September 2019

IT Services Quarterly Earnings Call Synopsis – Q2 2019

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We are pleased to present our review and synopsis of results and earnings call commentary for Q2 2019. This summary includes the most recent financial results for key publicly traded companies in the IT Services sector (mix of buyers in Managed Services, Cloud Services, IT Services, and IT Consulting, among other service offerings in the technology market) for the period March–June 2019.

M&A Indicators:

• Technical talent and capabilities are a fundamental motivator behind M&A activity. Especially among public IT Services companies, there exists a pressure to move more of legacy IT businesses towards what is commonly referred to as “digital services.” Broadly speaking, these digital services include customer enterprise software development, application modernization, mobile application development, product development, UX/UI design, and advanced data analytics, among others. We see buyers constantly searching for these capabilities in the M&A market and firms with these capabilities – particularly around the ServiceNow, Adobe, Salesforce, Microsoft, AWS, and Tableau ecosystems, among others – are commanding premium valuations.
• Customer relationships drive M&A buying considerations. For example, both CGI and Globant (in its acquisition of Belatrix Software) cited that acquiring a company with deep relationships with high-value clients is critical for their M&A strategy, as those types of relationships can take years to develop independently. An acquisition brings the relationship onboard immediately and opens opportunities to cross-sell and upsell into those accounts from the buyer’s new menu of offerings.
• Our view is that the IT Services M&A market remains strong. Q2 M&A activity remained significant in Q2 with 6 of the 9 firms in this report acquiring or announcing a transaction with one or more companies during this timeframe. We are certainly seeing a consolidation trend and a frenzied search for lower-middle market companies providing new-age digital services. That said, there also remains a substantial appetite for legacy IT services and value added resellers, reflecting healthy underlying M&A currents in the broader IT segment as well. See the Key Transactions Section in this report for further details.