Managed Services Providers Capture Elevated Revenue Gains
Capstone’s March 2022 Application Development (AppDev) & Deployment Industry Update is now available, reporting that managed services providers (MSPs) in the Application Development (AppDev) & Deployment sector offering development, deployment, migration, testing, and integration services have captured heightened revenue opportunities as organizations hosting legacy applications increasingly require modernization. In addition, the underlying tailwind of mobile-first strategies, coupled with the increasing need for business agility and accelerated time-to-market has generated robust demand for mobile application management and cloud-enabled MSPs. Software providers have increasingly shifted business models to incorporate managed services, utilizing their highly skilled teams of engineers to provide offerings related to their proprietary platforms.
Digital transformations accelerated the AppDev & Deployment merger and acquisition (M&A) market at the onset of the pandemic, while the constant maintenance, innovation, and upgrades necessary for digital and cloud infrastructure supported the record-setting M&A activity witnessed in 2021. Strategic buyers in the sector continued to bolster workforces through M&A amid a limited talent pool, with services businesses comprising the majority (63.1%) of acquisition targets in 2021. Financial buyers, accounting for the greatest year-over-year increase in deal volume, namely targeted software providers hosting interoperable systems to scale portfolio companies, reducing holding times and maximizing their return on investment. Sponsors’ interest in the space has turned to the international markets, where financial buyers represented nearly half (47%) of transactions announced or completed in 2021, led by add-on acquisitions to existing portfolio companies (36%). Of note, the European market experienced elevated levels of transaction activity, driven by more stringent M&A regulation accelerating deal timelines. The accommodative borrowing environment and healthy cash positions of buyers supported demand throughout 2021 with heightened competition for quality assets, driving the three-year average EV/Revenue purchase multiple to 4.1x, outpacing the broader Technology, Media, & Telecom industry average of 3.0x EV/Revenue.
“The pace of M&A in the AppDev & Deployment sector for both software and services companies continued a years-long acceleration in 2021, as strategic and private equity buyers clamored for premium assets. Absolutely positive trends in digital transformation, mobile-first, and rapid release software bode well for continued growth in M&A trends in this sector as we enter 2022,” said Capstone Managing Director David DeSimone, the lead contributor in the newly released report.
Also included in this report:
- How Appfire Technologies has utilized private equity backing to become an active buyer in the sector
- Why software providers have incorporated managed services that align with their proprietary platforms
- Why developers have increasingly adopted a microservice architecture to build applications
- How the proliferation of continuous delivery models has impacted the Testing Automation segment
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