Consolidation in Dutch IT services: Slowing but not stopping

M&A activity in the Dutch IT services sector has soared in recent years. Investment opportunities, financing conditions, and an increase in optimal scale have all been key drivers of this trend. As interest rates continue to rise, consolidation will slow but remain resilient.

The Dutch IT services sector is consolidating quickly

M&A activity in the Dutch IT services sector has more than doubled in the past six years. This increase was driven by three main developments.

1 Client demand

An increase in optimal scale for both small and large companies. Client demand has increased the minimum viable scale for smaller companies and further incentivised larger corporations to become a one-stop shop for their customers.

2 Elevated growth

Second, the sector has shown high growth and is characterised by recurring business models which make it an attractive sector to investors.

3 Lower interest rates

Third, lower interest rates made it an attractive time for M&A due to relatively low financing costs and high multiples. As financing conditions tighten, M&A activity in the sector will not continue to grow at the same pace as the past years, but consolidation will continue.

The Dutch IT services sector has become increasingly engaged in M&A in recent years. From 2017 to 2022, the number of M&A deals in the sector increased from 290 to 620, resulting in an annual growth rate of roughly 16.5%. The Dutch economy as a whole experienced a 12.5% year-on-year growth rate of M&A in the same period.

Low interest rates caused high multiples, which made for interesting sales – and coupled with the fact that many IT entrepreneurs started their companies in the 1990s, many saw this period as a good time to sell. The increase in M&A activity within the sector is partially driven by lower interest rates, but also by the attractiveness of the sector to investors and increases in required scale. We delve into this in more detail below.

M&A deals in IT services increased significantly over the last 6 years