IT Industry News – November 2015

November 2015 saw a number of smaller M&A deals, but not much in the way of mega-deals. The one billion dollar deal saw Expedia pay $3.9 billion for HomeAway as a vehicle to better compete with Airbnb. Zayo Holding Group became the first foreign company to own a Canadian telco after paying $465 million for Allstream. Other, smaller deals saw Apple buy Faceshift, a motion capture company whose technology was used in the latest Star Wars movie; and Lightspeed POS bought SEOshop, increasing its size as a competitor to Shopify. Other deals saw Ingram Micro grow its Brazilian presence with the purchase of ACAO; PCM bought Edmonton-based services firm Acrodex; Data centre company CentriLogic bought infrastructure company Advanced Knowledge Networks; solution provider Scalar Systems bought another Toronto company, professional services firm Eosensa; and Washington-based New Signature bought Toronto-based Microsoft Partner, Imason.

In other news this month, if you do not understand the impact of "blockchain" then you should read up on it, a disruptive technology that will impact the financial sector for sure. It was also interesting to see that 2016 is predicted to bring a 30% increase in the number of "things" on the "Internet of Things", making it a $235 billion market next year. November also saw Blackberry take one on the chin in Pakistan and will need to exit that market before year end, otherwise they would need to share user data with the government.

The economy continues to boom in the US, which once again added 200,000+ jobs and saw many positive indicators. Canada meanwhile, added 44,400 jobs but many of them were temporary and related to the election, and so expected to disappear again in December. The oil sector is desperate with continuing layoffs and while some markets are in decent shape, the mood is not great. It remains to be seen what impact our new Federal Government will have.

In this Issue:

> General Interest
> Company News
> Merger & Acquisition Activity
> Primary Sources


> GENERAL INTEREST

General

The blockchain is emerging as a technology that could bring significant change to the financial sector. Blockchain technology is the engine underpinning Bitcoin, but it has been viewed separately from the cryptocurrency of late. Experts have begun to explore it as an independent technology for applications outside Bitcoin. One of these is in finance and banking. The ability for a digital asset to be sent over the Internet and be settled quickly and have an absolute record of that transaction is very appealing to the financial sector and its regulators. Blockchain technology works by decentralizing everything and instead of a central ledger, all participants in the network hold copies of a single distributed ledger, providing a single record that all can refer to. All transactions in the ledger are cryptographically verified to ensure that no one conducts a fraudulent trade. In the Bitcoin world, this enabled a network of anonymous participants to send funds to each other. Now the banks are looking at creating custom blockchains, where the participants are authenticated.

By the end of 2016, some 6.4 billion ‘things’, devices from toasters and kettles to cars and hospital equipment, will be connected to the internet, according to Gartner. That figure represents a 30% increase from 2015, reaching 20.8 billion by 2020. By 2016, as many as 5.5 million new things will become connected every day. As a result, the growing Internet of Things will support total services spending of $235 billion in 2016, up 22% from 2015.

The economy – Canada

The Canadian staffing index, a measure of staffing activity in Canada, rose in October but continued its trend of moderate year-over-year declines. The index rose to a reading of 110 in October, up 4% from a reading of 107 in September but down 10% from a reading of 123 in October 2014.

Canada added 44,400 jobs in October from September, according to Statistics Canada. The number of full-time jobs rose by 9,000 in October and part-time jobs rose by 35,400. Compared to the same month a year ago, Canada was up by 143,400 jobs — an increase of 0.8% — in October. Canada’s unemployment rate edged down to 7.0% from 7.1% in September.

The economy – US

The Conference Board’s US leading economic index rose sharply in October, suggesting continued expansion heading into the New Year. The index rose 0.6% in October to a reading of 124.1 (2010 = 100), following declines of 0.1% in both September and August.

The Conference Board’s consumer confidence index for the US fell again in November following a moderate decrease in October. The index fell to a reading of 90.4 (1985=100), down from a reading of 99.1 in October.

Small businesses are struggling to hire skilled and specialized labor, according to October data from Indeed’s small business index. The report found 33% of electronic equipment installation and repair positions were still open after 90 days. Chiropractors and painters followed closely at 32% each. Additionally, 30% of brickmason positions and 27% of machine tool operator positions were still open after 90 days.

The American Staffing Association’s index measuring employment in the US staffing industry for the week of Nov. 9 to Nov. 15, which contained the Veterans Day holiday, rose 0.31% compared to the previous week. However, the index was down 4.47% from the same week last year. The index value was 101.11.

US real GDP rose in the third quarter at an annual rate of 2.1%, according to second estimate issued by the US Bureau of Economic Analysis. The new estimate revises an earlier, advance estimate of 1.5%. GDP increased 3.9% in the second quarter.

