M&A in IT services – the sector continues performing well throughout 2024 – UKTN

Moore Kingston Smith’s ‘M&A in the UK IT services sector report’ shows that the sector demonstrated remarkable resilience and growth in M&A, outperforming many other industries. The year concluded with a total of 641 deals, marking a 3% increase from the 620 transactions recorded in 2023.

This upward trajectory was particularly evident in the fourth quarter, which saw 172 deals – a 6% rise from the 162 deals in Q3 and a 10% increase compared with Q4 2023. This surge is partly attributed to heightened activity leading up to the Chancellor’s Budget announcement in October 2024.

Economic context

Despite broader economic challenges, the IT services sector remained a focal point for investors. Initial expectations for 2024 included lower inflation, a more stable economic environment and reduced interest rates, all anticipated to boost M&A activity. While inflation rates did decline, they did not meet optimistic forecasts and began to rise again in the final quarter.

The UK’s base interest rate was reduced by 50 basis points, falling short of early-year hopes. Consequently, M&A activity in several sectors was subdued. However, the IT services sector defied this trend, maintaining robust M&A activity, as acquirers and investors continued to target opportunities within this space.

“M&A in the IT services sector held up extremely well in 2024, outperforming many other industries. Acquirers may be cautious while macroeconomic conditions are volatile but they remain committed to this sector and are attracted to opportunities within it,” said Nick Thompson, Corporate Finance Partner at Moore Kingston Smith

Data storage

Data storage deals surged, accounting for 56% of Q4 transactions in the data and security space, driven by the growing need for real-time data and the increasing adoption of connected devices and Internet of Things technologies. Notable deals included iStorage’s acquisition by CAST.

Artificial intelligence (AI)

One of the key drivers of IT services M&A in 2024 was AI and the need for acquirers to expand their skills in this area.  The largest Q4 AI deal was Thoma Bravo’s $5.3 billion acquisition of Darktrace.

Private equity

Private equity (PE) firms remained active in the IT services sector throughout 2024. Approximately 70% of the deals completed involved PE backing, underscoring the sector’s attractiveness to investors. This is up from 64% in 2023. The sustained interest from PE firms highlights the perceived growth potential and stability within the IT services industry, even amid broader economic uncertainties.

“IT services businesses remain attractive to PE investors because they offer predictable cash flows, high growth potential and scalable, asset-light models in a rapidly expanding digital market. These characteristics make businesses in the sector more appealing to debt providers, allowing investors to leverage transactions,” said Guy Taylor, debt advisory partner at Moore Kingston Smith

Notable mid-market deals

Stock market performance

The stock market performance of IT services companies mirrored the sector’s robust M&A activity. The Moore Kingston Smith IT Services Index, which tracks the performance of publicly listed IT services firms, experienced fluctuations throughout the year. While there were periods of decline, the overall trend indicated resilience, with many companies recovering and posting gains by year-end. This performance reflects investor confidence in the sector’s long-term prospects. Sage was the top performer in Q4, while Atos faced significant challenges.

Overall, the UK IT services sector demonstrated resilience and growth potential, attracting substantial M&A activity despite broader economic uncertainties. The industry’s ability to adapt to emerging technologies, coupled with strong investor interest, has solidified its position as a leader in M&A activity. Now in 2025, the sector is poised to build upon this momentum, continuing to drive innovation and growth in the broader economy.

Read the full report.

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