3 questions to smart minds

IT services and software are success factors in companies

For this 3 questions to S. Legtmann

SAXO Equity
Photo: S. Legt­mann | SAXO Equity
25. Septem­ber 2012

IT services and soft­ware have become immense success factors in compa­nies. The market is extre­mely complex and not very clear. Assess­ments are ther­e­fore rarely simple. What does the market look like in Germany and where are the focal points emerging?

For this 3 ques­ti­ons to Mana­ging Part­ner at SAXO Corpo­rate Finance Advi­sors in Munich

1. Is the market for IT services and soft­ware struc­tu­red in Germany?

The market for IT services and soft­ware in Germany is extre­mely frag­men­ted. In addi­tion to a few very large play­ers, there are a large number of small to very small compa­nies that occupy attrac­tive niches, parti­cu­larly in specia­list and indus­try-speci­fic topics. For some years now, there has been an incre­asing trend toward grea­ter conso­li­da­tion in the IT market, as company size and breadth of offe­ring as well as supraregional/international presence (possi­bly also for near-shoring in view of the exis­ting shortage of staff resour­ces and rela­tively high person­nel costs) are incre­asingly beco­ming a key compe­ti­tive factor, espe­ci­ally in the IT sector. in the awar­ding of contracts by large compa­nies and corporations.

In the hitherto scar­cely occu­p­ied mid-market segment, entre­pre­neu­rial and flexibly/decentrally struc­tu­red groups of compa­nies are often forming which, among other things, posi­tion them­sel­ves in the market with speci­fic topics and a broa­der range of products and services through acqui­si­ti­ons as part of buy-and-build stra­te­gies and gene­rate volu­mes in order to be able to realize compre­hen­sive, possi­bly inter­na­tio­nal projects/orders for major custo­mers as prefer­red suppli­ers. Due to the good econo­mic situa­tion in recent years, espe­ci­ally in the IT envi­ron­ment, many compa­nies have well-filled coffers for this. In addi­tion to natio­nal play­ers, large, inter­na­tio­nal IT provi­ders are also incre­asingly looking to increase their presence in the high-volume and econo­mic­ally attrac­tive German market.

2. What trends are emerging?

The IT sector was hit late by the crisis years 2008/2009 compared with other indus­tries and also reco­vered rela­tively quickly. The strong growth of the IT sector is due not least to the incre­asing importance of IT as a criti­cal compe­ti­tive factor for compa­nies, e.g., by incre­asing effi­ci­ency in the face of growing cost pres­sure, for the successful imple­men­ta­tion of rapidly deve­lo­ping Inter­net-based busi­ness models, and for chan­ging forms of commu­ni­ca­tion, such as the Inter­net. Social media, etc. contributed.

The euro and finan­cial market crisis has hardly affec­ted the indus­try; after an extre­mely strong growth year in 2011, sustained high growth of between 5 and 10% is fore­cast both for 2012 and in the medium term, depen­ding on the indus­try segment. The econo­mic baro­me­ter measu­red by the indus­try asso­cia­tion Bitkom conti­nues to be well above the Ifo index, and the IT sector is growing consider­a­bly faster than the economy as a whole.

Accor­ding to indus­try parti­ci­pants and users, the main trends and growth drivers in the enter­prise IT envi­ron­ment are as follows

  • The deve­lo­p­ment and use of mobile devices and systems in compa­nies with connec­tion to corpo­rate IT and inte­gra­tion into busi­ness proces­ses (“mobile business”)
  • the provi­sion of soft­ware and IT infra­struc­ture by exter­nal service provi­ders with usage models based on pay-per-use (“cloud compu­ting” with “soft­ware-as-a-service” and “infra­struc­ture-as-a-service”)
  • the incre­asing importance of social media in the busi­ness envi­ron­ment as well
  • and — in line with the afore­men­tio­ned trends — the topic of IT security/compliance.

Accor­ding to the industry’s percep­tion, the main obsta­cle to growth is the shortage of quali­fied specialists.

3. How can you prepare for a company sale in the IT industry?

Since the sale of a company is a one-time event and the sellers ther­e­fore do not have any expe­ri­ence, it is advi­sa­ble to prepare well by exchan­ging expe­ri­en­ces with other market parti­ci­pants and atten­ding rele­vant events on the subject. SAXO Equity as M&A advi­sor orga­ni­zes e.g. targe­ted work­shops on the complex of topics. In the search for the “right” buyer, good prepa­ra­tion in the sense of a careful analy­sis of the market parti­ci­pants in the IT market, which tends to be rela­tively less trans­pa­rent or extre­mely complex, is neces­sary in order to posi­tion ones­elf correctly on the one hand and on the other hand to find the part­ner with whom not only the highest stra­te­gic but also — espe­ci­ally in the case of service-orien­ted compa­nies with high importance atta­ched to employee iden­ti­fi­ca­tion and moti­va­tion — the cultu­ral fit is given. Nume­rous prepa­ra­tory measu­res also require long lead times. For exam­ple, in the event of the subse­quent exit of the foun­ders, who usually play a leading role in the company, the timely estab­lish­ment of a second manage­ment level is neces­sary for the sale of compa­nies — which are usually rather smal­ler in the IT sector. Simi­larly, it must be taken into account that appro­priate peri­ods of time must be plan­ned for the further deve­lo­p­ment of the company within the frame­work of earn-out models after the entry of a buyer. As with all M&A tran­sac­tions, the correct/timely commu­ni­ca­tion of the tran­sac­tion logic and bene­fits to employees as well as any neces­sary inte­gra­tion steps must also be prepared.

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