US private sector employment rose by 217,000 jobs in November from October, according to the ADP national employment report. November’s jobs gain is an increase from October’s 196,000 additions — an upward revision from a previously reported increase of 182,000 jobs.

The Institute for Supply Management’s purchasing managers index for US manufacturing decelerated to a reading of 50.1 in October, down from September’s reading of 50.2. The reading indicates continued expansion, but at a slower pace. Readings above 50 indicate growth.

IT leaders’ plans for hiring full-time employees are on the rise, according to TEKsystems’ quarterly "reality check" survey. The survey compares current market conditions on the state of spending, skill needs and impact areas to those originally reported in the company’s annual IT forecast. TEKsystems’ quarterly survey in September found 39% planned to increase temporary hiring, up from 29% in a similar survey in June, and 36% in a survey at the beginning of the year.

Economic activity in the US nonmanufacturing sector increased in October and at a faster pace than September. The Institute for Supply Management’s nonmanufacturing composite index rose to a reading of 59.1 from September’s reading of 56.9. A reading above 50 indicates expansion in the sector. The employment portion of the index rose to a reading of 59.2 in October from September’s reading of 58.3 and indicates growth for the 20th consecutive month.

The number of IT jobs in the US rose 0.2% in October from September to more than 5.0 million jobs, the TechServe Alliance reported. Year-over-year, IT jobs rose by 4% since October 2014. Engineering job growth barely moved, edging up slightly 0.01% in October from the previous month and 0.6% year over year, adding 15,000 engineering workers since October 2014 for a total of more than 2.5 million US engineering jobs.

The outlook for growth for US gross domestic product over the next two years looks slightly lower from that of three months ago but picks up steam in 2018, according to the fourth-quarter Survey of Professional Forecasters. However, the 45 forecasters surveyed revised slightly upward their GDP estimate for 2015 and notably raised the 2018 estimate to 2.8% from 2.4% in the previous survey. Growth in the US economy this quarter will be 2.6% at an annual rate, down from the previous estimate of 2.8%. Unemployment rate projections are slightly improved from those of the previous survey. The forecasters predict the unemployment rate will be an annual average of 5.3% in 2015, before falling to 5.0% in 2016, 4.8% in 2017 and 4.7% in 2018.

The economy – Outside Canada and the US

The Mexican Association of Human Capital Companies (AMECH) announced outsourced employment, defined in this case as agency work, grew 7.1% from July 2014 to July 2015 compared to the same period in the prior year. Outsourcing companies have created 150,000 jobs. AMECH’s monthly report pointed out that of the 17 million people who work in formal employment, 0.84% are in outsourcing. This means there are about 4.9 million people working in outsourcing in Mexico.

Economic activity in Mexico is unlikely to improve in the coming months, according to The Conference Board. The Conference Board’s leading economic index for Mexico fell in September for the fifth consecutive month. As a result, the six-month change in the leading economic index remains negative and the rate of decline has fallen deeper into negative territory. The leading economic index for Mexico edged down 0.2% to 98.3 (2010=100) in September. This follows declines of 1.5% in August and 1.3% in July, based on revised data.


> COMPANY NEWS

BlackBerry will be forced to cease operations in Pakistan on Dec. 30 after refusing the government its request to monitor BlackBerry Enterprise Service traffic. "While we regret leaving this important market and our valued customers there, remaining in Pakistan would have meant forfeiting our commitment to protect our users’ privacy," Blackberry said. "That is a compromise we are not willing to make." The government cited "security reasons" for the shutdown, and Blackberry says it wanted to monitor BES traffic, including every email and BBM message.


> MERGER & ACQUISITION ACTIVITY

Apple has bought motion capture firm Faceshift, a company that has gained some fame recently as its technology is used in the latest version of Star Wars. Originally founded in Zurich by academics Thibaut Weise, Brian Amberg, and Sofien Bouaziz, Faceshift is a spinoff from the Computer Graphics and Geometry Laboratory at the École Polytechnique Fédérale de Lausanne in Switzerland. The company also has offices in London and on the West Coast. Faceshift specializes in motion capture technology, with a focus on visual effects in areas like gaming and film. The company’s software analyzes the facial movements of an actor and describes them as a mixture of basic expressions, head orientation, and eye gaze, a description that is then used to animate virtual characters for use in any situation where facial animation is required. Apple has been on something of an acquisition hot streak lately. The purchase of Faceshift follows three other acquisitions in the past two months: the companies Perceptio, Mapsense, and Vocal IQ.

