Technology Services Industry Update Q4 2022

Modernization of advanced technologies will drive demand for third-party managed services, helping firms digitize and reduce costs through faster integrations, access to affordable talent, and tailored services.

Technology Services Summary

• Key industry themes including Digital Transformation, Cloud Enablement, and Data Analytics continue to fuel significant demand for Technology Services, despite macroeconomic headwinds
• Technology Services M&A remained resilient in 2022, with volumes up 33% year-over-year
• Industry leaders and financial buyers continue to be active in M&A and look to consolidate the fragmented Managed Services space

Key Industry Drivers: Managed Services Provider (“MSP”) Market

• The Managed Services market is poised to grow at a CAGR of 12.9%, from $267 billion today, to $552 billion in 2028E
• Fueled by key themes including Digital Transformation and Cloud Enablement, MSPs offer the opportunity to offload general IT tasks to specialized experts in order to reduce costs and improve service quality

Technology Services M&A Themes (Q4’22)

• M&A activity in the sector has not been immune to the headwinds of rising interest rates and recessionary forces, as M&A volume was down 15% in Q4’22 vs. Q3’22 and M&A deal value was down 83% in Q4’22 vs. Q3’22
• High quality companies continue to find a robust market for M&A at attractive valuations
• Private market valuations for high-growth Managed Services companies continue to reflect mid-teens EV / LTM EBITDA multiples

Valuation Trends & Drivers

• Valuations in the public markets have compressed as the broader market struggles to evaluate future earnings
  • Most Technology Services sub-sectors recovered slightly from their 52-week lows; Consulting and Government Consulting recorded modest multiple expansion in 2022
• Managed Services deals traded at an average EV / LTM EBITDA multiple of 13.4x from 2018 to 2022

A Number of Key Enablers are Driving Growth Across the Managed Services Landscape

• KPMG has compiled a list of selected Managed Services providers, outlined beginning on page 27