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9 May 2023
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Global tech services sector hits $57 bn in deal activity

Even as assets in areas such as Cloud, data and AI, cybersecurity and digital product engineering still command a relative premium, we do expect to see an uptick on the demand side of deals…reports Asian Lite News

Despite a continuing slowdown, the global technology service sector witnessed a surge in M&A and private equity deals in 2022, reaching a total of $57 billion, more than double the amount seen in 2020 (over $27 billion), a report showed on Monday.

The technology service sector including IT Services, BPM, and ER&D saw an uptick in transaction activity, with a total of 947 deals — the highest number recorded in the past five years, according to a report by EY and Nasscom.

Private Equity (PE) deals placed several large bets — 15 out of 23 large (over $500 million) deals in 2022.

Notably, BPM and ER&D services experienced growth of 1.5x and 1.8x, respectively compared to 2020, the report noted.

“While the first quarter saw a slowdown in deal activity, both strategic purchasers and private equity firms continue to hunt for enhancing their digital and domain capabilities, expanding geographic reach, and filling white spaces in their portfolios,” said Nitin Bhatt, Technology Sector Leader, EY India.

Even as assets in areas such as Cloud, data and AI, cybersecurity and digital product engineering still command a relative premium, we do expect to see an uptick on the demand side of deals.

“The real question is how sellers should strategize their exit in this market,” Bhatt added.

As the current environment evolves, the focus on spending priorities and the nature of vendor partnerships are likely to shift.

Enterprise buyers will probably reevaluate their digital spending priorities, emphasizing cost optimization and seeking providers who can deliver transformation through outcome-based models, the findings showed.

“The last 24 months have witnessed a significant shift in enterprise investments towards digital and business transformation. Technologies such as AR, VR, IoT, and edge intelligence, are now finding applications in manufacturing, automotive, and supply chain,” said Sangeeta Gupta, Senior Vice President and Chief Strategy Officer, Nasscom.

With greater emphasis on emerging digital capabilities, the market is likely to become more cautious and adopt creative deal structures to manage risk.

Although deal activity has softened, with over 150 deals announced in Q1 CY23 compared to more than 270 in Q1 CY22 and over 220 in Q1 CY21, deal activity for mid-sized companies is expected to remain strong across the broader M&A market, the report said.

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