The 3 IT & Business Services Subsectors Which Are a Magnet For M&A
When it comes to investment and M&A activity, it’s fair to say that many spaces within the tech industry have recently had an experience akin to a log flume ride at a fairground. That is to say, an abrupt and vertiginous climb (as the pandemic unfolded and the importance of tech solutions became starkly clear) followed by a dramatic drop, with splashes of cold water hitting quite a few investors, entrepreneurs and industry commentators alike.
But one tech space – IT & Business Services – has had a far less turbulent journey over the past few years. In fact, as our newest IT & Business Services report has revealed, deal numbers have enjoyed a sustained rise since 1H2021, with the first half of this year seeing the biggest ever deal volume on record.
This impressive showing reflects the continuing tendency for businesses and organisations to allocate spending to cloud-based platforms and applications that can bolster efficiency, rather than investing in expensive hardware which often brings extra operational challenges with regards to handling, maintenance and upgrades.
One particularly noteworthy takeaway of our new market report is that generative AI hasn’t so far had a significant impact on business IT spending. This isn’t to downplay the role generative AI will play in this space – the revolutionary nature of the technology means that no part of the tech world will escape disruption. However, we expect that generative AI solutions will be integrated via upgrades to apps and platforms whose costings have already been accounted for by IT budgets, hence why AI has not been making a standalone impact on spending.
So what kinds of solutions, and tech companies, have been attracting spending and investors/acquirers? Our analysts have broken the sector down into three distinct subsectors:
- Tech Services & Support
- IT Outsourced Services
- Integration Services
Tech Services & Support
This subsector is a serious magnet for M&A activity – indeed, it accounts for over 64% of all deals in IT & Business Services recorded over the past 30 months. The subsector encompasses firms which specialise in tech and management consulting, web and email marketing measurement and design, a prime example being Austrian company K-Businesscom.
A major presence throughout the DACH region, the Czech Republic and Romania, K-Businesscom is a leading digitalisation partner for enterprises, accompanying clients on cloud transformation pathways and providing proprietary services like the KBC Cyber Defense Center which identifies IT risks and guards against cyber attacks.
In April this year, K-Businesscom was snapped up by IT service provider CANCOM in a $181 million deal which is the largest in CANCOM’s history and has resulted in the creation of an IT giant in the DACH region.
Here at Hampleton Partners, we advised on another major 2023 deal within the subsector – namely, the acquisition of STAGIL GmbH, one of Germany’s largest Atlassian Platinum and Enterprise Solution Partners. STAGIL consults in Atlassian tools such as Jira and BitBucket, with sector-specific expertise in everything from automotive and insurance to e-commerce and finance.
Our managing partner Jan Eiben, led the team in guiding STAGIL on its acquisition by TIMETOACT GROUP, helping STAGIL to pick out TIMETOACT as the best-fit partner from a plethora of strategic investors which had shown interest.
IT Outsourced Services
This subsector has accounted for the second-highest proportion of deals being made within IT & Business Services in the past 30 months, and the highest EBITDA multiples across the same period. It includes companies involved in transaction processing, software development contract manufacturing, staffing and customer care, with one example being Velotio Technologies which is based in Pune, India.
A product-engineering and digital solutions partner for early-stage startups and longer-established enterprises alike, Velotio’s specialisms range from app development and data engineering to quality assurance testing and “CTO as a service”, with its experts remotely overseeing product development for clients.
Following a $33.8 million acquisition in June, Velotio’s army of engineers have been folded into another Indian tech firm, R Systems, which provides AI, analytics and knowledge services, and can now offer deeper capabilities in DevOps and data engineering.
The third segment of IT & Business Services, and the one which accounts for the smallest proportion of transactions, is Integration Services. This is the subsector housing companies which specialise in network integration, telecom integration, systems integration and security integration.
One significant deal in 2023 has been the acquisition of Truewind by Axians in June for an undisclosed sum. Headquartered in Lisbon, Truewind is a leading OutSystems partner allowing its clients to leverage its expertise in the low-code development platform and integrate OutSystems applications with the existing applicational infrastructure, such as ERP, social media and data analytics platforms.
As part of Axians, an IT services giant with dozens of offices throughout the world, Truewind will, in the words of its CEO, “be fuelled by the support of a global network able to expand our low-code operations and better serve our customers.”
Get more insights into this sector
Hampleton Partners has successfully completed over 120 advisory mandates in this sector, including the sale of Omnio Edge to IBM and the acquisition of Loop54 by FACT-Finder/GENUI. You can find out more on the latest deals by reading our report, which features this key quote by Hampleton MDs Konstantin Kastius and Axel Brill:
“As global spending on IT continues to grow faster than the global economy, we see a healthy environment for continued high pace of M&A activity in the IT Services sector.”