureof president-elect Donald Trump’spresidency, as well as the Frenchand German elections, all underquestion.

• Inbound M&A into Europereached an all-time high value in2016, with 1,280 deals worth US$410.7bn announced, up 35.6% byvalue compared to 2015 (US$302.9bn, 1,303 deals) to reach itshighest total on Mergermarketrecord (since 2001).

United States

• US M&A activity remained strongdespite concerns overgovernement anti-trust policies,the Presidental election, and apossible interest rate hike. UScontinued to be the most soughtafter location for M&A deals byboth deal value and count, with2016 activity (4,951 deals, US$1.5tn) reaching its second highestannual value on Mergermarketrecord (since 2001).

• The US captured 47.5% of theglobal market share, comparedto 10.3% for Europe and 20.3% forAsia.

• Much of 2016's US M&A was dueto soaring inbound activity, with UScompanies sold to foreign entitiesfor a record USD $450.5bn, a 1.5%rise from 2015's previous peak ofUSD $444.0bn. The influx ofoverseas cash scooping up USbusinesses, particularly fromChina, sparked national securityconcerns and the attention of theCommittee on Foreign Investmentin the US (CFIUS).

IT Services

•The software & IT services sectorled in both deal volume andvalue, with 2,252 transactionsvalued at $125.6 billion through2016.

•Strategic buyers announced 881deals in 2016, of which 171 werereported for $65.1 billion inaggregate value.

•Valuations slightly increased fordeals that were publiclyannounced.

•Buyer's interest in cloud softwareand services continues to drive ITservices M&A activity at all sizespectrums of the market.

M&A Multiples Paid in Q4 2016:

EV/Revenue Range: 0.22x to 4.72x

EV/EBITDA Range: 4.07x to 52.73x

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801.5

593.2

420.9

461.2

614.6

465.0

446.8

657.0

759.4

642.5

1280.0

678.2

396.4

432.1

586.4

565.5

560.0

963.9

1039.0

752.6

852.0

684.9

327.6

492.9

599.6

523.0

645.6

856.5

957.5

875.9

734.4

458.8

570.1

713.3

479.4

757.5

571.4

868.5

1205.0

969.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Q1 Q2 Q3 Q4

Global M&A YTD 2016 Global M&A Deal Value — Quarterly Comparison

Source: MergerMarket

Source: Institute for Mergers, Acquisitions and Alliances

Total 3,667.8

Total 2,415.1

Total 1,714.9

Total 2,099.6

Total 2,279.9

Total 2,310.9

Total 2,223.8

Total 3,255.9

Total 3,960.9

Total 3,240.1

Value of deals ($USD bn)

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In the IT Services sector, there were 2,210 total M&A transactions with a value of $78 billion announced in 2016 as compared to 2,217 total M&A transactions announced with a value of $89 billion in 2015.

Source: Institute for Mergers, Acquisitions and Alliances

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IT Services, Cloud and Managed Services M&A Drivers for 2016-2020

Cloud Business

Cloud computing has evolved and matured rapidly over the past few years, which has enabled the

development of increasingly sophisticated and customizable hybrid models. Hybrid tools and

enabling technologies such as the network now allow for discrete management options and

seamless integration with on-premises infrastructure, leading to increasing opportunity for

enterprises that take advantage of these offerings.

Just four of the recent, announced or completed cloud M&A deals—Oracle buying NetSuite,

Microsoft scooping up LinkedIn, Salesforce acquiring Demandware, and Vista Equity acquiring

Marketo*–are together worth about $40 billion. It’s a large amount of money. But one implication

of this M&A activity that is not being discussed much is that it represents $40 billion in cash being

held by large investors that probably needs to find a new home soon, assuming all these deals

close.

There are nearly 30 cloud “unicorns”—companies valued at $1 billion or more—waiting in the wings

to go public, and I think we’ll see some of them stage IPOs. 2017 could be a busy year for new

issues as the Cloud Circle of Life continues.

Source: https://www.comparethecloud.net/articles/hybrid-cloud-the-future-of-infrastructure/ https://www.battery.com/powered/new-life-tech-ipos/

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Cyber Security

Following current trends in security M&A as well as the general political and social environment,

we expect cybersecurity to remain a hot space throughout 2017.

400 million malware attacks were identified last year alone, according to IDC. A mass migration of

IT services to the cloud, coupled with a huge growth of connected devices, has created a perfect

environment for security breaches. Cars are becoming increasingly connected, mobile payment

applications proliferate and continuously updated mobile applications, wearable tech and IoT all

come with security vulnerabilities.

The pureplay cybersecurity players will likely continue to seek acquisitions to retain competitive

advantage whilst tech corporates scramble to find security companies to complement their

current offerings. The large consultancies with Accenture in the forefront are also likely to keep a

keen eye on the space for potential opportunities along with Private Equity houses.

