Digital consulting continues to exhibit explosive growth as consumer and corporate technology solutions continue to improve, especially within machine learning, Internet of Things (IoT), and analytics. As consumers strive for more capabilities on mobile devices, tablets, laptops, etc., and enterprise clients demand more technology enhancements to processes and operations, the digital world is exponentially expanding. Given this fast changing environment, many enterprise companies are incapable of outperforming their peers with their internal staff alone. Enter the value of digital consulting firms. This is an enormous market – according to Markets and Markets’ research, the digital transformation market was valued at $181.02 billion in 2016 and is projected to reach $493.39 billion by 2022, at a CAGR of 19.1% during the forecast period.

The consulting portion of the digital transformation market is substantial:

According to a report by Consultancy.UK, the digital consulting market was worth $23 billion in 2017. The largest part of digital consultancy is related directly to technology, standing at around $9.7 billion, with strategy representing the next biggest category at $5.3 billion.

Approaches to Digital Transformation: Strategy and Innovation

Digital transformation has far-reaching applications, but the following are a few use cases of those applications, specifically around digital strategy and innovation:

Internet of Things (IoT)

IoT refers to a network of objects that connect each other to exchange and analyze data. Components of IoT can be found in the use of anything between mobile devices to larger industrial machinery. IoT has proven to provide safety, efficiency, smarter decision making, increased revenue generation and more efficient production for organizations. The global IoT market reached $598.2 billion in 2015 and is expected to reach $724.2 billion by 2023. Further, the market is projected to register a CAGR of 13.2% during the forecast period 2016–2023 globally.(1)

Product Lifecycle Management (PLM)

PLM is a market that has been slow to adopt the digital transformation era. There is an increasing need to enhance legacy systems to enable value chain collaboration, closed loop analytics and field service support.(1) PLM technology is critical to delivering digital innovation to products by managing and accessing product information across the enterprise, commonly referred to as the backbone for the product’s lifecycle phases, from birth to launch to end of life.

Machine Learning (ML) / Artificial Intelligence (AI)

The AI and machine learning combination contribute to the buildup of enhancing digital strategy and innovation. Forbes noted that 2017 witnessed a record high rise of AI and ML among large platform vendors and early startups. Billions of dollars in funding poured into AI-related startups and 61% of organizations are choosing ML/AI as their company’s most significant data initiative for 2018. The ML market size is expected to grow from $1.03 billion in 2016 and is expected to rise to$8.81 billion by 2022, at a CAGR of 44.1% during the forecast period.(1)

User Interface (UI) / User Experience (UX)

The increasing dependence of many companies on web applications and mobile applications have led many enterprises to increase the priority on user interfaces, in an effort to improve the overall user application. The UI/UX market size is expected to grow to $50 billion by 2027, at a CAGR of ~16% during the forecast period.(2)

Cloud Enablement

Organizations benefit from cloud enablement innovations that can streamline business operations by providing access to any application on any device. Adoption rates of cloud enablement innovations are at a high, making it a multibillion-dollar industry. The global cloud-based PLM market is expected to reach $50 billion by 2023, growing at a 15% CAGR over the forecast period 2017–2023.(2)

Leading digital transformation technology and services companies:

Among the other players in the digital strategy and innovation space, 7MA is keeping their eye on ProKarma, Intersys Consulting, Venterra, Trianz, and Enaxis Consulting.

M&A Activity

7 Mile Advisors has been very active in advising companies in the digital transformation and consulting sector over the years.

Digital transformation startups and large vendor platforms are looking to grow organically and through M&A transactions. We took a closer look in the PLM digital consulting space and tracked 98 notable transactions since 2013.

Deal Value Metrics:

Average TEV/Revenue — 3.5x

Average TEV/EBITDA — 8.58x

Average Deal Value — $69.09m

Deal Geographical Metrics:

U.S. & Canada — 22

Europe — 45

Asia / Pacific — 3

Most Active Buyers

Dassault Systèmes

• Dassault Systèmes provides software applications and services worldwide.
• The company primarily serves companies in the aerospace and defense, consumer goods and retail, consumer packaged goods and retail, financial and business services, high-tech, industrial equipment, life sciences, marine and offshore, natural resources, and transportation and mobility industries; architecture, engineering, and construction industries; and energy, process, and utility industries through direct sales force and value-added resellers.
• The company was founded in 1981 and is headquartered in Vélizy-Villacoublay, France.

IAR Systems

• IAR Systems Group AB (publ) provides software tools and services for the programming of processors in embedded systems worldwide.
• It offers IAR Embedded Workbench software that enables developers to program processors in embedded systems. It serves industrial automation, medical technology, consumer electronics, and automotive industries.
• The company was founded in 1983 and is headquartered in Uppsala, Sweden.

Visiativ

• Visiativ SA engages in the integration of software solutions and development of web platforms primarily in Europe.
• It offers a platform that provides virtual ecosystems to manage the lifecycle of companies’ products; and Moovapps, a smart enterprise platform to create business applications.
• The company was founded in 1987 and is headquartered in Charbonnières-les-Bains, France.

Accenture

• Accenture plc provides consulting, technology, and outsourcing services worldwide.
• With expertise across more than 40 industries and all business functions, Accenture delivers transformational outcomes for a demanding new digital world.
• The company was founded in 1989 and is headquartered in Dublin, Ireland.

Author: Sydney Larese, Associate at 7 Mile Advisors

About 7 Mile Advisors
7 Mile Advisors provides Investment Banking & Advisory Services to the Business Services & Technology Industries globally. 7 Mile Advisors advises on M&A and private capital transactions, and provides market assessments and benchmarking. As a close-knit team with a long history together and a laser focus on our target markets, 7 Mile Advisors helps its clients sell companies, raise capital, grow through acquisitions, and evaluate new markets. For more information, including research on the M&A markets, visit www.7mileadvisors.com.

All securities transactions are executed by 7M Securities, LLC, member SIPC/FINRA.

Sources:

1. https://www.marketresearchfuture.com/reports/digital-experience-management-software-market-4156
2. https://www.forbes.com/sites/janakirammsv/2017/12/28/3-key-machine-learning-trends-to-watch-out-for-in-2018/#3ef282c91280
3. http://blog.memsql.com/2018-outlook-machine-learning-and-artificial-intelligence/
4. https://www.consultancy.uk/news/13489/digital-transformation-consulting-market-booms-to-23-billion
5. M&A Activity source data: CapIQ

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Digital Consulting — Tip Of The Spear To A Successful Digital Transformation was originally published in 7 Mile Advisors on Medium, where people are continuing the conversation by highlighting and responding to this story.