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The McFaddin|Metis Group Reports Decline in U.S.-Based M&A Activity for IT Services in 2011
January 10, 2012 McLean, VA - The McFaddin|Metis Group announced today that in the fourth quarter of 2011 it noted only 27 transactions in the broader US IT services sector, resulting in a total of 141 transactions for all of 2011. This represents a decrease of almost 75% over the fourth quarter of 2010 and almost 39% over the third quarter of 2011, as well as a decrease of 14% over the total activity for 2010. The data compiled for this study encompasses announced M&A activity involving U.S.-based sellers and acquirers who provide IT staffing, consulting, solutions and outsourcing services.
During the fourth quarter and over the entire year, the government services and digital agency sectors switched back and forth in leading in transaction volume. For the quarter, transactions in the government sector accounted for close to 19% of the quarterly deal flow with five deals. It accounted for almost 23% of the deal activity for the full year with 32 transactions. There were a number of equally active government acquirers during the year, namely CACI, Salient Federal Solutions, Sotera Defense Solutions, and KEYW. Deals in the digital agency space accounted for a little over 22% of the total deal flow for the quarter with six transactions. For the year, this sector accounted for 20% of total deal flow with 28 transactions. Of particular note during the year were buyers like Catapult Systems and Highland Business Services using these acquisitions to expand their services offerings into the digital agency space.
During the fourth quarter the consolidation of the MSP space also continued its momentum with five transactions, representing 18.5% of the quarter's total deal flow. For the year, the MSP space came in third in total deal activity with 19 transactions accounting for almost 13.6% of the yearly deal flow. Of particular note was the acquisition of INX, an active acquirer in the space over the last several years, by Presidio. Of additional note during the year were some significant buyers like Dell and Time Warner Cable that made substantial acquisitions of Secureworks and Navisite, respectively.
During the year there were some interesting trends in the space. First, a number of large transactions were effected through investment from Private Equity firms. This sort of activity generally indicates a positive outlook for the space in the coming years by the investment community. Included in these transactions were the buyouts of CedarCrestone by Golden Gate Capital and the going private transaction of Ness Technologies by Citi Venture Capital. Also more prevalent during the year were acquisitions of foreign-based IT services firms by US-based acquirers. This was particularly true in the digital agency space where a number of large US-based buyers added to their international practices. The most active buyer in this regard during the year was Hitachi with its acquisitions of Aptivo Consulting in Spain and Shoden Data Systems in South Africa. Other notable transactions included the purchase of CoreLogic India by Cognizant and Praxis Technology in China by CapGemini.
Melanie McFaddin, President of The McFaddin|Metis Group and an active participant in IT services M&A for going on 17 years, made the following observation; “During 2011 there were significantly fewer transactions involving the purchase of US-based IT services firms by foreign acquirers than in previous years. The worldwide financial turmoil has had an impact on the acquisition plans of the buyers based overseas, causing these buyers to be more prudent in their investing activities. Interestingly, this year saw quite a number of transactions incorporating US-based buyers of foreign-based IT services providers, which is an interesting development that bodes well for the US IT services market.” Ms. McFaddin commented further; "I am seeing some significantly improved demand parameters and financial performance in the IT services providers with whom I am in contact regularly, which will likely lead to improved conditions in the IT services M&A market. ”
The McFaddin|Metis Group is an 10 year old mergers and acquisitions advisory firm focused exclusively on companies whose value is derived from professional-level human capital. Clients include companies providing the following services: management consulting; digital agency; IT staffing, consulting, and solutions; managed IT services, IT and HR business process outsourcing, professional staffing, and software toolsets that augment/support these businesses.