Endava IPO Highlights Rise of Services Challengers

Endava, one of the rising stars of the European IT services sector, has set out the details of a planned IPO on the New York Stock Exchange.

The London-based company is aiming to raise up to $75m in the listing, as it looks to build on recent organic and M&A-driven growth on both sides of the Atlantic.

The move highlights the resurgence of smaller services vendors at a time when buyers have never been more willing to engage with emerging or specialist suppliers – particularly in supporting their digital transformation agenda.

Endava is part of the new breed that has grown up in the digital age (it was founded in 2000) whose lack of legacy baggage have given them a free run to focus on the evolving needs of their customer’s business and IT stakeholders.

The shift to agile development is at the heart of Endava’s business, and it works with clients from ideation through to production to help them build agile platforms, products and services. Recent projects have included the creation of a virtual wallet product for a telecoms operator and helping a UK insurer to accelerate its release cycle from over 22 weeks down to 90 days. All work is underpinned by its TEAS (The Endava Agile Scaling framework) framework, which is designed to help it deliver agile development at enterprise scale.

Endava’s filing documents highlight its recent progress. In the year ending June 2017, revenue rose by 38% to £159m, with pre-tax profit up 4% to £21.7m, representing a margin of 14%. In the nine months ending March 2018, sales reached £219m, which has been further enhanced by the completion of its largest acquisition to date, with the purchase of US-based Velocity Partners, which brought delivery operations in Argentina, Colombia, Uruguay and Venezuela.

More than half of Endava’s 4,700 employees are based in nearshore delivery centres in European locations such as Romania, Moldova and Bulgaria. The payments and financial services sector accounted for just over a half of revenue, with the TMT sector accounting for a further 37%. The company’s largest client is payments giant Worldpay, which has a £50m+ framework in place that runs through to 2021. 

PAC has recently met with Endava’s senior management who told us that while it competes with offshore heritage firms such as Cognizant and Wipro or nearshore players including EPAM and Luxoft, its delivery model is built around providing access to talent rather than labour arbitrage. Automation is an increasingly important focus area, but rather than pushing the big RPA platforms, it is taking a more pragmatic approach by building focused offerings for areas such as the processing and classification of covenants in the commercial loans business.

The funds raised by Endava will help it with the toughest challenge in the market today – attracting and retaining the right talent. Further acquisitions are likely to be on the agenda as it increases its presence in continental Europe and North America. It is also looking to diversify its vertical focus into areas such as consumer products, healthcare, logistics and retail.

The IPO comes at an interesting moment in the IT services sector. This will be the second significant flotation from an out-and-out services vendor in Europe in 2018, following a fallow period of more than a decade. Denmark’s NetConsulting (£168m revenue) went public on NASDAQ Sweden in June, in order to raise a war chest to support an aggressive M&A strategy, which has already seen it snap up UK apps services supplier Hunter Macdonald at the end of 2017. 

Endava is part of a growing cluster of applications services companies that are breaking through or closing in on the £100m revenue ceiling. Others include fellow UK agile development firm BJSS, French integrator/consultancy Talan and German retail specialist KPS Consulting, which is aiming to grow revenue to €170m in its current financial year. 

A new middle ground is emerging in the IT services supplier market and the fresh focus, skills and approach it offers is good news for buyers, and a competitive headache for the sector’s established order.