21 Jan IT Services Companies: 2019 Review and 2020 Predictions
2019: A Year in Review
M&A in IT Services Was Hot
- We saw a record year in the number of transactions. Not only with Revenue Rocket but in the industry in general
- Overall across industries there was a flattening in M&A volume except for IT Services where we saw an acceleration in deals
- Companies valuations increased with most deals having at least a 6X multiple
- Private Equity buyers are looking to invest or buy IT Services companies, accounting for a higher number of transactions than 2018.
IT Services firms found new ways for growth by focusing on:
- Specialization: companies spent more time focusing on a set of well-defined technologies within partner driven hardware and software stacks. We continue to see a shift towards cloud adoption in both infrastructure and applications, and the need for service providers to lift, shift, and optimize clouds for clients
- Verticalization: more IT service providers were targeting vertical markets, building solutions tailored to the needs of a niche. This improved valuations and improved client retention.
- There’s an increased influence of IT Services companies in the overall economy, impacting how companies embrace a digital transformation
- Stock market growth has given companies more confidence in making investments within IT
A Bright Future for 2020
We see no deal shortage coming for 2020 and we think it will accelerate even more. Many IT Services companies have had record years in 2019, but there is an opportunity to top those numbers in 2020. There is an increasing influence of technology in the economy that will play into the coming year of growth.
We predict continued consolidation this year and see a strong appetite from acquirers to keep acquiring. Many MSPs, Custom Application Developers, and Application implementers are looking to merge. For example, in the application implementers space we are seeing consolidation with Salesforce partners. We see Microsoft ERP focused partners move as they migrate towards the cloud and Business Central.
We also predict that the influence of nearshore and offshore development companies are forcing further consolidation and for companies to be successful, they will need to offer more services, such as DevOp, security and data/analytics expertise.
“The path to the promised land is to make transformations in 2020 to become more focused” -Mike Harvath, Revenue Rocket
What will happen with the Election?
We believe we will still have heavy growth this year. The stock market may not go up as much as it did in 2019, however the market will continue to grow and prosper, and we recommend capitalizing on the growth opportunity in front of you.
For the companies that are making transformations to a vertical service set, they will continue to see interesting opportunities as they begin to expand their business into adjacent industries to their current target market while expanding services within the same vertical market.
The world is more tech-driven than ever and we are excited to see how IT Services companies in 2020 continue to grow.