It appears the M&A activity in the solutions brokerage space, as well as the technology services sector in general, is coming back down to earth. According to the most recent report from Corporate Finance Associates, the number of IT services M&A transactions in the first quarter of 2023 declined by 35 percent from a year ago and by 23 percent from the previous quarter. That follows year-over-year and quarter-over-quarter declines in the fourth quarter of 2022. The aggregate value of IT service M&A transactions declined by 69 percent from a year ago and by 61 percent from the previous quarter. Telecom services, for their part, fared a bit better, with the aggregate value of M&A transactions within the telecom sector declining by 41 percent from Q4 2022 to Q1 2023. The average M&A deal value dropped by 50 percent in the IT services industry and by 29 percent in the telecom services industry from Q4 2022 to Q1 2023. Analysts at Corporate Finance Associates cite rising interest rates and tightening credit conditions for causing such a significant dip in activity during the past few quarters. Those challenges notwithstanding, “The roll-up dollars aren’t going away,” CFA researcher stated, and we expect transaction activity among TSB/trusted advisor organizations to outperform the larger business IT and managed services market, moving forward. Quite simply, IT departments and CIO types need trusted advisors, arguably more than any time in recent years. Indeed, the intent to outsource IT functions among organizations has surged, show recent findings from Computer Economics, a service of Avasant Research. “Organizations are accelerating their strategic plans in response to the continued economic uncertainty and social instability,” said a brief from the research firm. “They are looking to strategic partners to ensure business continuity.” Among organizations that outsource IT work, the percentage of their IT operational budgets going to outside service providers rose to 8.1 percent in Computer Economics most recent survey, up from 5.6 percent in 2022. That’s the highest rate in the five years of past CE’s studies and a sizeable increase from even the panic days of the pandemic shutdowns. Computer Economics analysts presented no shortage of reasons why IT executives are looking for outside assistance. Outsourcing provides much-needed support for IT departments as they move to become more resilient, flexible and responsive while reducing downtime, said the CE brief. Organizations also continue to increase their outsourcing budgets to facilitate digital transformation. “The pandemic showed the importance of digital business models, as nearly every part of the economy required remote or virtual access,” said CE researchers. “Customer behavior and expectations are likely changed forever. This requires an omnichannel, hyper-personalized experience driven by digital technologies.” Finding strategic partners to aid in digital transformation hence has become a priority for many, they continued, as simply “getting out of the data center business” allows IT to concentrate on these higher-value efforts. “In the current economic climate, saving money is certainly one of the objectives for outsourcing,” added Reneece Sterling, research analyst for Computer Economics. “But greater motivation is to take advantage of the agility that a strong partner can bring.” And in a world where increasing numbers of solutions are cloud or -aaS delivered, managed and supported, the trusted advisor/sales agency model may be even more attractive to those solutions providers than the more tech-driven MSP and VAR models. Martin Vilaboy Trusted Advisors Ride IT Outsourcing ‘Surge’ LETTER Martin Vilaboy Editor-in-Chief martin@bekabusinessmedia.com Bruce Christian Senior Editor / Event Coordinator bruce@bekabusinessmedia.com Brady Hicks Contributing Editor brady@bekabusinessmedia.com Percy Zamora Art Director percy@bekabusinessmedia.com Rob Schubel Digital Manager rob@bekabusinessmedia.com Jen Vilaboy Ad Production Director jen@bekabusinessmedia.com Berge Kaprelian Group Publisher berge@bekabusinessmedia.com (480) 503-0770 Anthony Graffeo Publisher anthony@bekabusinessmedia.com (203) 304-8547 Michael Burns National Account Executive michael@bekabusinessmedia.com (262) 993-9116 Beka Business Media Berge Kaprelian President and CEO Corporate Headquarters 10115 E Bell Road, Suite 107 - #517 Scottsdale, Arizona 85260 Voice: 480.503.0770 Email: berge@bekabusinessmedia.com © 2023 Beka Business Media, All rights reserved. Reproduction in whole or in any form or medium without express written permission of Beka Business Media is prohibited. ChannelVision and the ChannelVision logo are trademarks of Beka Business Media 6 CHANNELVISION | MAY – JUNE 2023
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