May 9, 2024
Solganick & Co. identified software development services, artificial intelligence, data analytics, cloud computing, cybersecurity, and specialty IT consulting firms as the most active industry subsectors for mergers and acquisitions in Q1 2024. Managed services providers (MSPs) saw rapid consolidation, while financial buyers, particularly private equity firms, accounted for 57.1% of transactions in the systems integration sector through YTD 2024. Notable deals included Synopsys' $31.9 billion acquisition of ANSYS and HPE's $12.8 billion acquisition of Juniper Networks, driven by anticipated interest rate cuts and market optimism.
by
Aaron Solganick, CEO/Founder, Solganick & Co.
The most active industry subsectors for mergers and acquisitions in the software and IT services verticals during Q1 2024 were:
- Software development services, driven by demand for vertical SaaS solutions, a shift to profitability over growth, and consolidation in areas like cloud, analytics, IoT, and AI/ML. Transactions announced in Q1 2024 include Globant’s acquisition of Iteris and EPAM’s acquisition of Vates
- Artificial intelligence, data analytics, cloud computing, cybersecurity, and software development competencies, which are in strong demand and expected to remain key areas of interest for buyers.
- Demand for specialty IT consulting firms supporting application software platforms continues to be very strong, particularly for partners of applications supporting large and growing market opportunities (e.g., AWS, Google Cloud, Microsoft Azure, Snowflake, Databricks, ServiceNow, Salesforce and others).
- Managed services providers (MSPs), which saw strong M&A activity in Q1 2024. The MSP industry “is in a rapid state of consolidation,” with more than 660,000 cybersecurity-related job openings in the United States between 2020 and 2024, representing a 28% increase.
- Systems integrators and application partners, where the M&A market showed resilience in Q1 2024 compared to the broader M&A market. Financial buyers, particularly private equity firms, have kept M&A volume afloat in the systems integration sector, accounting for 57.1% of all transactions through YTD 2024.
The most significant mergers and acquisitions in the software and IT services verticals during Q1 2024 were:
Software Sector
- Synopsys’ $31.9 billion acquisition of ANSYS, a leading provider of engineering simulation software
- HPE’s $12.8 billion acquisition of Juniper Networks, a networking products and services company
IT Services Sector
Systems Integrators and Application Partners
- Accenture acquired Navisite, a provider of AWS, Azure, and Google Cloud solutions
- Ahead acquired Computer Design & Integration (CDI), an IT services provider
- Private equity firms acquired major IT solutions providers including CBTS, Presidio, and NWN Carousel
Managed Service Providers (MSPs)
- The fragmented MSP sector saw continued consolidation, with acquisitions by serial acquirers like Corporate Technologies, Corsica Technologies, Integris, and others
Cloud Solutions Providers
- Centroid Systems acquired Kubernetes solutions provider Intelletive
- Protera acquired Google cloud solutions provider Managecore
- Distributor Westcon-Comstor acquired UK-based AWS cloud solution provider Rebura
Government IT Solutions Providers
- Applied Insight acquired data analytics solutions provider Zavda
- Private equity firm Falfurrias acquired big data and cloud engineering solutions provider Softech Solutions
- Tetra Tech acquired cybersecurity solutions provider LS Technologies
Software
The software sector saw some mega-deals like Synopsys-ANSYS and HPE-Juniper Networks
The increase in deal activity in the software and IT services verticals during Q1 2024 was driven by several key factors:
- Anticipated interest rate cuts and market optimism: There was an expectation of interest rate cuts by central banks, along with robust corporate earnings and overall market optimism, which fostered a positive outlook for M&A activity
- Strategic buyers stepped up acquisitions: Strategic buyers, such as Synopsys and HPE, stepped up their deal activity with some notably large transactions like Synopsys’ $31.9 billion acquisition of ANSYS and HPE’s $12.8 billion acquisition of Juniper Networks. These mega-deals helped drive the quarterly deal value in Q1 2024 to more than double compared to Q1 2023
- Demand for vertical SaaS solutions: There was growing demand for vertical SaaS solutions that address industry-specific challenges, generating more M&A interest in this segment
- Focus on profitability over growth: The market shifted away from the “growth at all costs” mindset to a focus on profitability. Acquirers targeted software development firms with strong product technology, market fit, and healthy business models
- Consolidation in emerging tech areas: Software development firms looked to acquire critical capabilities in areas like cloud, analytics, IoT, and AI/ML to keep pace with evolving customer demands and stay competitive
- Private equity interest in resilient software models: Private equity firms were attracted to the resilience and growth potential of software companies with subscription-based business models and recurring revenues
- Pent-up demand for dealmaking: After a slowdown in the second half of 2023, there was pent-up demand for dealmaking in the technology sector, contributing to the increase in Q1 2024
So, a combination of factors like market optimism, strategic acquisitions, demand for emerging technologies, focus on profitability, and private equity interest drove the uptick in M&A activity in the software and IT services verticals during the first quarter of 2024.
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