IT Services Industry Report

The global information technology (IT) services industry is comprised of multi-billion-dollar firms that span multiple sectors, including many with hundreds of millions of dollars in revenue and concentrated areas of focus, as well as smaller firms that focus on niche markets and specific geographic regions.

There is increasing expenditure around the world on IT services, as demand for
software-as-a-service (SaaS) and additional cloud solutions is on the rise. There is also a growing frequency of data breaches, which is significantly driving cybersecurity market growth opportunities.

Key Market Trends

Companies in this sector employ integrated methods to gather, process, communicate, and store various types of information, aiming to improve efficiencies for both society and organizations. The outsourcing of these services allows companies to easily access technical expertise without taking on additional staff and fixed costs, especially in cases when companies need talent that is not readily available internally or locally. Outsourcing can also alleviate pressure and save time for a company’s existing in-house IT staff.

The widespread adoption of the Internet of Things (IoT) and related devices continues to drive growth in the IT services market, as deployment, management, and utilization provide necessary infrastructure, connectivity, security, and analytics capabilities for real-world value in nearly all industries on a global level.

Data analytics is more in demand by companies across all sectors in order to extract key information from raw data to facilitate better decision-making. By examining large amounts of data, correlations and hidden patterns that directly or indirectly impact a business can be identified. IT services companies are offering customized data analytics tools based on the specific functions and demands of their clients.

More companies within the IT services sector are innovating their service offerings by incorporating artificial intelligence (AI) to provide more reliability for the customers. AI can be utilized to enhance IT infrastructure by automating tasks and increasing efficiencies.

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Cloud services are also in demand by more businesses due to the emergence of cloud-based platforms and the agility that they offer. Cloud-based infrastructure enables flexible, on-demand access to resources and new digital business solutions. Thanks to the cloud, IT services have become more data-driven and capable of operating in real-time, which translates to increased value, particularly in terms of operational efficiencies, opportunity discovery, and remote access optimization. As demand for cloud services is expected to increase in the next several years, the scope for IT services is expected to grow quickly. To boost areas such as productivity, governance, and control, more and more companies are looking to move their IT systems’ core to the cloud, driving investments that are accelerating the digital transformation movement.

M&A

Many large IT services companies regularly utilize acquisitions to execute business strategies
such as:

• Product enhancement
• Geographic expansion
• Keeping pace with changing marketplaces
• Expansion into adjacent markets

Acquisitions in this sector can also serve as an alternative path to product development, allowing companies to purchase capabilities and content rather than create it themselves. IT services companies typically look to acquire content that fits well within their existing offerings. 

Many businesses opt to buy rather than build, acquiring companies rather than recruiting new staff. Increased demand for talent also pushes companies to outsource their tech and compete over acquisitions.

Value through M&A in this industry comes in the form of clear synergies and improved distribution capabilities. This is partially due to the fact that IT services content can be used several times at no added cost. After a one-time integration of content and capabilities between the two companies, there is much versatility in how the content can be used. Synergies are especially important to M&A deals when they are part of a business owner’s exit strategy in order to maximize the value of the transaction and fulfill the business owner’s personal objectives and vision for the company.

Consolidation planning is key to company valuations. IT services companies do not typically view acquisition targets as stand-alone enterprises, but rather as opportunities to consolidate acquired content into existing platforms, therefore gaining positive revenue, improved cost synergy, and reduced technology costs. IT services transactions can happen at a higher price if earnings and product synergies can be pinpointed and their profitability is clearly identified.

In the IT services industry, M&A activity is popular within the following segments:

• Business Intelligence
• Financial Markets Information
• Legal, Tax & Regulatory Information
• Credit & Risk Management Information
• Marketing Information

Strategic buyers, private equity firms, and public companies are particularly interested in software outsourcing companies that offer cloud and SaaS solutions. When it comes to M&A in this sector:

• Incumbent technology companies need consolidation opportunities
• Large organizations need growth through investment
• Smaller firms need to expand their geographic reach
• There is a high level of buyer interest in cloud software and services across all sizes and spectrums of the market

Smaller companies with high-value specializations and regional companies with scalability remain in high demand globally.

Additionally, as cybersecurity is a major priority in the highly digitized environment of the 21st century, there are significant opportunities for the raising of capital and completion of transactions between companies that operate in this space.

As we see continued changes in technology, the introduction of new technologies, and increases in global overall IT spending, the IT services sector is destined to see an increased prevalence of M&A interest and transactions.

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