Consolidation Trends in the Growing IT Services Sector: A Shift towards Larger Companies and Diversification Strategies

It's therefore no surprise that the share of large and medium-sized companies in the market is growing at a faster pace than smaller ones. From 2017 until 2022, the number of bigger corporations grew by 67% – nearly three times more than the number of small companies with 10 to 50 employees. This evolution emphasises the consolidation that is taking place in the IT services landscape.

 

The number of big companies is growing faster than smaller companies

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Driving forces

Two other factors that are driving consolidation are commoditisation and margin pressure. IT products have been commoditised in recent decades, as large IT services providers such as Microsoft, Amazon, Google, and SAP have gained a bigger share of the pie in some areas (e.g. office software applications and cloud setups).

This in turn has incentivised diversification by IT service providers in the mid-market segment. As a result, many of them have moved into areas such as cyber security and off-premises data centres. This can further drive M&A as companies strive to acquire additional skills and technology, and aim to become more efficient and better equipped to serve their clients.

 

 

Further consolidation expected, but the pace will slow

Overall, there is enough space in the sector for consolidation to continue in the coming years. The IT services sector is dynamic and still relatively young, and new value propositions occur often. It's set to remain in high demand as a vital element in the functioning of the economy, as is that for services such as cyber security, data analysis, software integration and automation.

Given increasing interest rates and declining multiples, however, consolidation will continue at a slower pace than in the past six years.