Accenture (ACN) Closes Phase One Consultancy Buyout Deal

Accenture Plc (NYSE:ACN) recently announced that it has completed the acquisition of Alexandria-based Phase One Consulting, a cloud computing and digital services provider. Notably, the two companies entered into the deal in June this year. However, financial details of the transaction remain undisclosed.

Founded in 1997, Phase One offers Salesforce-based IT services and software solutions, mainly focused on the federal market. Its services and solutions help federal agencies in modernizing and digitizing.

The company was owned by private equity firm – RLJ Equity Partners – which had acquired it in January 2015. Its stronghold in the federal market attracted investments from the venture capital arm of Salesforce.com Inc. (NYSE:CRM) , Salesforce Ventures in September last year.

Post completion of this acquisition, Accenture intends to integrate under its Accenture Federal Services subsidiary. We believe that the recent acquisition will not only strengthen the company’s Salesforce capabilities, but will also help it in gaining more and more federal contracts, thereby boosting its top-line performance.

Salesforce Capabilities Expansion Impressive

Since 2014, Accenture has been aggressively trying to fortify its position as a leading provider of Salesforce capabilities. The recent buyout is the company’s seventh acquisition in the Salesforce space, while this is the first federal market acquisition related to Salesforce.

Notably, Accenture is already a global leader in the Salesforce implementation service space, with currently over 11,000 skilled consultants. Moreover, given that Salesforce is one of the largest providers of cloud-based applications and software, it is imperative that Accenture enhances its capabilities in delivering the former’s services.

Industry Forecasts Justify Strategy

The company’s strategy of boosting its cloud capabilities through such acquisitions is a step in the right direction, as evident from the latest forecast provided by several independent research firms. According to Gartner, the SaaS and cloud-based business application markets are likely to grow from $38.6 billion in 2016 to $46.3 billion in 2017, reflecting year-over-year growth rate of approximately 20%. Also, the research firm forecasts that the market will double by 2020 from the 2016 level.

Another research firm – International Data Corporation (IDC) – predicts that the cloud software market will witness a compounded annual growth rate (CAGR) of 18.3% during the 2014–2019 period, reaching $112.8 billion by 2019 end.

Exponential growth in the amount of data, complexity of data formats and the need to scale resources at regular intervals compelled several companies to turn to cloud-computing vendors. Therefore, considering the increasing need for cloud-based applications and software, we anticipate Accenture’s investments in this space to propel long-term growth.

Bottom Line

We are encouraged by Accenture’s strategy of growing through acquisitions. These buyouts have enabled the company to foray into newer markets, diversify and broaden its product portfolio, and maintain a leading position. We believe that regular acquisitions will significantly contribute to the company's revenue stream.

Nonetheless, Accenture’s announcement of creating 15K new jobs by 2020 and investment plan of $1.4 billion for employee training and opening of 10 innovation centers across the U.S. cities may dent its bottom-line results, in our opinion. Furthermore, increasing competition from other players like DXC Technology Company (NYSE:DXC) and NV5 Global, Inc. (NASDAQ:NVEE) , and an uncertain macroeconomic environment may deter its growth to some extent.

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