Sounding the Alarm – Cyberattacks Stoke the Flames of Red-Hot Managed Security Services

A cyberattack against Capital One, which was perpetrated by a single Seattle-based hacker in March, exposed the personal information of nearly 106 million of the bank’s customers and applicants. Capital One’s management didn’t become aware of the incident until it was reported to the company by an independent security researcher in July. Just ten days after the Capital One hack hit the airwaves, another cyberattack was announced in southern California. Computers belonging to the city of Los Angeles were breached in late July, providing the hacker with access to the personal information of 20,000 applicants for positions in the police department. As these examples show, no organization is safe from cyber criminals.

The ever-increasing threat posed by cyber criminals and a shortage of cybersecurity expertise has led to an increasing demand for managed security services (MSS). Simply put, MSS are network security services that have been outsourced to a service provider. Providers (MSSPs) typically offer round-the-clock monitoring and management of intrusion detection systems/firewalls, patch management, system upgrades, security assessments and/or audits, and emergency response services. Once treated as extraneous and handled in-house, network security services have morphed into a hot-button issue for businesses in recent years as cyber threats have increased in complexity, prevalence, and magnitude.

The MSS market is a large, growing, and evolving sector that has piqued the interest of both strategic acquirers and financial sponsors. According to a recent market research report published by Market Research Engine, the global MSS market is expected to grow at an average annual rate of 14.5% and exceed $58 billion by 2024. The industry-agnostic nature of cyberattacks, in conjunction with the growing, shifting threat landscape, is inspiring M&A activity, as private equity firms seek to invest in the fast-growing segment and strategic buyers look to close technology and expertise gaps, as well as benefit from the sector’s strong tailwinds.

Recent MSSP M&A transactions (as featured on PR Newswire) include the following:

  • In June, EisnerAmper announced CSAM Marketing, Inc. (d/b/a Computer Systems and Methods) joined EisnerAmper, with CSAM’s leadership team and IT engineers becoming part of EisnerAmper’s Process, Risk & Technology Solutions group. A key reason EisnerAmper acquired CSAM was to bolster its offering of cybersecurity services.
  • In May, Sunstone Partners announced acquisitions of Terra Verde Security LLC, TruShield Security Solutions, and Sword & Shield Enterprise Security to form one combined company, Avertium. Avertium is focused on supporting mid-to-large enterprises, making it one of the world’s largest managed security services providers for that market.
  • Also in May, Corsica Technologies announced its acquisition of EDTS Cyber, a provider of security services, and its sister company EDTS, an IT services provider. Corisca valued EDTS Cyber’s expertise, as the transaction expanded Corsica’s service offering.

MHT Partners, a leading technology investment bank, expects M&A activity involving MSSPs to continue at a robust rate. Factors supporting transaction activity include:

  • Fast-growing market – The fast-growing MSS market will continue to attract capital from both financial and strategic buyers, as strong growth will provide an opportunity to generate a significant return on investment.
  • Increasing complexity and shortage of skills – As cyber threats continue to increase in complexity, prevalence, and magnitude, the skills required to combat them continues to expand. Many managed services providers (MSPs) will acquire MSSPs to fill gaps in their skill base.
  • Speed to market – Managed security services are a critical offering for managed services providers. As such, many MSPs will look to acquire cybersecurity expertise rather than organically scale capabilities in order to increase speed to market to take advantage of the growing opportunity in the MSS market.

If you would like to learn more about MHT and our Technology practice, please contact Mike McGill (mmcgill@mhtpartners.com) or Kevin Jolley (kjolley@mhtpartners.com).

The Never-Ending White Claw Summer

Summer might be coming to an end, but White Claw popularity seems to be heating up for Mark Anthony Brands, the maker of both White Claw and Mike’s Hard Lemonade. White Claw officials confirmed a nation-wide shortage this month. So, what exactly is causing this frenzy? Maybe people do really believe in the slogan that “there ain’t no laws when you’re drinking claws” or maybe it’s the fact that the popular hard-seltzer has 5% ABV (alcohol by volume) and is a mere 100 calories per can, making it an easy choice for increasingly health conscious consumers. Having positioned itself as a more refreshing, low calorie alcoholic beverage, White Claw is a significant new contender to more established alcohol brands.

