2023 Technology Services and IT Consulting M&A: Consolidation, Retooling, and a Cautious Optimism for 2024

The Technology Services and IT Consulting M&A landscape in 2023 mirrored the broader market’s cautious dance. While deal volume dipped compared to 2021 and 2022’s frenetic pace, the sector displayed remarkable resilience, attracting continued investor and strategic buyer interest. Here’s a closer look at the key trends that shaped 2023 and what IT services M&A might hold in 2024.

A Shifting Tide of Deals:

• Macroeconomic headwinds: Rising interest rates, inflation, and geopolitical uncertainties cast a shadow on M&A activity, leading to a decline in deal volume and value compared to the previous year’s record-breaking numbers (source: PwC Global M&A Technology Industry Trends 2023).

• Strategic recalibration: Buyers sought deals that offered clear value creation opportunities and bolstered core capabilities in areas like automation, cloud migration, and cybersecurity. Large-scale platform acquisitions took a backseat to bolt-on acquisitions and talent-focused deals (source: Accenture Research: 2023 Technology M&A Market Trends).

• Private equity’s evolving role: PE firms remained active, but their focus shifted towards portfolio optimization and supporting existing investments through M&A. Large-scale platform acquisitions took a backseat to bolt-on deals and tuck-in acquisitions (source: Bain & Company: Private Equity in Technology 2023).

Emerging Themes in Technology Services and IT Consulting M&A:

• Cloud’s Dominance: Cloud migration, managed services, and cloud-native solutions dominated M&A activity, with established players acquiring niche consultancies and pure-play cloud providers to solidify their market positions (source: Gartner: IT Services M&A Trends 2023). AWS, Google Cloud, MSFT Azure/Cloud and others will see significant consolidation in 2024 and 2025 with buyers mostly coming from large and mid-sized systems integrators.

• Data Analytics Takes Center Stage: As data analytics firms and IT consultancies with strong data capabilities become increasingly valuable, we expect to see a surge in M&A activity in this space. Large players will seek to acquire niche specialists, expand their service offerings, and access top talent.

Data Analytics Trending Areas:

• Predictive analytics: The ability to anticipate future trends and customer behavior will be a key differentiator, driving demand for advanced analytics solutions and consulting expertise.
• AI integration: M&A will likely play a role in bringing AI and machine learning capabilities closer to data analytics practices, creating more robust and intelligent solutions.
• Talent acquisition: The war for data science and analytics talent will intensify, with consultancies offering competitive packages and career development opportunities to attract the best minds.

• Cybersecurity’s Surge: The escalating threat landscape fueled demand for cybersecurity solutions, leading to a wave of consolidation among smaller players and strategic acquisitions by larger firms looking to expand their offerings (source: Deloitte: 2023 Cybersecurity M&A Report). According to Gartner, Spending on cybersecurity services – consulting, IT outsourcing, implementation and hardware support –is forecast to total $90 billion in 2024, an increase of 11% from 2023. Cybersecurity services are expected to represent 42% of total security and risk management end-user spending in 2024 and to remain the largest area of security and risk management spending in 2024.

• Talent Acquisition Takes Center Stage: With the war for tech talent intensifying, M&A became a key tool for acquiring specialized skills, certifications, and expertise, particularly in areas like data science, artificial intelligence, and blockchain (source: KPMG: 2023 Tech Talent M&A Trends).

2024 Outlook: A Year of Focused Growth for Technology Services and IT Consulting M&A?

Looking ahead to 2024, several factors suggest a potential rebound in IT services M&A activity:

Easing headwinds: A gradual stabilization of the macroeconomic environment could boost investor confidence and revive deal flows.

• Continued IT spending: Despite economic anxieties, businesses are expected to maintain their IT budgets, driven by digital transformation initiatives, AI and cloud adoption.  According to Gartner, IT services will continue to see an increase in growth in 2024, becoming the largest segment of IT spending for the first time. Spending on IT services is expected to grow 8.7% in 2024, reaching $1.5 trillion
• Focus on innovation: M&A will likely play a role in enabling companies to acquire cutting-edge technologies and stay ahead of the curve, particularly in areas like automation, AI, and Web3.
• PE’s re-emergence: With dry powder accumulating at a record-breaking $2.59 trillion, PE firms are poised to return to the forefront, potentially driving larger deals and platform acquisitions.

Here are 10 noteworthy M&A transactions that took place in the IT consulting and technology services sector in 2023, highlighting different trends and areas of focus:

1. OpenText acquires Micro Focus for $5.8 billion: This deal strengthens OpenText’s position in enterprise information management and bolsters its cloud offerings. (Source: CRN)
2. Insight acquires SADA for $1.5 billion: This purchase expands Insight’s reach in the Google Cloud space and bolsters its AI capabilities. (Source: CRN)
3. Thales acquires Imperva for $3.6 billion: This acquisition reinforces Thales’ cybersecurity portfolio, particularly in cloud security solutions. (Source: CRN)
4. Accenture acquires Flutura for an undisclosed sum: This deal helps Accenture’s industrial AI services and strengthens its capabilities in predictive maintenance and sustainability goals. (Source: CRN)
5. 10Pearls acquires Anser Advisory for an undisclosed sum: This acquisition helps 10Pearls offer full-lifecycle support for large infrastructure projects, expanding its managed services portfolio. (Source: CRN)
6. Cognizant acquires EI-Technologies for €320 million: This deal strengthens Cognizant’s SAP capabilities and expands its reach in the European market. (Source: Consultancy.uk)
7. NTT DATA acquires itelligence AG for €2.7 billion: This acquisition helps NTT DATA expand its reach in the Central and Eastern European IT market and strengthen its SAP expertise. (Source: ComputerWeekly)
8. McKinsey & Company acquires Eden McCallum for an undisclosed sum: This deal bolsters McKinsey’s capabilities in retail and consumer goods strategy and marketing. (Source: The Drum)
9. Atos acquires Cloudreach for €3.6 billion: This acquisition helps Atos expand its cloud migration and managed services offerings, particularly in North America. (Source: Reuters)
10. Bain & Company acquires Cadence Consulting Group for an undisclosed sum: This deal strengthens Bain’s digital strategy and transformation expertise, particularly in the retail and consumer goods sectors. (Source: Bain & Company)

About Solganick & Co.

Solganick & Co. has been focused on the technology services and IT consulting sector since its founding in 2009.  We understand the complexity of the industry sector and can help buyers and sellers of companies manage the transaction process. For more information on the technology services sector or to inquire about an M&A opportunity, please contact us.