IT services acquisitions got off to a fast start in 2020 with at least three transactions surfacing in the first week of the new year.
The early activity suggests the brisk pace of deals among services providers in 2019 may persist a bit longer. Consider the following:
- Perficient Inc., a digital transformation consulting firm based in St. Louis, has acquired MedTouch LLC, a digital marketing and technology consulting firm focusing on the healthcare industry.
- Quisitive Technology Solutions Inc., a Microsoft solutions provider based in Toronto, closed the purchase of Menlo Technologies Inc., which offers Microsoft technology, consulting and business software.
- Ahead, a cloud solutions provider based in Chicago, acquired Platform Consulting Group, which specializes in cloud-native application development.
IT services acquisitions: Deal drivers
Perficient's purchase of MedTouch, based in Somerville, Mass., has boosted Perficient's healthcare business revenue by nearly 10%, according to vice president Ed Hoffman. The acquisition adds 50 employees to the company's roster.
Perficient's healthcare business, the company's largest vertical market, delivers business optimization and customer experience services to payer, provider and pharmaceutical organizations. MedTouch adds digital marketing "solutions and services focused on patient acquisition, customer experience, patient engagement and loyalty, and physician marketing," Hoffman said.
MedTouch also contributes to Perficient's customer experience (CX) work. Perficient's Sitecore practice designs, builds and delivers websites based on the Sitecore Experience Platform. MedTouch brings experience with Sitecore, Acquia and other CX platforms, Hoffman noted.
Quisitive, meanwhile, has expanded its Microsoft technology resources and its geographic reach through its acquisition of Los Altos, Calif.-based Menlo Technologies. Menlo provides capabilities in Azure, Microsoft Office 365 and Microsoft Dynamics, along with software development services.
The Menlo Technologies deal furthers the company's goal of becoming a Microsoft solutions provider spanning North America. Quisitive launched that strategy in 2018 and has since expanded to eight North American offices from its original base of operations in Dallas and Denver.
Quisitive CEO Mike Reinhart said the Menlo Technologies acquisition and its 2019 purchase of Corporate Renaissance Group "give us the fuel necessary to drive organic growth" as it builds its Microsoft business.
"These two acquisitions were critical in the sense that it added deep expertise in Microsoft Dynamics 365 capabilities, first-party SaaS IP, offshore development capability and full U.S. geographic coverage," Reinhart said.
Ahead's acquisition of Platform Consulting Group, based in Denver, marks the company's fourth transaction. In October 2019, Ahead merged with Data Blue and acquired Sovereign Systems. The company also purchased Link Solutions Group last year.
Platform Consulting Group focuses on cloud-native application development and modern development frameworks, targeting enterprise clients. That customers are working to rationalize and refactor applications or build new applications with cloud-native patterns influenced Ahead's purchase of Platform.
"This was part of the core thesis for our acquisition," said Eric Kaplan, CTO at Ahead. "In addition, the lines are blurring between infrastructure and applications and our clients are looking for help from partners who can provide an end-to-end solution."
More deals on tap?
Industry executives suggested the current run of IT services acquisitions looks set to continue in 2020.
Ed HoffmanVice president, Perficient
"We expect continued consolidation in the space in 2020 and remain in active dialogue with many firms," Perficient's Hoffman said.
He said Perficient is "highly selective when it comes to M&A," emphasizing industry expertise, partner ecosystems, corporate cultures and values, and "exceptionally talented workforces."
Reinhart also pointed to more consolidation. "Microsoft is exploding with growth in their cloud offerings and the partner ecosystem continues to be fragmented," he said. Fragmentation, he added, opens an opportunity for Quisitive to look at regional and point-solution partners. Microsoft has said it has more than 64,000 cloud partners.
Quisitive, Reinhart said, "will be very surgical" in its acquisition approach, making sure targeted companies offer differentiated market strength or add to Quisitive's geographic expansion and Microsoft specialization.
"I believe M&A activity will be strong, but highly correlated to overall markets," Kaplan noted.
In Kaplan's view, valuations in particular markets are inflated. "Segments of the market where skills are at a premium and where repeatable solutions exist will obviously command a premium," he added.