Perhaps another part of White Claw’s growth story can be attributed to its endemic marketing strategy. The company has gone beyond outdated alcohol marketing strategies that attempted to genderize an entire product line, and instead presents a gender-neutral product that focuses on wellness, health, and the individual. White Claw’s low cost and effective marketing strategy is simple – let the consumers be the voice of the brand. White Claw’s decision to not institute a well-established brand definition allows each customer to decide for themselves what the product symbolizes.

Hard-seltzer has clearly become the drink of 2019, not only because its dominating growth within the overall beer market, but because of its broad-based appeal. While hard-seltzer beverages still only capture about 2% of the total beer market, sales in the past year have increased over 200% with 164% of the growth occurring in July alone. White Claw by itself accounts for more than half of hard-seltzer sales. Currently, the hard-seltzer market is estimated to be worth $550 million but is predicted to be a roaring $2.5 billion market by 2021.(1,2)

Yet, large untapped opportunities in this segment of the food and beverage market remain, and we are excited to watch them unfold. Although White Claw is the clear market leader, other hard-seltzer brands such as Boston Beer Company’s Truly and Anheuser-Busch InBev’s Bon & Viv are also gaining strong momentum. Interestingly, these large beer companies appear to be following White Claw’s lead, shifting away from gendered advertising when marketing hard-seltzer. Competition could become more heated as many major beer companies currently have at least one hard-seltzer brand in their portfolio and appear to be expanding their marketing sales and efforts. In the meantime, if you’re unsure of what to bring to your next get together, as your consumer investment bankers, we are telling you that you can’t go wrong with a pack of Claws.

(1) Kendal, Justin. “Nielsen: Total Beer Dollar Sales Up 5 Percent During July 4th Holiday Week.” Brewbound, 17 July 2019.
(2) Reinicke, Carmen. “Hard-seltzer Sales Are Booming in the US – and UBS Says these 5 Beer Companies Are Best Positioned to Profit from the Trend.” Business Insider, 30 July 2019.

Coming up the Learning Curve: The State of Adult Learning

The importance of adult and continuing education has become increasingly clear in recent years. Rapidly changing technology and a growing population of low-skilled adults means there is substantive demand for better workforce development systems equipped to meet 21st century needs. While low government funding and high cost continue to act as a barrier for continued expansion, there are several other compelling factors that are paving the way for innovation in the alternative education space.

  • Highly Fragmented Industry. Perhaps one of the more attractive features of the adult education market is the lack of a clear leader. Few companies have managed to champion meaningful market share in the continuing education arena, and even fewer still address the overt need for adult remedial and developmental education solutions. Unlike its K-12 counterpart – where massive education technology companies like Pearson, K12, and Cengage reign unopposed – a fragmented market offers plenty of opportunity for smaller companies to innovate, compete and succeed.
  • Large Target Market. According to 2017 census data, approximately 27% of U.S. adults aged 25 and over hold only a high school diploma. Over 12% of those 26.5 million adults lack a high school degree(1). An even smaller fraction of the total pool of low-skilled American adults are currently enrolled or participating in a continuing education program, community college, or workforce development program (including adult basic education, ESL, HISAT, computer and financial literacy, and other job-based skills programs). Leveraging technology is a big opportunity to affordably scale these programs to reach the millions of adults in need of the basic education and skills critical to boosting employability.
  • Less Legislation. The U.S. currently spends approximately $10 billion per year on adult education (only $200 million of which is spent on digital materials) (2), compared to an annual spend of over $650 billion on K-12 education services. While only a small piece of the overall education expenditure pie, lower vested interest in the space means that there is little regulation required to adopt new policies and practices, and more room for disruptive innovation. An example is mobile learning: whereas use of smartphones is still gaining adoption in the K-12 classroom setting, mobile learning among adults can serve as a convenient, affordable, and simple learning solution. One favorable piece of legislation affecting this industry is the Workforce Innovation and Opportunity Act (WIOA). Administered by the Education Department, Title II of the WIOA – the Adult Education and Family Literacy Act – federally mandates a focus on integrating technology into adult basic education and career pathways programs in a manner sufficient to help adult learners improve basic skills and gain college credits. Alternative education providers can use these publicly available plans to create or adopt new content and delivery models that support the WIOA’s core purpose.
  • Demand for Upskilling. Continuing education is also more flexible to adapt to employers’ projected needs. Rapid developments in technology and innovation continue to alter the knowledge and skills necessary to enter the workforce, with a focus on digital and financial literacy. Companies operating on an international scale may also benefit from career development programs tailored to foreign language, communication, and cultural sensitivity training. That said, there is significant opportunity for education providers to partner with employers to create customized career pathways programs that satisfy demand for industry-specific talent.
  • Flexibility of Coursework. Adult learners are likewise able to tailor their own personal education experiences such that they gain the skills and knowledge relevant to their personal goals. Online education also presents a flexible alternative to the traditional, face-to-face method of learning; adult education providers can offer a variety of learning options (self-paced, blended, and online learning) during nontraditional hours of operation to serve adult students otherwise busy with work and family obligations.

