IT Industry News – September 2015

September 2015 saw a reasonable amount of M&A activity, but no blockbuster deals. Microsoft was very active this month closing three deals, Adxstudio which provides web-based solutions for Dynamics CRM; app developer Double Labs; and cloud security firm Adallom. Accenture picked up the cloud services company Cloud Sherpas; IBM added cloud software startup StrongLoop; Netsuite paid $200 million for cloud-based marketing company Bronto Software; and Blackberry paid $425 million for competitor Good Technology. Hardware company Konica Minolta is expanding its services offering through the acquisition of IT Weapons; Qualcomm bought medical device and data management company Capsule Technologie; Networking and storage company Barracuda Networks is buying online backup and disaster recovery company Intronis; and Compugen is buying some of the assets of another Canadian company Metafore.

Also in the news in September was HP, announcing another round of layoffs just prior to the November 1 split into two separate companies. The smartphone industry is hurting, last month we heard from HTC and Lenovo, this month it is Samsung announcing cutbacks.

The US economy continues to impress, adding another 190,000 jobs in August (about the same as Canada has added in a year). Almost all of the surveys and indicators were positive with the jobless rate edging down to 5.1% and the only cloud on the horizon being labor shortages in the construction industry. We will see more of that in many industries.

Canada on the other hand continues to struggle. After enduring a “technical recession” through the first half of 2015 there might be some positive signs for the second half based on a sharp increase in GPD in June. The unemployment rate rose to 7%; however Canada, did add 12,000 jobs in August.

In this Issue:
> General Interest
> Company News
> Merger & Acquisition Activity
> Primary Sources

> GENERAL INTEREST

General

Spiceworks, a professional network for IT, announced the results of its “2016 State of IT” report, a survey examining the technology budget and adoption trends of IT professionals in North America and EMEA. According to the survey, IT budgets are expected to increase by only one percent in 2016. IT professionals will spread that thinly increased budget among all IT projects including server hardware, end user computing, cloud computing, virtualization, productivity software, and operating systems.

The job indicators in Canada

Canada added 12,000 jobs in August from July, according to seasonally adjusted numbers from Statistics Canada. The unemployment rate rose to 7.0% from 6.8% in July, a rate maintained for six months. The number of full-time jobs rose by 54,000 in August, but part-time jobs fell by 42,400. On a year-over-year basis, employment was up by 193,300 jobs, an increase of 1.1%.

Statistics Canada reported Canadian real GDP contracted 0.5% at an annualized rate in the second quarter, following a 0.8% contraction in the first quarter. This suggests a “technical recession,” but the pain may be short lived. Despite the weak start to the year, monthly GDP was up sharply in June, providing positive momentum to start the second half of the year. A sharp rebound is expected in Q3, with growth expected to reach around 2.5% (q/q, annualized).

The Canadian staffing index, a measure of staffing activity in Canada, fell to a reading of 102 in August; down 6% from an index value of 108 in July. The index fell 9% year-over-year from a reading of 112 in August 2014. The index value of 100 corresponds to the size of the industry in July 2008, when the index began.

The job indicators in the US

The US jobless rate edged down in August to 5.1% from 5.3% in July. West Virginia posted the highest unemployment rate among all states in August at 7.6%, according to the US Bureau of Labor Statistics. Nevada and Alaska followed at 6.8% and 6.7% respectively. Nebraska posted the lowest unemployment rate in August at 2.8%, followed by North Dakota at 2.9%.

The Conference Board’s US leading economic index edged up in August, suggesting moderate growth will continue for the remainder of 2015. Separately, the Federal Reserve opted to leave interest rates unchanged.

US real GDP rose in the second quarter at an annual rate of 3.9%, according to a third estimate that revises an earlier, second estimate of 3.7%, the US Bureau of Economic Analysis reported.

The Institute for Supply Management’s purchasing managers index for US manufacturing decelerated to a reading of 51.1 in August, down from July’s reading of 52.7. The reading indicates continued expansion, but at a slower pace. Readings above 50 indicate growth.

US private sector employment rose by 190,000 jobs in August from July, according to the ADP national employment report produced by ADP in collaboration with Moody’s Analytics. August’s job gains increased slightly from July’s 177,000 additions — a downward revision from a previously reported increase of 185,000 jobs — but are in line with the year-to-date average.

