Managing your downside risks with IT services investments

Corporate Finance/Restructuring

April 25, 2013

IT Services companies typically have some combination of: (i) software and/or hardware solutions or pass-through, (ii) professional/technology services (IT specialists, systems integration, business advisory) and (iii) managed services (multi-year servicing/outsourcing).

Secular trends influencing this sector and the challenges they present from a profitability perspective are well known and include:

  • Sustained price pressure, typically exacerbated by low-cost (“off shore”) players
  • Consolidated strategic sourcing approach to procurement, especially within government and large enterprises
  • Increased vertical specialisation
  • Movement towards cloud, mobility and open source
  • Growth in managed services and solutions (and away from time & materials)

The combination of these trends has meant that, on average, IT Services firms have performed at the median compared to other Technology sectors (as the figure below highlights).

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