IT & Business Tech: The 3 Spaces Acquirers Care About

Hampleton Partners’ newest IT & Business Tech industry report is now out, and one of the key takeaways comes right at the start. Namely: “Worldwide IT spending is projected to total $4.6 trillion in 2023, an increase of 5.1% from 2022.”

It’s a market that’s remained bullish despite adverse economic conditions which have impacted other segments of the tech world over the past 12 months. Our new report has highlighted the major factors propelling activity, noting in particular that there has been a fundamental evolution in how companies regard their IT infrastructures. Whereas purchasing and maintaining in-house systems was once the norm, CEOs, CIOs and CFOs are increasingly subscribing to cloud-based solutions.

What’s more, it’s not just the private sector that’s been lighting a fire under the IT & Business Services market. Our report emphasises the significant role that government spending has been playing. Investment in IT infrastructures has been surging since last year, indicating a widespread drive to make public sector digital services as efficient as the kinds of systems that people have become accustomed to in the private sector.

But, taking a closer look at the lay of the land, what are the three subsectors within IT & Business Services that have been attracting the most interest from both strategic buyers and private equity investors? Let’s break it down.

Going by M&A volume, the biggest subsector by far is Tech Services & Support. As shown by our report (the full document can be downloaded here) it accounted for more than 57% of deals over the past 30 months. This is in keeping with a well-established trajectory, with the subsector having seen rising activity levels since the start of 2021.

What kinds of companies inhabit this subsector? They’re actually a fairly diverse bunch, including web and email marketing measurement firms, and various kinds of tech consulting firms. A notable example is Danish company BASE life science, which was snapped up by Indian tech behemoth Infosys in a $111 million deal in July 2022.

The takeover is emblematic of the widespread interest being shown in highly niche-specific tech support services firms like BASE. The company works with leading life science companies to offer specialised management consulting services that optimise pharmaceutical research and development, help drive customer engagement, and build end-to-end AI-enabled solutions tailored to pharma and other life science systems.

As well as underscoring the desirability of companies which specialise in helping businesses leverage the unprecedented range of data-orientated tools available right now, the BASE acquisition also highlights the continuing significance of the Nordic region as a global tech hotspot. 

The second-largest M&A market within IT & Business Services is the IT Outsourced Services subsector. Its constituents include companies that specialise in software development, transaction processing, staffing solutions and customer care interfaces, all of which have accounted for more than 27% of total M&A activity over the past 30 months. We’ve also seen deal volume shoot up by 21% when you compare the numbers in 2H2021 and 2H2022.

A notable acquisition in this subsector last year was that of the Canadian design and development consulting firm FreshWorks Studio. Purchased for an undisclosed sum by EY Canada (which is of course part of one of the “Big 4” financial services giants), FreshWorks Studio has capabilities in a number of areas, including UX research and mobile app development for both governmental and private sector infrastructures.

The move was made with the aim of expanding EY’s own design studio wing, to create what the co-founder of FreshWorks Studio hopes will be “Canada’s premiere digital agency”. With FreshWorks Studio having come to increased prominence during the Covid-19 pandemic, when it helped design and build vaccine tracking apps, it’s no surprise that the company was singled out as an attractive target by one of the world’s most prominent consulting giants.

Companies providing services relating to telecommunications integration, security integration, and all-round network integration make up the third key IT & Business Services subsector. This does trail behind the other two in terms of the proportion of M&A activity, taking a 16% slice over the past 30 months. That said, it continues to show robust numbers, with the transaction count increasing between the first and second halves of 2022.

One of the heftiest deals of the year was the acquisition of Connecticut-based SAP consultancy Rizing by Indian IT multinational Wipro. It came with an eye-catching $540 million price tag, a figure that reflects Rizing’s stature in the world of SAP (systems, applications and products in data processing).

Rizing’s range of cloud-based tools is vast, allowing clients to integrate and optimise payroll transactions, employee engagement and other essential processes, unifying and visualising disparate streams of data. Previously owned by a private equity firm, Rizing’s capabilities are much in-demand thanks to what one Wipro spokesperson describes as the “digital transformation needs” of all kinds of companies across the globe.

This widescale digital transformation, which has became glaringly apparent with the rise of hybrid working and the consequent need to prevent and overcome siloes, will only accelerate in the months and years to come. We expect to continue to see impressive transaction volumes in all three of these IT & Business Services subsectors. And, needless to say, the landscape remains ripe for innovative new startups, from business software developers to infrastructure consultancies.