2011 set to be IT services M&A frenzy

A couple of things this week have prompted me to write a post about the possibility of a rush of mergers and acquisitions in the ICT services space next year.

First I received a press release from ICT mergers and acquisition (M&A) specialist Knight Corporate Finance. It said 2011 is set to be a year of ICT consolidation. Then I went to a speech by Robert Morgan, director of Burnt-Oak Partners, who always has his finger on the outsourcing pulse.

Also in September T-Systems CEO Rheinhard Clemens said the European ICT suppliers will need to undergo a series of mergers if they are to compete with the big American players.

Combined this paints an interesting picture of how the supplier landscape might change next year.

Knight Corporate Finance says the valuation of ICT businesses are increasing, managed services are on buyers agendas and ICT companies only selling equipment and professional services, and not services paid for monthly, will not increase in value.

The company says that the convergence of things like voice and data and IT and Telecoms, through M&As, will become a reality in 2011.

The speech by Morgan was about the year ahead for outsourcing. Consolidation will be rampant next year as suppliers set themselves for recovery and develop capabilities to deliver services in different ways.

Here are some of his predictions:

– Dinosaurs will continue to eat dinosaurs. Big service providers will acquire competitors to build scale.

– Tier two providers will partner for pay as you go services and might end up merging with partners. Tier two suppliers do not have the financial resources to create an infrastructure for pay as you go services themselves.

– The European cloud opportunity will be for European companies. Continental European businesses will not want to put there transactions in US clouds. The Telcos in Europe have the resources and the opportunity to build European clouds.

– Indian suppliers will buy but these acquisitions will not market changers. This will include European firms.