KBS - Managed Service Providers - Market Insight

CURRENT LANDSCAPE

Deal activity in the IT managed services sector is characterised by robust private equity involvement, as evidenced by the previously referenced statistic that approaching three-quarters of UK transactions in this sector during 2024 have been PE-backed deals. Sizeable transactions such as Kin + Carta’s £239million acquisition by Valtech, and Kerv’s £800million valuation, underscore the sector’s high value despite economic headwinds.

KEY TRENDS

Several key trends have shaped the UK M&A market in the IT managed services sector in recent years:

Increased private equity involvement: Private equity (PE) continues to play a dominant role in IT managed services M&A, with PE-backed investments accounting for around 70% of all UK deals in 2024. This trend reflects a growing interest in buy-and-build strategies, where private equity firms acquire smaller MSPs to consolidate market share. For instance, Hg Capital has been notably active in backing acquisitions in this space. A focus on cybersecurity and cloud services: Acquiring companies that provide cybersecurity and cloud based services has become a strong focus. With the rise in cyber threats and increased adoption of cloud infrastructure, MSPs offering robust cybersecurity solutions and scalable cloud services are highly attractive targets for acquirers. The proportion of cybersecurity M&A deals in the IT services sector has risen to around 40%. Strategic acquisitions for digital transformation: Due to the ongoing digital transformation of companies, there is heightened demand for custom IT solutions and software development. Companies offering tailored digital transformation services such as software engineering, automation, and digital consulting, have been key targets for both strategic acquirers and private equity.

Resilience despite economic headwinds: Despite economic challenges, including inflation and higher interest rates, deal values have remained robust, particularly for high-value IT service companies. This reflects strong

confidence in the sector’s long-term growth prospects, driven by the increasing need for managed IT services amid digitalisation and remote working trends. A shift towards one-stop-shop service providers: Consolidation in the market is enabling IT service companies to become full-service providers for SMEs. Larger players are acquiring smaller, specialised MSPs to offer end-to-end technology solutions, including network management, communications, and cybersecurity, thus becoming one-stop-shops for their clients.

The UK IT managed services sector is witnessing unprecedented growth with a surge in acquisitions, fueled by a shift towards greater digital capability

The trends outlined above highlight the evolving landscape of IT managed services M&A, characterised by consolidation, digital transformation and increasing PE interest.