Aerospace, Defense & Government Services

  • The resolution of the US presidential election and Georgia Senate runoffs have provided direction for future spending and taxation. While we believe shifts in spending will largely take around 12-24 months to impact government contractors, potential increases in capital gains tax rates on the horizon are a more near-term catalyst encouraging sales
  • We expect spending priorities to skew more towards civilian agencies in the coming months. This would spur consolidation amongst some defense firms, as players work to strengthen capabilities, align themselves with enduring focus areas and supplement organic growth
  • Following stimulus efforts, the US federal deficit is expected to reach at least $2.3 trillion in FY 2021, as federal debt held by the public exceeds 100% of GDP for the first time since World War II[1]. This may place pressure on federal spending growth in the long run
  • Multiple government-focused PE firms are deploying new funds. We have also seen increased interest from financial sponsors that have not historically invested heavily in the sector. We believe more uncommitted capital and the recent acquisition of new platforms by well-funded sponsors will be a driver of M&A in 2021
  • Demand for next generation digital services (AI, machine-learning, cloud computing, mobility and Big Data) has remained a theme in the M&A market over the past several months, and we are seeing broader sponsor interest in companies offering these capabilities to the highly fragmented state and local market

Business & Tech-Enabled Services

  • Q4 2020 continued to demonstrate an active shift towards digitalisation. We believe cloud-based services and managed service providers are generating higher valuation multiples as a result of continued demand for technology and software outsourcing
  • Private equity firms are increasingly interested in emerging ecosystems that offer cost-efficient solutions by providing on-demand cloud computing platforms and APIs to individuals, companies, and governments, on a metered pay-as-you-go basis (examples of these types of platforms are Anaplan, Atlassian and Snowflake)
  • The Platform-as-a-Service (PaaS) market is projected to more than double in size from 2019-2024[2], largely driven by the demand for multi-cloud diversity, which is expected to elevate smaller service providers and drive deal activity this year
  • Scale within key market segments and industry verticals is, in our view, expected to drive strategic interest and value in 2021, with strategics looking for niche M&A opportunities to expand their digital capabilities
  • Similarly, we expect that large scale providers will continue to look for superior end-to-end consulting and delivery capabilities as they seek to gain market share from mid-tier providers

Travel & Hospitality

  • Global and domestic travel trended downward in Q4 2020 as the US, Europe, and additional regions reinforced harsher lockdown restrictions around the holidays, deferring more hope of recovery to 2021[3]
  • Leisure travel is expected to outpace business travel as a Covid-19 vaccine is rolled out, with pent-up demand for international travel that should drive initial airline and hotel recovery, leading consumers to return to OTA and online booking platforms 
  • Sponsor-backed M&A, in our view, will continue to gain momentum as PE funds deploy previously stagnant capital on new pandemic-proof travel & hospitality technology investments 
  • Strategic M&A in travel & hospitality technologies should be heavily influenced by the pandemic-induced trends of digitalization and touchless hospitality experience. In our view, this trend has shifted many industry players into considering acquisitions of technology and hardware solutions that cater to these new consumer preferences 
  • In 2021, we expect the capital markets will show a continued interest in niche sectors that demonstrated value throughout Covid-19, including alternative accommodations platforms such as Airbnb experiential travel (RV Share, Outdoorsy etc.), remote living and working, and camping

Education & EdTech

  • We believe that businesses that originated with online delivery models have enjoyed higher valuations throughout the pandemic
  • PEs continue to view any software-based sectors as strong asset classes and therefore EdTech and the digitalisation of corporate training and professional development has demonstrated resilience throughout the pandemic
  • In our view, valuations within the market have maintained consistency, with no expectation for a reset valuation
  • A barrier to entry for newcomers is likely to be the expense of digital content creation, given the high quality delivery that is expected from players in the market
  • Assuming a positive US vaccine roll-out this year, we expect the Education sector to remain robust throughout 2021 


  • By Q4 2020, we witnessed M&A activity levels nearly recover relative to levels seen in 2019
  • Activity in diversified industrials, automotive, paper and packaging, industrial services, infrastructure products and services and advanced manufacturing is expected to continue to increase as economic activity rebounds
  • As manufacturing activity increases, profitability at companies across the industrial sector should continue to improve
  • Interest in cross border M&A activity, particularly interest in Asian acquirors pursuing transactions in the US, continues to be robust