Lightspeed POS, a cloud POS platform for retailers and restaurants, has bought Amsterdam-based eCommerce software company SEOshop, which it will use as the basis of its new ecommerce platform. Montreal-based Lightspeed, which provides sales and operational tools for brick-and-mortar stores and restaurants, has rebranded SEOshop as Lightspeed eCom. This online store service aimed at small and medium-sized businesses fills a void in Lightspeed’s portfolio of services, and means its retail clients can accept payments through different channels. Lightspeed competes most closely with ecommerce platform Shopify which processes $10 billion in annual sales across its 175,000 customers, as well as Square, whose transactions account to around $30 billion in 2014. It also competes with growing POS solutions such as Kingston, Ont.-based Quetzal. LightSpeed will be bringing SEOshop’s 80-person workforce on board, bringing the company’s total headcount to around 440 employees.

PC Mall Inc., better known as PCM who has a Canadian presence in Montreal, has acquired Edmonton-based Acrodex Inc. PCM Canada is a direct market reseller but despite having an office in Montreal, it only services U.S. customers. That is about to change as Acrodex now becomes PCM’s Canadian operation. Acrodex said joining PCM, a $1.4 billion channel partner headquartered in El Segundo, Calif., enables the company to better position themselves to scale and grow strategically across North America.  

CentriLogic, which recently opened a new data center in Toronto, is expanding its footprint across Canada through an acquisition that will help bolster its presence in Vancouver, Calgary, and Halifax. The company isn’t buying another data centre, but instead, has bought Advanced Knowledge Networks (AKN), a nationwide provider of managed IT infrastructure including hosting, cloud, and private Wide Area Network services. CentriLogic owns and operates 10 interconnected data centers throughout North America, Europe, and Asia. Founded 15 years ago, AKN’s customers include national brands such as Bayshore HealthCare, Harry Rosen, Leon’s Furniture and Longo Brothers Fruit Markets.

MTS Inc. is selling off its Allstream Inc. telecom business to Boulder, Colo.-based communications infrastructure firm Zayo Group Holdings Inc. Zayo will be purchasing Allstream for $465 million in cash and will be the first foreign company to fully own a Canadian telecom service since the government loosened foreign ownership restrictions in 2012. Zayo said that its major interest in Allstream was the network – 20,000 kilometers of fiber connecting all major Canadian markets and 10 U.S. network access points. Half of Allstream’s revenue is a direct fit with its existing core business, Zayo says. It plans to follow the same model it uses in the UK and France to create Zayo Canada on the back of Allstream’s business. It’s targeting $300 million of revenue and a high single-digit growth rate. Zayo, which also provides colocation and cloud services to business customers, is also interested to carry on Allstream’s colocation operations.

Ingram Micro is buying Sao Paulo, Brazil-based Grupo AÇÃO, one of Latin America’s leading providers of critical value-add IT solutions. In addition to a portfolio of higher value products, including those from strategic vendors such as IBM, Oracle, Red Hat, EMC and VMware, AÇÃO also provides integration services, sales support and financial services, with operations in Brazil, Colombia, Argentina, Chile, Peru, Uruguay and Ecuador. AÇÃO is expected to contribute in excess of $300 million in annual value-add solutions revenue to Ingram Micro and be modestly accretive to 2016 full year non-GAAP earnings per share.

Toronto-based solution provider Scalar Decisions Inc. has confirmed it will purchase professional services firm Eosensa Inc. The Toronto-based Eosensa has expertise in technology risk management consulting and the plan is to extend Eosensa’s Risk Advisory offering to more than 800 Scalar clients in eight offices across Canada, while providing Eosensa’s clients with access to Scalar’s technology architecture, integration, and managed services resources, across the security, infrastructure, and cloud practices.

New Signature has acquired one of the more well-known solution providers in Microsoft’s Canadian partner ecosystem in Imason Inc. just five months after the Washington, D.C. company bought CMS Consulting of Toronto. Imason is one of Microsoft Canada’s top application development solution providers and the deal helps New Signature, which captured U.S. partner of the year award at the recently concluded Worldwide Partner Conference in Orlando, with its strategic directive to expand service offerings in the cloud and provide of custom line of business applications for customers

Expedia has agreed to acquire online holiday home rental company HomeAway in a $3.9 billion deal. HomeAway caters for customers across the globe who wish to rent holiday homes rather than book a hotel for their vacation. While you cannot currently book homes directly on the website — with most transactions taking place between customers and homeowners after connecting — this is due to change in the future. The company launched in 2006 with 60,000 holiday homes in 90 countries and now supports over one million listings in 190 countries. In 2013, homeowners and property managers earned over $11 billion in rental revenue and over 144 million nights were booked by customers. Once HomeAway switches to a booking model, the firm will be able to better compete with Airbnb which uses this structure to turn a profit.


> PRIMARY SOURCES:

IT World Canada – http://www.itworldcanada.com/
TechRepublic –  http://www.techrepublic.com/
ZDNet – http://www.zdnet.com/
Information Week – http://www.informationweek.com/
Staffing Industry Analysts – http://www.staffingindustry.com/