Setting the new normal on the Benelux IT M&A market



Setting the new normal on the Benelux IT M&A market

The IT M&A market in the Benelux saw a modest uptick in the first quarter of 2024. During this period, there were 140 transactions recorded, according to data compiled by the financial advisory firm CFI and media platform for ICT professionals, Computable. While these figures fall short of the high transaction volumes experienced during the pandemic years from 2020 to 2022, they highlight the ongoing stability and appeal of the sector for investors.

Despite variations in the number of deals in recent quarters, the market has found its footing since the third quarter of 2022, reaching what is now considered the ‘new normal’. The present state of the Benelux IT M&A market mirrors the conditions seen in 2018 and 2019, but with somewhat higher activity levels.

It is likely that Q3 2023 will be viewed as the trough in the current cycle, with Q1 2024 offering some support to that perspective. Compared to the same period a year ago, M&A activity increased by approximately 5% to 10% compared to Q1 2023. While not indicating explosive growth—and marking a slowdown from Q4 2023—this still represents an improvement. The improved tone of the last two quarters suggests that M&A dealmaking is gradually recovering. The pace would be quicker if not for subdued activity among PE buyers. High borrowing costs have hindered large LBO dealmaking. While banks have resumed lending, their focus has predominantly been on refinancing existing PE loans rather than on new loans to support fresh PE deals.

Capital Deployment

The IT sector continues to attract growing investor interest due to its solid fundamentals. Software subscriptions and managed services contracts provide stable, recurring revenue streams. Ample ‘dry powder’ remains available for investment. Between 2021 and 2023, many (international) funds raised capital and are now ready for deployment. More acquisitions are expected in 2024 than in the previous year, bolstered by stable interest rates that are unlikely to increase significantly soon. This dynamic contributes to higher company valuations and fuels competition among investment firms.

Add-on investments to enhance technology platforms continue to be favoured by private equity firms, although there is noticeable caution when it comes to funding new standalone platforms intended for later expansion through add-ons. There is considerable interest from international investors, especially from the United States (16 deals) and the United Kingdom (6 deals), underscoring the Netherlands’ critical role in European expansion strategies.

Capital raising

Following a record year of Benelux fundraising, the first quarter set another milestone by raising almost half of the total 2023 figure in just three months. The story remains one of megafunds, Main Capital Partners successfully completed the funding of its eighth fund and second foundation fund, totalling EUR 2.4 billion. The fund is almost 100% bigger in size than its predecessor, Main Capital VII.

Fragmented MSP Market

The quarterly overview shows that the majority of transactions predominantly occur within the IT services and B2B software, each making up about 25% of the market activity. The MSP (Managed Services Provider) sector is experiencing a significant consolidation wave, reflecting its locally fragmented nature with numerous ongoing mergers. A prominent example involves TSH, a collective of MSPs supported by Strikwerda Investments, which has recently acquired two IT firms based in Nijmegen: KNNS and Nxtoffice. KNNS focuses on providing Microsoft services for workplaces, whereas Nxtoffice operates as a hardware reseller.

HR software gains attention

The B2B software sector is increasingly prioritising HR and coaching application. For example, Ortec has secured an investment from Battery Ventures to accelerate its growth, offering sophisticated application like staff planning software. Meanwhile, the German Zvoove Group, known for its staffing market software, has focused on acquiring Planbition, which provides workforce management software from scheduling to time tracking. The British firm Invincible has invested in Homerun, a recruitment software that helps companies craft engaging, narrative job postings. Additionally, Vitec Software has acquired LDC, a company specialising in HR management and coaching training software.

The market also sees a surge in digital learning platforms that organisations are adopting to continually support their employees’ development. A notable acquisition in this area is the Online Academy, a learning and development software provider, recently acquired by BCS HR Software with backing from Main Capital Partners.

Outlook 2024

Lower base rates are anticipated for 2024, yet the delay has transformed what could have been a V-shaped M&A recovery into a more gradual one, with financial sponsors falling behind. Although high borrowing costs dampen enthusiasm among corporate acquirers, they are also wary of potential sharp economic downturns. With such risks diminishing, it is expected that corporate acquirers will remain at the forefront of the M&A recovery.

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