M&A activity appetite in the IT consulting sector

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Our global research into M&A activity across all consulting sectors, found that global deal volumes are just short of a 10-year high in the IT consulting sector, so 2016 is looking very promising for the sale of IT consulting firms. The high volumes have been driven by an increase in North American IT consulting deals in 2015. Deal values remained consistently high and the outlook for the IT consulting industry remains strong as various sectors increase their reliance on technology, such as social media, analytics, mobile and cloud.

Historically, IT consultancies have had the largest proportion of deal volumes by sector. Large firms prefer to grow through acquisition rather than organically, as the IT sector often relies on high levels of innovation. Global growth of M&A activity within the IT consulting sector continued to a near 10 year high, although at a slightly slower pace in 2015 (3.1%) compared to that of 2014 (12.4%). Deal activity growth was driven entirely by North America, with deal volumes decreasing across all other regions.

Deals in the North American region increased from 272 to 365, a rise of 34%. This was driven by the relative recovery of the US, which is the largest and most innovative global technology market. Investors may be sceptical about investing in emerging markets without the IT service expertise due to the current economic situation outside of developed markets. The reduction in deal volume growth meant that IT consultancy deals have lost market share of total deals, down to 28% from 30% in 2014. Historically, IT consultancies have had 25-30% of the market, so 2015 was in line with expectations with 2014 being a particularly good year.

Since 2010, the largest proportion of IT consulting deals have consistently been in the enterprise resource planning, IT security, cloud, infrastructure and data management areas. The proportion of these deals within the IT consulting sector has also been increasing since 2010, with social, mobile, analytics and cloud being of particular interest to buyers.

Microsoft, SAP and Oracle are also the largest vendors that IT consulting firms focus on, and as such, advisors and system integrations of ERP systems continue to make up a large and constant proportion of deals.

While the buyers of IT consulting firms were dominated by big consultancies, the range is becoming increasingly diverse as IT and technology services firms, media, professional services and management consultancies all aim to improve IT capabilities. IT consultancy shareholders who are looking to sell should bear in mind that a buyer will not necessarily just be one of the Big 4 consultancies and they should engage an advisor who is familiar with a broader range of buyers in the sector.

If you are thinking of selling your consulting firm and would like to discuss your plans, please get in touch.

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