Private Equity’s Appetite for IT Services Firms Remains Ravenous
Private equity firms continue to actively invest in the IT Services sector. IT Services companies remain attractive investment targets for a variety of reasons, including:
- The information technology market is huge and experiencing secular growth;
- The complexity of technology solutions continues to increase, driving demand for outsourced services;
- The IT Services market is highly fragmented, which provides an opportunity for growth through acquisition;
- IT Services businesses benefit from economies of scale as personnel utilization improves, purchasing power increases and fixed costs are used more efficiently in larger businesses; and
- Customer relationships often involve providing managed services, which result in improved visibility into future financial performance.
These attractive attributes provide private equity firms with the opportunity to build large, profitable enterprises that generate significant returns on investment.
Recent examples of capital being put to work in the sector include:
- Trinity Hunt Partners, a private equity firm based in Dallas, announced the acquisition of a majority stake in Dataprise on January 6, 2020. Dataprise is an IT managed services provider offering IT management, IT strategy and consulting, information security solutions, help desk support services and cloud services. Trinity Hunt stated they will support Dataprise as it grows through acquisitions to become a national managed services provider.
- NetGain Technologies (NetGain), a managed services provider in the Central and Southeastern U.S, acquired Progressive Computer Systems, Inc., an IT services provider in North Carolina, on December 24, 2019. NetGain is part of Evergreen Services Group, which is a family of managed IT service providers and a portfolio company of Alpine Investors.
- Logically, a provider of managed IT services to small and midsize organizations, acquired IQ Technology Solutions, Inc. (IQ) and Carolinas IT, Inc. (Carolinas IT) in December 2019. Logically is a portfolio company of Riverside Company, a global private equity firm focused on the smaller end of the middle market. Carolinas IT is a provider of outsourced IT services to small- and medium-sized businesses in North Carolina. The acquisition of Carolinas IT extends Logically’s East Coast footprint and adds audit and compliance services. IQ is a provider of outsourced IT services to small- and medium-sized businesses based in Reno, Nevada. The acquisition of IQ expands Logically’s presence on the West Coast.
- Coretelligent, a provider of comprehensive managed IT, security, and cloud services and a portfolio company of private equity firm VSS, acquired SoundView IT Solutions on November 19, 2019. SoundView is a full-service IT integration company with a focus on hedge funds, family offices, and corporations. The Soundview acquisition strengthens Coretelligent’s market position in the Financial Services sector.
- Staple Street Capital acquired Cyberlink ASP Technology on November 6, 2019. Cyberlink is a managed IT services firm providing cloud, network, storage, managed application, desktop and security services to clients in a variety of industries.
- Sentinel Capital Partners recapitalized New Era Technology on September 12, 2019. New Era provides managed services and systems integration capabilities for a wide range of IT solutions, including collaboration, data networking, and security. New Era historically has been an active acquirer, having completed 12 add-on acquisitions since its founding in 2013.
- BC Partners, a London-based private equity firm, entered into a definitive agreement to acquire Presidio, Inc. (NasdaqGS:PSDO) on August 14, 2019. Presidio is an IT solutions provider delivering digital infrastructure, cloud and security solutions for commercial and public sector customers.
Other recent transactions involving private equity include Thrive (portfolio company of M/C Partners) acquiring EaseTech, VC3 (portfolio company of WestView Capital Partners) acquiring masterIT, and Ntiva (portfolio company of Southfield Capital) acquiring 3Points.
MHT Partners, a leading technology investment bank, believes companies offering differentiated IT services and technology solutions will be highly attractive targets in the current M&A market. Demand for acquisitions remains high as numerous private equity firms are looking to make initial investments in the sector and IT Services companies already owned by private equity firms will continue to look for add-on acquisitions.