If you would like to learn more about MHT Partners, a leading education investment bank, please e-mail Shawn D. Terry (sterry@mhtpartners.com), Alex Hicks (ahicks@mhtpartners.com) or Rebecca Bell (rbell@mhtpartners.com).

(1). Adult Education Comes of Age (EducationNext)
(2) Accelerating Change: A Guide to the Adult Learning Ed-Tech Market

The Rise of Consumer IV Therapy Clinics

Intravenous (“IV”) therapies, which deliver medicines or fluids through a needle or tube inserted into a vein, a mainstay of hospitals and doctors’ offices globally, have entered American living rooms, strip malls, and hotel lobbies. On-demand IV infusions of saline, vitamins and prescription drugs can now easily be ordered to your home or accessed at ambulatory clinics – known as “drip bars” – across the country. Originally made popular as a quick hangover cure, the trend has been adopted by health-conscious consumers seeking a pick-me-up. While IV therapy can be a shortcut to hydration and can leave customers feeling great, the benefits may be limited. Nonetheless, demand for easily accessible drip therapy is rapidly growing, and the fragmented market presents vast opportunity for new entrants.

Drip bar menus offer treatments catering to a wide variety of patients and ailments, such as jet lagged travelers, migraine sufferers, victims of food poisoning, or even people trying to revitalize the look of their skin and hair. First, among these patient groups, are those seeking hangover treatments, which typically calls for a cocktail of saline, vitamin B12, and a host of prescription drugs which can include anti-nausea agents, non-steroidal anti-inflammatory drugs, and anti-heartburn medication. Other therapy offerings can include additional vitamin cocktails, electrolytes, and other prescription drugs. These procedures can be pricey, ranging from $150 for a basic saline bag to over $400 for more elaborate infusions. As on-demand IV therapy is not currently covered by Medicare or commercial insurance providers, these fees are entirely out-of-pocket.

Although proponents of drip therapy sing its praises, the clinical benefits of the treatment may be lacking. While there may be a marginal benefit to intravenous hydration and drug delivery for drip bar patients, the majority of the positive effects observed by proponents are likely a placebo resulting from the act of receiving IV fluids. There are also minor risks of complications resulting from the procedure, such as infection of the injection site, inflammation or clotting in the vein, and/or interactions with other prescriptions.

Current regulation and enforcement of on-demand IV therapy clinics is light. In most states, the owner must obtain a license for a physician medical office, and must employ a physician, a physician’s assistant, or a nurse practitioner to prescribe medications. In practice, the standards are widely variable among establishments, and clinics often skirt the rules by using other medical professionals such as EMTs or Registered Nurses in place of the required personnel. Some jurisdictions, including Clark County, Nevada, are exploring more strict regulation, but widespread adoption is still far away.

