Consolidation to accelerate in Australian IT services market

Consolidation to accelerate in Australian IT services market

Mergers and acquisitions among Australia’s privately-owned IT organisations are expected to take off this year.

Mergers and acquisitions among Australia’s privately-owned IT organisations are expected to take off this year, as companies solidify their market position and expand capabilities in the brighter economic environment.

A collection of local systems integrators, including Klikon, ASG and Accucom, are looking to buy complementary organisations as a way of accessing new skill sets, geographic reach and customer bases. Several industry pundits are also predicting further consolidation as IT providers prop up their services capabilities to address new technology usage trends such as cloud computing and managed services.

According to IDC corporate advisory manager, Rod Hore, who assists IT services organisations source and secure acquisitions, the economic downturn slowed mergers and acquisitions activity and forced organisations to look inwards. Lower profit margins also pushed the value of private and public companies down, making it harder for organisations to sell or come to terms.

While companies are still largely risk-averse, the brighter market conditions should see merger and acquisition discussions accelerate in 2010, Hore said.

He tipped privately-owned services organisations would be the first cabs off the rank, followed by ASXlisted organisations. As proof, Hore cited an increase in discussions over the past couple of months.

“From June, I expect more positive business conversations than previously – business leaders are more interested in services conversations about the future,” he said.

The number one priority was to tap into more annuity-based revenue streams, Hore said. He ruled out significant investments into new technologies for at least two years.

“People are still hesitant – they are looking for annuity streams, rather than speculative IP,” Hore said. “Today, companies are focusing around pillars of profitability – they are being practical and pragmatic. I think the near-death experience is still real, but in three years’ time, they’ll start investing in new ideas.”

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Tags consolidationMergers and Aquisitions

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