Certified public accounts who hold leadership positions in their companies, such as CFO or controller, are less optimistic about the US economy, according to a survey of 1,440 such accountants by the American Institute of CPAs. Only 48% of CPAs in leadership positions were optimistic about the US economy over the upcoming 12 months, according to the third-quarter survey. That’s the first time less than 50% of the executives were optimistic since early 2014. The level was also down from 52% in the second-quarter version of the survey and 68% in the first-quarter version

The Conference Board’s US employment trends index rose in August to a reading of 128.92, up 4.5% from the same month a year ago.  “The large increase in the employment trends index in August suggests that a significant moderation in employment growth is unlikely to occur in the coming months,” said Gad Levanon, managing director of macroeconomic and labor market research at The Conference Board. “With solid job growth expected to continue, the unemployment rate is likely to go below 5% by year’s end.”

An overwhelming majority of construction firms report trouble finding qualified craft workers to fill key spots as demand for construction continues to rebound in many parts of the country, according to the results of an industry wide survey by the Associated General Contractors of America. “Few firms across the country have been immune from growing labor shortages in the construction industry,” said AGC CEO Stephen Sandherr.

The job indicators outside Canada and the US

The current rate of economic expansion in Mexico is likely to continue through the end of this year, despite a sharp decline in Mexico’s leading economic index in July, according to The Conference Board. The Conference Board’s leading economic index for Mexico fell sharply in July for the third consecutive month; however, its six-month rate of decline has not intensified in recent months, suggesting that the current rate of economic expansion in Mexico is likely to continue through the end of this year.


> COMPANY NEWS

Hewlett Packard plans to slash 25,000 to 30,000 more jobs as part of cost-cutting measures in conjunction with its plan to split into two companies. The newly announced layoffs are in addition to another 55,000 in job cuts announced a year ago when HP first revealed the plans to split. HP’s workforce totaled 302,000 in October 2014, down from a peak of about 350,000 in the wake of several acquisitions over the years, including Electronic Data Systems (EDS), 3Com, Palm, and Autonomy. HP has pulled the plug on some of the initiatives that came out of these deals. For instance, HP spun off Palm’s webOS to the open source community. HP will split into two companies on Nov. 1. Hewlett Packard Enterprise will become the enterprise infrastructure company that includes cloud computing, software, and services. The PC and printer business become part of a second company called HP Inc., which is only targeting about 3,300 job cuts going forward. HP Enterprise executives told analysts they expect annual revenues of $50 billion.

After multiple quarters of falling profit and slowing mobile device sales, Samsung appears to be in cost-cutting mode: The company will reportedly cut 10% of its Korea headquarters staff, and will reduce general expenses by a massive 50% next year. Bloomberg notes that Samsung’s market value has declined by $40 billion in the past five months alone. Both are bad signs that follow a peak and then decline in Samsung’s smartphone stature.

CentriLogic has set up a new data center in the Greater Toronto Area which will provide enterprise-grade services and build on experience gained south of the border serving Fortune 500 companies with a 28,000 square foot facility in Mississauga. Open for business now, it offers managed hosted and co-location services, as well as public/private and hybrid cloud services to both local customers and international ones.


> MERGER & ACQUISITION ACTIVITY

Microsoft has acquired Regina, SK-based Adxstudio Inc., which provides web-based solutions for Dynamics CRM. Adxstudio, founded in 1998, also provides SharePoint and .NET-based solutions with key application products including Adxstudio Portals and the Adxstudio ALM Toolkit. The former is designed to add web-based engagement functions as well as community, retail and government portals to the CRM platform, while the latter helps “automate change management for Microsoft Dynamics CRM projects using a source control system such as Microsoft Team Foundation Server”.

Microsoft has purchased Palo Alto-based startup Double Labs, maker of the free Android Echo Notification Lockscreen app which works on Android phones and small (10-inch and under) Android tablets. It shows users full notifications on their lock screens. Microsoft has been buying up some of the biggest iOS and Android productivity apps over the past several months even where it already had products that provide the same features. But Microsoft is opting to buy apps with already established mind share and market share with iOS and Android users in order to get its own brand and offerings in front of these non-Windows-Mobile users.

