IT services 'frontline role' keeps M&A steady

Despite the pandemic’s impact on volumes and valuations, deal making in the IT and business services sector is still strong, as IT departments and suppliers remain crucial in the shift of entire companies online.

The latest report from mergers and acquisitions adviser Hampleton Partners revealed that in the first half of 2020, transaction volume dipped to 378 deals, compared to the 416 deals recorded during the second half of 2019.

Along with the number of deals, some valuation multiples came in lower: the trailing 30-month median earnings before tax number multiple dropped to nine times multiples - the lowest in four years - while the revenue multiple remained stable at 1.2 times.

Miro Parizek, founding partner at Hampleton Partners, said: “So far in 2020, the IT and business services sector has seen stable M&A activity.

"Lockdown measures around the world have accelerated the move to digital, providing ample opportunity for IT players to shine if they can digitise products, processes and services."

Valuations have come in somewhat lower and deal-making was more regionally oriented, especially in the second quarter, as global travel was impacted by travel restrictions.

“Unsurprisingly, outsourcing companies, which offer services ranging from payment processing to software development, continue to enjoy strong growth on the back of improved global connectivity and the ever present need to reduce costs," Parizek added.

Companies in the IT outsourced services segment continued to attract the highest valuations - 9.7 times trailing the 30-month median earning multiple. The tech services and support segment accounted for 44 per cent of deals, the largest in the sector.

The top three largest disclosed IT and business services deals were Veritas Capital’s acquisition of the health and human services business of DXC Technology for $5 billion; WESCO International’s acquisition of Anixter International for $3.5 billion; and SAIC’s $1.2 billion acquisition of the federal assets of Unisys Corporation.

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