IIT services has been an active sector for mergers & acquisitions.  Large players are growing through acquisitions, and are generally looking to expand their skill-set into new areas, grow in specific regions, or acquire customer relationships held by smaller firms.  Pharus Advisors is actively advising IT services firms to maximize value of strategic acquisitions and partnerships.

Key trends affecting companies and transactions include:

• Large Fragmented Market: The IT services market is large and highly fragmented with hundred of firms successfully delivering services in various segments.
• Modest Growth: IT service has picked-up dramatically from the post-bubble period.  We forecast modest growth in basic services, and higher growth in certain sectors (IT Outsourcing, Web Services, etc.).
• Importance of "Sticky" Solutions: IT service firms are increasingly looking to provide clients more "sticky" solutions such as BPO, platform outsourcing and customer application maintenance projects.
• Internal Growth is Challenging: IT services firms are challenged to drive rapid growth internally and are tuning to M&A as a key driver of near-term growth.
• M&A Window is Opening: IT service firms' acquisition window is opening given the increasing interest from various types of buyers.

IT Services is an attractive market, due to its recurring revenue client engagements; expectation for stable, steady growth, and economic neutrality. Organizations are increasingly opening up to outsourcing non-core, yet critical business functions to gain business value. We see strong M&A activity in this sector with acquisition opportunities growing as valuations improve and larger vendors target both greater scale in their operations and meeting capital market growth expectations.

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