Microsoft has acquired cloud security firm Adallom for an unspecified amount, further bolstering its security offerings for Office 365. Adallom is a cloud security broker, meaning that it sits between the customer and cloud-based services, providing an additional layer of protection. It hopes to put customers’ minds at rest when it comes to interacting with SaaS and other cloud-based solutions by enabling CIOs to use them commercially while protecting their data.

Security, networking and storage vendor Barracuda Networks is acquiring Intronis Inc., an online backup and disaster recovery solutions provider. With this move, Barracuda is looking to extend its reach into the SMB space with the addition of some 2,000 MSPs that currently partner with Intronis, of which there is “less than 10 per cent overlap.” Meanwhile, for Chelmsford, Massachusetts-based Intronis, the acquisition will allow it to reach an international market.

Accenture is buying Atlanta-based cloud services consultancy Cloud Sherpas. Cloud Sherpas has a team of technical experts that assist companies in migrating to the cloud, focusing on Salesforce.com, Google, and ServiceNow products. Accenture will be adding to its team of 2,700 consultants dedicated to the Salesforce platform with Cloud Sherpas 500 experts. Founded in 2007, Cloud Sherpas joins Accenture after building a consultancy that is one of four ServiceNow Master Partners, and a four-time Google for Work Partner of the Year recipient.

One of SAP Canada’s top channel partners Contax, Inc. of Toronto has acquired a California-based SAP partner Aptelis, Inc. Based in Irvine, Calif. Aptelis is a business technology consultancy with expertise in SAP software and services that has been providing ERP solutions mostly on the west coast of North America. Contax already has a U.S. presence in Chicago and has clients based not just in Canada and the U.S. but also Australia and the Netherlands. Aptelis is privately held and has been in business for more than 15 years and holds accreditation from SAP Partner Quality organization. Contax also holds the same accreditation.

IT Weapons has been bought by Japanese hardware company Konica Minolta. Konica Minolta, headquartered in Tokyo, Japan, primarily focuses on the lenses, industrial printing and imaging hardware business, although it does offer a managed print service as well. IT Weapons made an acquisition of its own of fellow solution provider Collins IT in April. The deal will give IT Weapons access to Konica Minolta’s 10,000+ customers in 18 Canadian cities.

IBM is adding to its cloud portfolio with an acquisition, this time of the software startup StrongLoop. Based out of San Mateo, California, StongLoop provides enterprise Node.js capabilities, which are widely used in API development. The startup has also been a key contributor to the Node developer community. Node.js is an open-source JavaScript programming language and IBM will use it in order to offer enterprises the ability to build apps with APIs capable of handling large amounts of data.

Compugen has acquired some assets from Metafore. Together Compugen and Metafore have combined revenues of $650 to $700 million just in the Canadian market. This move by Hartco/Metafore is just one of many moves made by the company to divest assets in the last two years.

Qualcomm has acquired Capsule Technologie, a company that focuses on medical device and data management. Qualcomm Life is focused on connected health technology in hospitals as well as remote monitoring. Capsule integrates medical devices, electronic health records as well as technology systems. For Qualcomm, Capsule brings 1,930 hospitals as customers in 38 countries and has offices in Paris, Andover, MA, Singapore, Sydney, Dubai and Sao Paulo in Brazil. With the acquisition, Qualcomm Life can provide Internet of things technologies and networking as well as the integration.

Cloud-based financials, enterprise resource planning and omnichannel commerce vendor NetSuite paid $200 million for Bronto Software, a privately-held cloud-based commerce marketing company. Bronto provides cloud-based email marketing services through its commerce marketing automation platform to brands such as Armani Exchange, Timex and Trek Bikes. Bronto’s solution will complement NetSuite’s SuiteCommerce platform, a cloud-based omnichannel B2B and B2C commerce platform used by more than 3,000 brands to drive their commerce strategies across point-of-sale, ecommerce and call centres.

BlackBerry is strengthening its enterprise mobility management prospects with a deal to acquire Good Technology for $425 million in cash. The company has been working to reinvent itself as one primarily driven by software and the acquisition of Good will go a long way toward that goal. BlackBerry said Good will add $160 million in revenue in the first year.