Tech services: Deal insights series 3Q 2024

Deal insights series 3Q 2024

• Q3 2024 was another active quarter by deal volume for tech services sector with over 200 announced deals. Deal value remains elevated at US$4b compared with US$1-3b quarterly range observed in 2023.

• Large deals momentum continues in Q3 with three deals (deal value of over US$1b) announced. Private equities (PEs) led all the large deals which included a take-private transactions in US, one platform investment in Europe, and another potential take-private in Japan. Year-to-date, PEs have dominated deal activity accounting for 85% of total deal value, amounting to $15b, which is a substantial increase from $4b in 2023.

• PE Roll-ups accounted for roughly 36% of total deal activity in the quarter as existing PE platforms strengthen niche data and cloud engineering capabilities, especially around Microsoft, Salesforce, Snowflake and Databricks ecosystems.

• We observe that strategic buyers are increasingly focusing on select sub-pockets of industry verticals for driving top line growth, with a particular focus on federal/public sector, healthcare and life sciences, and banking, capital markets and payments. Enhancing domain knowledge to drive sustainable competitive advantage and gaining access to logos are key drivers for inorganic activity by strategics. Strengthening capabilities around data and AI is also a critical priority across the board from existing PE platforms and large/mid market strategics.

• Notably, Healthcare and Life Sciences (HLS) vertical has grown 1.7x faster than other verticals across large and mid-cap IT services peer set. Rising demand for digital transformation across payor, provider and life sciences continuum has prompted inorganic activity in the last three quarters as strategics look to deepen domain specialism to tap into a growing but increasingly complex market. Players operating at the intersection of deep domain consultative expertise and high demand tech capabilities continue to attract significant interest from financial sponsors looking to tap large into the $400b+ TAM.

• Overall, cloud engineering and implementation, data and analytics, and MSP/cybersecurity dominate the middle market activity.