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Technology Services Perspective – Q3 2020 Market Review

By Edward Prysor-Jones 29 Oct 2020

Despite the challenges of 2020, we continue to see many independent technology services companies trade very well through the year, particularly in areas such as digital transformation, automation, cloud consultancy and cybersecurity. Strategic and PE interest in the sector remains strong, both in terms of deal volumes and valuations.

Technology Services Perspective - Q3 2020 Market Review

Public markets:

  • After a very significant fall-off in share price in March, many technology services companies have seen a strong resurgence although the difference is notable across subsectors:
    • Our indices of VARs, BPOs and IT consultancies, have reverted broadly to pre-Covid levels.
    • In contrast, our index of listed marketing services players remains well below pre-Covid levels.
  • Growth is low amongst most public companies, with the indices showing a median revenue growth forecast for the current year broadly in the 1-6% range (with a handful of notable exceptions).
  • Our index of IT/consulting companies trades at a median EV/EBITDA 2020 E of 11.5x, and the data services providers at 13.9x (reflecting their higher growth and margin).

M&A activity:

  • Not surprisingly, M&A deal volume was down substantially in Q2 to 167 deals, compared to an average of 195 deals per quarter in 2019. In Q3, deal volumes rebounded strongly to 220 deals.
  • Deal activity has continued to be driven both by publicly listed strategic buyers (Accenture was the most active acquiror over the last 12 months), as well as by PE, both through portfolio roll-ups and directly into new platforms.

 

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Edward Prysor-Jones

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