To date, there has been little private equity activity in the consumer IV therapy market. A small number of medspas or other clinics offering IV services have been backed by venture investors, such as M13 Ventures’ investment in Next Health, provider of a range of health and wellness services. However, infusion therapy clinics, which provide medically necessary IV infusion therapy and pharmacy services, have seen greater investment activity in recent years, including Boyne Capital Partners’ 2018 acquisition of Infusion Associates Management and Excellere Partners’ 2013 acquisition of Advanced Infusion Solutions. Retail IV therapy clinics have the potential to be accretive add-on investments for established infusion platforms like these.

The current retail IV therapy market is highly fragmented among many small, local clinics, and consumer demand is strong and growing, so new entrants will have a meaningful opportunity to consolidate and quickly build a large geographic footprint.

MHT Partners, a leading healthcare investment bank, believes that innovative, niche solutions that decrease the cost of care while improving outcomes will shape the future state of healthcare. If you would like to learn more about MHT’s healthcare services advisory practice, please e-mail Taylor Curtis (tcurtis@mhtpartners.com) or Alex Sauter (asauter@mhtpartners.com).

Sources:
“Clark County in Talks to Regulate IV Therapy Businesses,” Fox 5 Vegas
“Drip Bar: Should You Get an IV On Demand,” Harvard Health
“Should You Try I.V. Therapy?,” U.S. News & World Report

Loyalty in the Workplace

The old adage about the finance industry was “if you want loyalty on Wall St., get a dog.” That mentality has slowly crept onto Main St. as cultural norms have shifted, a strong job market has persisted, and the options for job seekers have exploded and are just a click away. The change in employee loyalty is reflected in the fact that, over the last 20 years, the number of companies people have worked for in the first five years out of college has nearly doubled. The days of slowly moving up the corporate ladder during a 40-year career are largely gone. These secular trends have led to the emergence of employers looking for ways to engage with, influence and retain employees to ensure longer-term, stable workforces, which ultimately drive value to organizations.

The change in employee loyalty is being driven by the new breed of millennial employees, many of whom are already well into their 30s. Understanding how to engage and retain millennials is now front and center for employers because millennials make up the biggest demographic in the workforce – more than one in three U.S. employees. As a result, the $5.8 billion market for employee incentive and recognition programs is expected to grow to $30 billion in the next 10 years.(1)

Growth in the employee incentive and recognition industry is further supported by the expectation that, within a decade, the millennial and Generation Z population will make up nearly 60 percent of U.S. workers. Studies have found that these new generations of workers are unlikely to feel engaged by traditional perks such as bonuses and employee-of-the-month awards. Instead, they are more likely to value policies that promote work-life flexibility, training in “soft” skills, and corporate social responsibility, one major study found.(2)

In order to address the issues caused by changing norms related to employee loyalty, numerous players have emerged to provide data-driven technology platforms to help employers engage with and retain employees. MHT Partners, a leading business services investment bank, has been following this trend closely and is actively involved in the loyalty and rewards sector broadly. We believe, as the issue of employee loyalty continues to expand, there will significant M&A activity involving innovative technology companies that provide unique solutions to improve employee engagement and retention.

(1) Future Market Insights
(2) 2018 Millennial Survey Report, Deloitte

The World’s First Molecular Coffee . . . Coming Soon!

This weekend I finally gave in and decided to forgo my typical 2% whole milk and instead try the lactose-free brand at Trader Joes. It made me wonder what the next big product of the food tech industry will be? Apparently, the answer is coffee with no coffee beans. Atomo Coffee, if successful, will be the first molecular coffee in the world. The coffee is expected to hit the market as early as next year. The Seattle-based startup has recently secured a $2.6 million investment from Horizons Ventures. The venture capital firm’s portfolio focuses on disruptive technology companies. Horizons was one of the original investors in the Impossible Burger, which after much anticipation will finally be sold in grocery stores after it received FDA approval last month for its color additive – soy leghemoglobin.

