Background of IT Consulting industry
BERNAR DE LA HERA | Author and Partner ICT Specialist, ONEtoONE Corporate Finance
Traditionally, information technology or IT has represented a significant part of global transactions in the consulting sector. The IT consulting industry requires low capital investment, together with the high level of innovation and the impact that new digital technologies offer in all sectors of the global economy, are the key factors explaining an upward trend in this sector. The advantages of this industry are driving the interest and continuous need of companies to acquire new capabilities that allow them to enter these new and innovative markets. Since 2013, the rapidly expanding technological trends towards cloud computing and Big Data analytics caused larger competitors to enter the market through acquisitions of the smaller industry counterparts with developed technology and supporting infrastructure.
What is the IT Consulting Service?
IT Consulting is understood as the field of activity that focuses on advising organizations on the best way to use information technology (IT) in order to achieve their business objectives. IT Consulting industry is comprised of companies that offer business design and implement information technology systems and infrastructure. These IT consulting services provide expertise, experience, and industry intelligence to enterprises, helping to obtain better design, architecture, optimization, and implementation of security software, people, and processes. Industry giants like Accenture PLC and International Business Machines Corp. (IBM) have allocated millions in acquisition sprees in the past years, purchasing leading digital consulting firms like OCTO Technology and even institution-based projects like the MIT-run laboratory focused on the development of computer systems. The IT Consulting industry is known for the low capital requirements, thus it is also attractive for small to medium-sized businesses.
The IT Consulting industry is known for the low capital requirements and is therefore attractive for small to medium-sized businesses.
According to IDC, the global IT industry surpassed $4.5 trillion mark in 2017. A large amount that is more widespread and established in mature technology markets such as the U.S., Europe and the Asia Pacific, where the robust infrastructure and a large installed base of users equipped with hardware provide the demand.
Trends in the market
Artificial intelligence & Automation, Cybersecurity and Cloud-based solutions are the most popular sub-sectors of the IT consulting industry. Here are some highlights of these three advanced technologies:
Artificial Intelligence and Automation add an additional layer of intelligence to the existing technical solutions that companies are building, and provide a more extensive IT architecture to tackle a broader range of problems. The main advantages of automation are cost reductions, improving customer services and allowing for more precise oversight of trends impacting the clients’ business. Consulting service providers are also actively implementing automated back-office functions in order to optimize the invested time and effort of employees accomplishing laborious back-office tasks.
Cloud-based solutions refer to the array of resources, on-demand services, networks, applications that can be accessed through a shared cloud infrastructure. The cloud’s value proposition solution facilitates faster and easier experimentation and innovation in the business context.
Cybersecurity is the technology designed to protect systems, networks and data from cyber attacks and data protection infractions. The latest disruptive impacts of new cloud-based solutions on the company’s business and operating models make cybersecurity a critical investment priority. The consequences of suffering a cyber attack range from loss of reputation and business assets to the costs of solving damages.
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M&A in the IT Consulting Industry
During 2018 the average value deal in M&A Activity in the IT consulting sector accounted for 46% in North America and 38% in Europe, which represented eight out of ten transactions while Asia represented a smaller chunk with 11%. Furthermore, the average price deal of the United States is practically 3 times higher than in Europe, which shows a significant difference in the IT services companies in these geographies.
According to the data collected for the present report, Artificial Intelligence is being aggressively adopted by forward-looking businesses, particularly in the banking, retail and automotive sectors and rising buyer demand for AI players. The demand for business with Cloud-based services remains robust but in line with previous years. Finally, Cybersecurity continues the growth as a consequence of the high demand for cloud solutions and connected device.
Overall, if the expected growth materializes in the years ahead, the spending will overlap the $5 trillion mark by the end of 2019 compared to the results from previous years. Disruptive IT services will be the catalyst for a large part of M&A transactions worldwide, increasing the interest of the consulting industry in transactions within this area.
If the expected growth materializes in the years ahead, the spending will overlap the $5 trillion mark by the end of 2019.
The full report “IT CONSULTING INDUSTRY OUTLOOK 2019” offers more information about services provided by IT consulting firms, geographical segmentation, and a detailed overview of the M&A transactions carried out by the leading companies in the IT consulting sector. Download it here in order to have a deeper understanding of today´s M&A landscape within the sector.