Artificial Intelligence Nearly 140 private companies working to advance artificial intelligence technologies have been acquired since 2011, with over 40 acquisitions taking place in 2016 alone. Corporate giants like Google, IBM, Yahoo, Intel, Apple and Salesforce, are competing in the race to acquire private AI companies, with Samsung emerging as a new entrant in October with its acquisition of startup Viv Labs, which is developing a Siri-like AI assistant, and GE making 2 AI acquisitions in November 2016. Anywhere there is a critical problem that involves analyzing data at scales beyond that humans can handle using current analytics tools is ripe for being transformed by machine learning.

There is a surplus of investment capital poured into a sector creating hundreds of innovative

companies. A few will grow and become standalone companies, go public and survive for a couple

of decades or more.

However, by far, most will be acquired to fill in the gaps at larger vendors who will use M&A to

acquire the AI skills and technology they lack in house.

Source: CB Insights, Hampleton Partners

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Notable IT Services M&A Transactions, Q4 2016

Deal Date Company (Seller) Name Buyer Description

Deal Size

(million, USD)

EV/ Revenue EV/ EBITDA

26-Dec-16 ASG Group Nomura Research Institute

Provider of information

technology services in Australia.

256.29 1.84x 12.96x

15-Dec-16 Strato United Internet Provider for the hosting of cloud

computing services. 632.52 4.72x 12.37x

6-Dec-16 Verizon (24 data center sites) Equinix Provider of data

center services. 3,600.00

28-Nov-16 Frontica Cognizant

Technology Solutions

Provider of business outsourcing services. 121.89 0.22x 4.07x

16-Nov-16 The Radiant Group Digitalglobe

Provider of special operations and

military intelligence services and technology.

140 1.40x

11-Nov-16 Virtual Security Research NCC Group

Provider of information security consulting services.

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7-Nov-16 EarthLink (ELNK) Windstream

Provider of internet access and related

value-added services to individual and

business customers nationwide.

1,100.00 1.11x 5.69x

31-Oct-16 Softeco Sismat Terni Energia

Provider of IT services, software

products and solutions

11.04

10-Oct-16 Lumagate Innofactor

Provider of cloud computing and

technical advisory services.

11.6 1.22x 52.73x

EV/Revenue Range: 0.22x to 4.72x EV/EBITDA Range: 4.07x to 52.73x Source: Solganick & Co. Analysis, Pitchbook

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Publicly Traded IT Services Firms Valuation Table (as of 12/31/16)

IT Consulting Ticker Stock Price Market Cap (mm) EV/ Revenue

EV/ EBITDA

CRA International CRAI $36.6 $278.32 0.79x 9.96x

FTI Consulting FCN $45.08 $1,730 1.08x 9.69x

Huron Consulting Group HURN $50.65 $955.55 1.75x 8.42x

Information Services Group III $3.64 $124..9 0.77x 10.43x

Navigant Consulting NCI $26.18 $1,170 1.45x 9.56x

Resources Global Professionals RECN $19.25 $512.73 0.86x 9.91x

The Advisory Board Company ABCO $33.25 $1,690.0 2.71x 18.72x

The Hackett Group HCKT $17.66 $485.98 1.87x 13.28x

Average 1.41x 11.2x

System Integrators Ticker Stock Price Market Cap (mm)

EV/ Revenue EV/ EBITDA

Accenture ACN $117.13 $63,020 2.03x 12x

Capgemini CAP.P

A $80.15 $12,780 1.25x 10.13x

Ciber CBR $0.63 $50.97 0.12x -2.28x

CGI Group GIB $48.03 $14,220 1.98x 11.63x

Edgewater Technology EDGW $7.50 $94.21 0.71x 12.45x

The Hackett Group HCKT $17.66 $485.98 1.87x 13.28x

Perficient PRFT $17.59 $634.57 1.36x 11.98x

Average 1.3x 9.9x

Value Added Resellers (VAR) Ticker Stock Price Market Cap (mm)

EV/ Revenue EV/ EBITDA

CDW CDW $52.09 $8,340 0.86x 11.22x

ePlus PLUS $115.2 $784.18 0.74x 10.01x

Insight Enterprises NSIT $40.44 $1,320 0.28x 8.26x

Average 0.63x 9.8x

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Outsourcing Ticker Stock Price Market Cap (mm) EV/ Revenue EV/ EBITDA