According to its website, Atomo’s mission is not to replace existing coffee farmers, but to offer a better solution for the environment. Climate change is making it more difficult for farmers to produce coffee beans, as existing coffee bean plantations have been challenged with production losses. Recent studies claim that about half of the best coffee bean plantations could no longer be suited for coffee bean production by 2050, and many wild coffee species are already under threat of extinction.1 One of the consequences of this dynamic is increasing deforestation as new land is cultivated to meet demand for beans.

Coffee is one of the most consumed beverages around the world and demand is not likely to let up anytime soon. Atomo is promising coffee lovers a flavorful cup of coffee with all the normal flavors, aromas, and without the bitterness, all for a more reasonable price. On top of being a vegan product, Atomo is anticipating their final product to contain no food allergens and to be Kosher Certified. Seems like a promising solution for the millions of people who are dependent on coffee to kickstart their day.

As consumer investment bankers and avid coffee drinkers, we are curious to see Atomo’s development unfold and what repercussions it will have on the coffee industry. The food tech industry is gaining momentum as consumers are no longer only focused on their personal consumption but are starting to place higher value on sustainable and ecofriendly practices of businesses.

(1) Worland, Justin. “Your Morning Cup of Coffee Is in Danger. Can the Industry Adapt in Time?” Time 21 June 2018.

Education Technology – A Component Not a Cure All – Part 2

As a continuum to our last blog, we will discuss how to effectively implement education technology to spark growth in academic achievement, close the digital learning gap and talk about possible improvements that can ignite future leaders. The good news is that solutions aren’t far reaching. In fact, many have already been identified but simply need to be solidified.

Educators and administrators agree that education technology should enhance, but not dominate, the classroom. Students should not feel overwhelmed or deterred by the challenges of technology, but rather empowered due to unlimited access to personalized, digital content. Nevertheless, the potential misuse of technology can lead to a wide discrepancy between potential and actual effectiveness. More than 90% of teachers report they rely on their own experience and instinct to guide the way they utilize and teach technology in their classrooms(1). While experience is usually the ultimate advantage, in a world that is becoming more technological, experience only goes so far. That said, educators must actively seek to effectively implement education technology into their classrooms and utilize academic research to best cater to the needs of all students. School district focus should be to allocate adequate time and money towards professional development programs that help teachers evolve and improve their teaching techniques in harmony with advancing education technology. Once educators learn how to use technology to successfully tailor learning, we expect to see optimism meet opportunity.

The digital learning gap is another underlying problem that has been identified but has yet to be solved. This gap is caused by differences in how children access and use technology in and out of school to improve their learning opportunity and outcomes(2). While some students have grown up in technology-enabled schools and households that support this system, others have not. This makes adapting to new technology in classrooms less favorable for certain students, widening the digital learning gap. There are two things, in addition to professional development programs, that must be done to shrink this gap and increase academic achievement:

  1. Increase access, both at school and at home. Even with 45 million students having access to high-speed internet at school, there are still 2.3 million students who do not. In addition, 15% of U.S. households with school-aged children do not have a high-speed internet connection at home(2).
  2. Increase participation2. Educators and schools must constantly teach and instill the importance of education technology participation. Approximately 11% of households do not use internet, with the majority of these making below $30,000 a year or living in rural areas(2). Our schools must acknowledge this reality and help students and their families realize the importance of technology and internet access to their futures.

Nevertheless, the potential of the digital classroom is near break through. More than 75% of teachers, students, and parents believe tailored learning utilizing technology is a better way of learning than the traditional, whole group, lecture-style classroom(1). This coupled with the incessant development/creation of digital content and devices, equates to a wide window of opportunity. MHT Partners, a leading education investment bank, knows that both financial sponsors and strategic buyers are making it a priority to invest in education technology companies, with $962 million raised over 65 deals in the first half of 2019 compared to $750 million across 62 deals in the first six months of 2018(3). The industry is booming, and there’s no indication of it slowing down.

[1] https://www.edsurge.com/news/2019-08-06-hype-hope-and-humblepie-for-predictions-about-digital-learning
[2] https://digitalpromise.org/2019/01/09/closing-the-digital-learning-gap/
[3] https://www.edsurge.com/news/2019-08-07-us-edtech-funding-already-nears-1-billion-in-first-half-of-2019