Market Insights
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After record M&A volumes in 2021 and 2022, the IT Services sector saw activity slow substantially in 2023 and H1 2024 as market participants struggled to drive growth amid a challenging demand environment |
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Enterprises “pulled forward” IT spend in 2020-2022 as the pandemic accelerated digital transformation and cloud migration initiatives that facilitated companies’ remote work infrastructure, driving elevated industry growth |
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Starting in late 2022, enterprises began rationalizing IT spend and delaying projects, hampering IT Services market growth, particularly in the project-based digital engineering segment |
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M&A activity has seen a notable uptick over the last two quarters, driven by activity in both digital transformation-oriented firms and IT managed services & solutions providers (MSPs/VARs) |
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Digital Transformation: Globant’s acquisition of Exusia (Oct-24), Gryphon Investors’ recapitalization of phData (Dec-24), H.I.G. Capital’s take-private acquisition of Quisitive (Jan-25), ASGN’s acquisition of TopBloc (Feb-25), Encora’s carve-out acquisition of DMI’s digital transformation business activities catering to commercial clients (Feb-25) |
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IT Managed Services & Solutions Providers: CDW’s acquisition of Mission Cloud Services (Dec-24), OMERS’ acquisition of Integris (Dec-24), Ideal Integrations’ acquisition of 1path (Dec-24), World Wide Technology’s take-private acquisition of Softchoice (Jan-25), Revelstoke Capital’s recapitalization of Omega Systems (Jan-25), Berkshire’s recapitalization of Thrive (Jan-25), H.I.G. Capital’s take-private acquisition of Converge Technology Solutions and pending combination with existing portfolio company Mainline Information Systems (Feb-25), Agellus Capital’s acquisition of CompassMSP and pending combination with existing portfolio company Blackpoint IT Services (Feb-25) |
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Notably, a large portion of the recent activity can be attributed to strategic acquirers adding headcount to augment capabilities, increase delivery capacity, and catalyze business transformation, which we view as a positive leading indicator for the industry’s growth prospects for 2025 |
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Accenture’s total headcount saw a 7.5% increase in fiscal Q1 2025 (Nov-24 end) after holding flat for most of FY23 and FY24 (August end) |
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Consensus estimates across the industry support a return to growth, with most companies expecting accelerating growth in 2025 as compared to 2024 |
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Improving growth expectations has led to a positive rerating of multiples for both digital engineering firms and systems integrators |
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Multiple factors, combined with a return to growth in 2025, could contribute to sustained IT Services M&A momentum in 2025
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Accumulating private equity dry powder, robust debt capital markets, a strong economy with stabilizing inflation, and the new administration’s dovish stance on the regulatory environment provide a favorable backdrop |
