The Democratization of Technology Fuels Mergers & Acquisitions in Government IT Market
Capstone Partners released its Government Information Technology (IT) Services Sector Update, reporting on the sector’s response to the coronavirus pandemic, the uncertainty it imposed on capital markets, and its impact on the outlook for discretionary spending accounts that affect the broader Aerospace, Defense, Government & Security (ADGS) industry.
Unprecedented Levels of Dealmaking Look To Continue with Emerging Geopolitical Realities
Government IT Services witnessed an unprecedented level of dealmaking; a 40% increase in the number of middle market transactions which surpassed even 2019’s high water mark. Despite the lackluster performance in the equity markets, 2021 witnessed a truly unprecedented level of deal making, as strategic acquirers sought to match their access to government customers with emerging technologies to drive inorganic growth and improve their position in critical areas of accelerating government investment including: (i) disruptive SaaS [software-as-a-service] solutions, (ii) agile software development, (iii) data analytics, (iv) cloud computing and IT-as-a-Service, (v) machine learning and artificial intelligence, and of course (vi) cybersecurity. This was a continuation of the same trends Capstone identified a year ago, but at a pace that surprised many industry veterans.
As we look to the future, emerging geopolitical realities will not only sustain current investments, but accelerate the modernization powershift already underway. The efficiency and performance born of customized software technologies, powered by AI (artificial intelligence) and packaged as SaaS offerings, will change the nature of what is possible, unlocking new solutions to formerly intractable challenges. These efforts will be critical to liberating resources for critical investments in tactical capabilities, including C4ISR (command, control, communications, computers, intelligence, surveillance, and reconnaissance) and cyber operations, that directly impact the warfighter and transform the battlefield.
Also included in this Government IT Market Update:
- What key trend accelerated throughout 2021 supported by the prevalence of SaaS-based business models.
- How publicly traded U.S. Government IT services companies were buffeted by four exogenous factors that weighed on their ability to meet investors’ expectations of performance.
- Which transformation sector transactions were completed in 2021.
- An outlook on M&A activity for the remainder of 2022.
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