Media & Telecom

  • Information Services companies have proven to be resilient due to strong secular tailwinds and attractive characteristics underlying many information services companies’ business models
  • Companies are increasingly relying on data to drive mission-critical decisions. We believe that as the volume of global data continues to increase, data providers that continue to evolve to help customers curate, match and create insights that turn data into actions, will be in high demand
  • The combination of subscription or high-recurring revenue models, must-have information, proprietary data assets, AI / ML capabilities, cloud-based architecture, and embedded workflow solutions provides, in our view, strong barriers to entry, highly visible and predicable revenues, and steady free cash flow generation
  • We’ve also witnessed the sustained work from home measures and proven ability of white-collar workforce to remain productive have facilitated a boom for companies that enable remote functionality (both from a personal and professional perspective) and provide essential, often embedded, workflow solutions
  • Recent share price performance and valuation multiples for public Information Services companies underscore the strong positive sentiment in the sector – further highlighted in the M&A markets by notable, recent transactions in the space including London Stock Exchange’s takeover of data and trading group Refinitiv[4] and S&P Global’s acquisition of analytics specialist IHS Markit[5]
  • Fitch’s acquisition of CreditSights[6], which DC Advisory advised on, validates these trends as industry leaders seek to acquire leading, ‘hard-to-replicate’ content providers in the sector

Technology & Software

This edition we focus on Human Capital Management:

  • Overall, the global Human Capital Management (HCM) software sector has, in our view, outperformed the broader market, rising 39% since January 2020[7], as core functions such as payroll, benefits, etc., are deemed as ‘essential’ business functions, and also as software companies with multi-year contracts and recurring revenue models have experienced less volatility
  • We believe some pre-hire functionality, such as job boards, ATS, recruiting and TA, have been negatively impacted as B2B enterprise recruitment spending declined in Q2 and Q3 2020, driven by higher unemployment and overall market uncertainty
  • We have seen smaller, solutions-based software that helps businesses solve near-term issues arising as part of an increasingly remote workforce achieve record bookings (e.g. employee communications, remote worker solutions, collaboration)
  • Larger, more strategic HR and workforce initiatives were largely put on hold in 2020, but are seeing significant momentum entering 2021 as companies adjust to the ‘new normal’ and put systems in place to increase productivity, measure employee satisfaction and engagement, and ensure that their businesses are prepared for a hybrid work-from-home paradigm that will persist post-vaccine
  • Overall unemployment, while not at the historic lows experienced pre-pandemic, has been steadily improving as companies get better visibility as a result of the vaccine and a return to normal business activity
  • M&A deal volume surprisingly remained on pace with the 2017 – 2019 periods[8], though deal value decreased significantly as some distressed or under-performing assets were consolidated
  • M&A activity was driven less by large strategic acquirers, and more by mid-market private equity firms taking advantage of a current dip in valuation and speculating future returns – the investment thesis for HCM software going forward remains compelling

Back to overview



Source for all charts above: Total number of deals completed by sector, Mergermarket, YTD 20 January 2021

[1] “2021 Deficit On Track to Total $2.3 Trillion,” Committee for a Responsible Federal Budget,  Jan 5, 2021

[2] Gartner Forecasts Worldwide Public Cloud Revenue to Grow 6.3% in 2020, Gartner, 23 July 2020

[3] From Bad To Worse: Global Air Traffic To Drop 60%-70% In 2020, S&P Global Market Intelligence, 12 August 2020

[4] London Stock Exchange Group completes $27bn acquisition of Refinitiv, Financial News, 29 January 2021

[5] S&P Global-IHS Markit merger, 2020's largest deal, shows value of financial data, S&P Global Market Intelligence, 1 December 2020

[6] Fitch Group to Acquire CreditSights, Inc., a Leading Provider of Independent Credit Research, Fitch Ratings, 14 January 2021

[7] For the purpose of this analysis,  we tracked the stock performance of the following companies: Adecco Group (ADEN), Asure Software (ASUR), Automatic Data Processing (ADP), Benefitfocus (BNFT), Ceridian HCM (CDAY), Cornerstone OnDemand (CSOD), DHI Group (DHX), Fiverr International (FVRR), Freelancer (FLN), HeadHunter Group (HHR), Insperity (NSP), International Business Machines (IBM), Microsoft (MSFT), New Work (NWO), Oracle (ORCL), Paychex (PAYX), Paycom (PAYC), Paylocity (PCTY), Recruit (TSE:6098), SAP SE (SAP), SEEK (SEK), The Sage Group (SGE), TriNet (TNET), Upwork (UPWK), WiseTech Global (WTC), Workday (WDAY).

[8] Human Resources Application Software, 451 Research, 2017-2020