Driving value creation through M&A in IT services

| McKinsey Direct

Mergers and acquisitions remain crucial strategies for driving value creation in the IT services industry.1The potential of M&A in IT services: Three charts,” McKinsey, October 4, 2023. The rapid pace of change in the market and the time it takes to develop internal capabilities in new skill areas (such as cloud computing and AI) have made acquisitions essential to providers looking to stay competitive.

During the COVID-19 pandemic, M&A activity in the IT services industry2 reached its peak, with M&A deal volume and spending almost doubling between 2020 and 2021. The spike has since normalized, but M&A activity remains high, with annual spending of approximately $20 billion and 100 deals taking place each year.

IT services companies of all sizes have great potential to reap more value through M&A. Yet according to McKinsey analysis, fewer than 20 percent of transactions meet their cross-sell targets. This is primarily because of inadequate integration planning and merger management.3Capturing cross-selling synergies in M&A,” McKinsey, February 11, 2020. This article examines three typical deal sizes, outlines the synergy potential for each deal type, and discusses how companies can approach their postmerger management to gain more value.

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