Accenture ACN $117.13 $63,020 2.03x 12x

Atos ATO.PA $100.25 $10,350 0.89x 7.02x

Computer Sciences CSC $59.42 $8,790 1.5x 11.95x

Hewlett-Packard HPQ $23.14 $38,050 0.82x 5.24x

IBM IBM $165.99 $161,450 2.38x 10.9x

Unisys UIS $14.95 $654.84 0.22x 3.19x

Average 1.2x 8.4x

Offshore Ticker Stock Price Market Cap (mm) EV/ Revenue EV/ EBITDA

Cognizant Technology Solutions CTSH $56.03 $34,560 2.29x 11.48x

Infosys INFY $14.83 $31,940 2.82x 10.19x

Syntel SYNT $19.79 $1,780 2.2x 7.76x

Virtusa VRTU $25.12 $804.79 1.08x 18.72x

Wipro WIT $9.68 $17,565 2.63x 13.15x

Average 2.2x 12.3x

Source: Solganick & Co. Analysis, Yahoo Finance

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M&A Spotlight

Verizon Sells Data Centers to Equinix for $3.6 Billion December 6, 2016 - Equinix, Inc. (Nasdaq: EQIX), the global interconnection and data center company,

announced on December 6 that it has entered into a definitive agreement to purchase a portfolio of 24 data

center sites and their operations from Verizon Communications Inc. (NYSE, Nasdaq: VZ) for $3.6 billion in an

all cash transaction. The 24 sites consist of 29 data center buildings across 15 metro areas. The addition of

these strategic facilities and customers will further strengthen Equinix's global platform by: increasing

interconnection in the U.S. and Latin America; opening three new markets in Bogotá, Culpeper and Houston;

and accelerating Equinix's penetration of the enterprise and strategic market sectors, including government

and energy.

The acquisition of these assets will enable Equinix customers to further respond to a key market trend that

is enabling their evolution from traditional businesses to "digital businesses" -- the need to globally

interconnect with people, locations, cloud services and data. Additionally, customers will have the

opportunity to operate on an expanded global platform to process, store and distribute larger volumes of

latency sensitive data and applications at the digital edge, closer to end-users and local markets.

The acquired portfolio includes approximately 900 customers, with a significant number of enterprise

customers new to Equinix's platform, and it adds approximately 2.4 million gross square feet. It will bring

Equinix's total global footprint to 175 data centers in 43 markets and approximately 17 million gross square

feet across the Americas, Europe and Asia-Pacific markets.

Source: http://www.equinix.com/newsroom/press-releases/pr/123510/equinix-to-acquire-portfolio-of-24-data-center-sites-

from-verizon-in-3-6-billion-deal/

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Windstream and EarthLink to merge in $1.1 billion transaction Nov. 07, 2016 – Windstream Holdings, Inc. (Nasdaq: WIN) (“Windstream”) and EarthLink Holdings Corp.

(Nasdaq: ELNK) (“EarthLink”) announced that their boards of directors have unanimously approved a

definitive merger agreement under which Windstream and EarthLink will merge in an all-stock transaction

valued at approximately $1.1 billion, including debt.

The combined company will have increased scale and scope giving it the ability to leverage best practices

across a broader platform, and offer customers expanded products, services and enhanced enterprise

solutions. The combination will result in an extensive national footprint spanning approximately 145,000

fiber route miles and provide advanced network connectivity, managed services, voice, internet and other

value-added services. Customers will also benefit from combining Windstream’s scale in the Enterprise

segment and EarthLink’s successful launch of SD-WAN.

“The combination with EarthLink further advances Windstream’s strategy by creating a stronger, more

competitive business to serve our customers while increasing free cash flow and reducing leverage,” said

Tony Thomas, president and chief executive officer at Windstream. “With this transaction, we are combining

two highly complementary organizations with closely aligned operating strategies and business unit

structures. We look forward to working with the talented EarthLink team to create significant benefits and

drive value for all of our stakeholders.”

Sources: http://news.windstream.com/article_display.cfm?article_id=1770

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United Internet buys Deutsche Telekom’s Strato for 600 mln euros Dec. 15, 2016 – German internet service provider United Internet has agreed to buy web hosting business

Strato from Deutsche Telekom for around 600 million euros ($629 million) in cash, as the sector continues

to consolidate. The acquisition will add more than 2 million customer contracts and almost 130 million euros

in annual sales to United Internet's business.

"The acquisition of Strato will enable us to expand our leading market position in the European hosting and

cloud application business and drive the consolidation of a market which is currently still strongly

fragmented," United Internet Chief Executive Ralph Dommermuth said.

Sources: http://www.reuters.com/article/deutsche-telekom-ma-united-internet-idUSL5N1EA1DK

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About Solganick & Co.

Solganick & Co., Inc. is an independent investment banking and M&A advisory firm focused exclusively on the global Software, IT Services and Digital Media industry sectors. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with entrepreneurs, companies and leading private equity firms within the sectors we cover. Please contact us for information regarding this report or to inquire about an M&A transaction.

Solganick & Co., Inc. Los Angeles: 515 S. Flower St. Ste 500, Los Angeles, CA 90071 San Francisco: 71 Stevenson St Ste 400, San Francisco, CA 94105 Phone: +1 (310) 684-3130 www.solganickco.com Aaron Solganick, CEO Alexander Khoras, Director of Business Development aaron@solganickco.com akhoras@solganickco.com Rachael Fang, Associate Michael Okayo, Associate rfang@solganickco.com mokayo@solganickco.com Erica Xue, Analyst exue@solganickco.com Follow Us on Twitter: @Solganickco