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M&A Trends and Outlook in the Technology Services Industry: Tech Insights Series

January 31, 2022 4286 0 BPM IT Services

M&A Trends and Outlook in the Technology Services Industry: Tech Insights Series

NASSCOM & E&Y partnered to analyze the evolving technology landscape and supply-side challenges that have pushed inorganic growth strategies to the forefront of Technology Services companies' growth agendas to "keep pace". Leading global Technology Services companies have stated that M&A is an important lever for growth, and a key strategy for market share and to differentiate and future proof their businesses. The analysis of deal activity since 2020 provides valuable insights into buyer strategies, key acquisition themes, and public and private market valuation trends. The report highlights key takeaways from conversations conducted by E&Y and NASSCOM with industry leaders to uncover the key imperatives and outlook for M&A for both strategic investors and PE as the market rapidly consolidates.

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Key Highlights

M&A Trends:

  • Creativity and aggression in deal structures were markedly evident with a shift towards higher up-front consideration, driven by competition from financial sponsors. Earnouts (fair and attainable), upside sharing, and equity rollovers garnered significant consideration to bridge valuation gaps and / or sweeten deal terms
  • Industry consolidation is evident in product engineering and managed services
  • Broad spectrum demand for assets on the capabilities vector is noticeable in cloud (IAAS, PAAS and managed services), digital engineering, implementation of enterprise SaaS products, cyber security, data/analytics.

Key Drivers:

  • Key drivers for both strategic and financial acquirers are cantered around acquiring disruptive technologies.
  • Sources and access to alternate capital has never been better for the sector with access to direct public markets (earlier than previously possible), Special Purpose Acquisition Companies (SPACs) and lucrative

Strategic Acquirers

  • Strategic acquirers specifically are looking for targets that expand their capabilities, or as a segue into new markets and to gain nearshore delivery.
  • They have largely made tuck in acquisitions to augment capabilities and select scaled acquisitions enabling industry consolidation.

PE Investors

  • PE investors have shown a strong propensity to invest in Technology Services companies and are deploying varied strategies --(i) acquire scaled players, (ii) build platforms, and (iii) aggregate small players to build scale in “hot”

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