IT services sector demonstrates strong performance in M&A activities through 2024
Mergers and acquisitions in the IT services sector have proven to be a resilient and growing industry throughout 2024, according to Moore Kingston Smith’s ‘M&A in the UK IT services sector report.’ This sector has outperformed many other industries, with a total of 641 deals recorded in the year, a 3% increase from the previous year.
The fourth quarter witnessed considerable growth in M&A activity, with 172 deals, showing a 6% rise from the third quarter and a 10% increase compared to the same quarter in 2023. This spike is attributed, in part, to increased transactions leading up to the Chancellor’s Budget announcement in October 2024.
Despite some broader economic challenges, the IT services sector has been a significant focus for investors. Predicted economic indicators for 2024 included lower inflation, a stabilized economic environment, and reduced interest rates, all of which were expected to boost M&A activity. However, the decline in inflation rates was not as significant, and rates began to rise again in the final quarter. The UK’s base interest rate saw a 50 basis point reduction, which was lower than initial expectations. Despite these trends affecting other sectors, M&A activity in the IT services sector has remained robust, with acquirers and investors actively seeking opportunities within the industry.
Nick Thompson, Corporate Finance Partner at Moore Kingston Smith, stated that “M&A in the IT services sector held up extremely well in 2024, outperforming many other industries.” While acquirers may approach the sector cautiously due to volatile macroeconomic conditions, they remain committed to pursuing opportunities within IT services.
Data storage deals have seen a surge, constituting 56% of transactions in the data and security sector in the fourth quarter. This increase is driven by the growing need for real-time data and the adoption of Internet of Things technologies. Significant deals in this area include iStorage’s acquisition by CAST.
Artificial intelligence (AI) has been a key driver of M&A activity in the IT services sector in 2024. Acquirers have shown a strong interest in expanding their AI capabilities, with Thoma Bravo’s $5.3 billion acquisition of Darktrace being one of the largest AI deals in the fourth quarter.
Private equity (PE) firms have maintained active involvement in the IT services sector throughout 2024. Approximately 70% of deals in the sector have had PE backing, indicating the industry’s attractiveness to investors. The sustained interest from PE firms showcases the perceived growth potential and stability within the IT services sector, even amidst broader economic uncertainties.
Mid-market deals have also been notable, with transactions such as FD Technologies selling First Derivative to EPAM Systems for £230 million and Actica Consulting acquiring Gemba Advantage. Stock market performance of IT services companies has reflected the robust M&A activity in the sector, with the Moore Kingston Smith IT Services Index showing resilience and overall gains by the end of the year.
In conclusion, the UK IT services sector has exhibited resilience and growth potential, attracting significant M&A activity despite broader economic uncertainties. The industry’s adaptability to emerging technologies and strong investor interest position it as a leader in M&A activity. Looking forward to 2025, the sector is expected to continue innovating and driving growth in the economy.
