Accenture Flourishes in the Digital Transformation Boom
It’s not easy to follow the smart money. Well-connected and informed investors are notoriously discrete. They don’t want us to know what they’re doing.
Take Charles Koch, for example. The billionaire businessman is a savvy investor. Few should doubt the investment acumen of Charles Koch. He, and his late brother David, built Koch Industries into a heartland behemoth.
The Wichita, Kan. company generated revenues of $110 billion in 2019, mostly by finding better ways to turn raw materials into value-added finished products. Its latest acquisition follows this trend.
Bloomberg reported Tuesday that Koch Industries, has acquired Infor, a privately held maker of cloud-based software.
At first glance, the pairing might seem odd. Koch Industries, a conglomerate, operates everything from refineries and paper plants to carpet factories and commercial ranches. But a closer look reveals the bigger plan: This is a digital transformation story.
It’s more evidence that the smart money is all-in. Investors should pay close attention.
Koch Industries was both an investor in Infor and a client. Infor software was deployed across its wide portfolio of businesses. With no more than an internet browser, corporate managers could follow supply chains, customer relationship management, human resources and financial procurement suites running in the cloud. The software quickly became indispensable.
So, in 2017, Koch Industries invested $2 billion in the Infor business. Two years later, according to Bloomberg, Koch added another $1.5 billion, giving the Wichita, Kan. company 70% of the equity. With preferred shares, Tuesday’s announced buyout values Infor at about $13 billion.
The large investment into the digital transformation has put Koch Industries in good company.
Accenture (ACN) announced last week that it would acquire Workday (WDAY), Salesforce (CRM) and Mulesoft consulting practices from IT service management company Sierra-Cedar.
A corporate statement made the intentions clear: Clients are demanding new digital technologies to make their businesses more efficient and transparent. The global consulting firm is buying talent to speed those transformations.
The writing is on the wall for all to see: The smart money is investing heavily in digital transformation now. It’s obvious the corporate world is headed in that direction.
Digital isn’t hype. It’s real, and best of all, it is only beginning.
The McKinsey and Co. report, “A Roadmap to Digital Transformation,” depicts how quickly entire sectors of the economy can be disrupted. The analysts point to the devastation caused in print media as customers became accustomed to reading digital content on their smart devices. It took years before content providers developed new business models. These disruptions are currently underway in several sectors.
The analysts argue that companies should bite the bullet sooner than later. They suggest creating a digital culture, then carefully scaling up.
That is exactly what happened at Koch. Infor software is in use for several disparate divisions. The tools are so versatile they can be customized by industry.
As Jim Hannan, chief executive of the Koch Enterprises division, told Bloomberg, “it doesn’t matter whether you’re making paper towels or fertilizer or anything else.”
Getting started is the key.
Accenture is the best way for corporations to begin the digital journey. Even before its Sierra-Cedar purchase, the Ireland-based management consulting company is the global leader in digital transformation.
CEO Julie Sweet said in December that the company had 90,000 cloud professionals on staff. Accenture is the leading global partner of AWS, Microsoft Azure and Google Cloud. And company consultants are embedded at 95% of the Fortune 100.
The business is No. 1 in North America and Europe. It is No. 3 in growth markets, and recently reached 17,000 consultants in China, according to Sweet.
Currently Accenture dominates in the U.S.; the U.K., Italy, Germany, France and Spain in Europe; and Japan and Australia in Growth Markets. Together, these markets account for 80% of Accenture sales. They are also home to 85% of the biggest customers. And they’re ready to spend.
IDC, a global information technology research firm, noted in 2018 that digital transformation could create $7 trillion in value by 2022.
Accenture shares traded to a record high Tuesday at $214. The stock trades at only 24.6x forward earnings and 3.2x sales. The market capitalization has grown to $141 billion, following share price gains of 35.6% during the past 12 months.
Investors should use weakness to add new positions.
Jon D. Markman
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