The daily global Covid-19 cases have continued to rise over the last six months. Though some of the early hotspots seem to have succeeded in flattening the curve [16], new hotspots are emerging, and many countries are predicting a second wave. Based on the forecasts by multiple agencies and banks, most economies are expecting a GDP de-growth in 2020[1-6], with India’s economy also expected to witness a de-growth in the fiscal year ending March 2021[8]. As such, to protect local economies, most governments, supported by central banks, have rolled out supportive policy measures and the largest stimulus packages [7] ever seen.

We believe that the IT Services sector will not be immune to this downturn. IT Services spend is expected to decline 5-10% [9-11] for the year, with the impact varying by end customer sectors. Based on recent public market commentary by the listed IT services players, the outlook for healthcare, high-tech, telecom & media and BFSI appears to be comparatively more favorable, whilst Travel & Hospitality and Retail appear to be the  most impacted sectors.

However, IT Services valuations have recovered from the lows of March 2020 and are now trading at over 90% of the December 2019 levels [12], off the back of moderate quarter on quarter impact in March 2020. Based on a sample of 14 companies’ public market commentary, 80%+ of the companies have withdrawn their forward guidance, with most indicating 3-5 quarters (from March 2020) for a full recovery.

Most IT Services companies expect cloud-based services to be the sunshine segment, even as global IT services spending is expected to decline. Remote working and the highest ever demand for digital channels and digital media consumption is expected to drive a 19% growth [13] for the segment in 2020. This is also expected to drive the need for managed services providers (MSPs). According to a study by Flexera, nearly 50% of the organizations currently use MSPs for their public cloud usage [14]. Based on our discussions with IT Services majors, cloud services continues to be a top acquisition priority. Overall, we believe buyer priorities for M&A seem to be unchanged.

However, IT Services M&A activity continued to decline for the second quarter in a row [66][67]. While digital transactions continue to remain a priority, our view is that deal momentum will depend on the industry outlook going forward. We continue to have a positive outlook for the IT Services sector and expect the M&A activity to pick up in a couple of quarters (once the situation stabilizes).



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1)International Monetary Fund. (June 2020). A Crisis Like No Other, An Uncertain Recovery.

2)The World Bank Group. (June 2020). Global Economic Prospects.

3)OECD. (June 2020). The world economy on a tightrope.

4)JP Morgan. (June 2020). Global Data Watch. Sourced from Capital IQ

5)Focus Economics. (June 2020). Consensus Forecast – Major Economies. Sourced from Capital IQ

6)Societe Generale  Cross Asset Research. (June 2020). Emerging from Hibernation. Sourced from Capital IQ

7)International Monetary Fund. (June 2020). Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic.

8)Live Mint. 29 May 2020. Covid-19 impact: India set for deepest recession yet in FY21, warn economists.

9)Horses for Sources Research.  02 June 2020. IT and business services is taking a massive 10.2% hit this year.

10)Gartner. 13 May 2020. Gartner Says Global IT Spending to Decline 8% in 2020 Due to Impact of COVID-19.

11)IDC. 14 May 2020. Impact of COVID-19 on the Services Industry Webinar.

12)IT Services Share Index based on share price data upto 25 June 2020, for companies listed in Page 34. Sourced from Capital IQ.

13)SearchITChannel. 15 May 2020. Gartner forecasts near 20% growth for public cloud services.

14)Flexera. May 2020. 2020 State of the Cloud Report.

16)Worldometer. 27 June 2020. COVID-19 Coronavirus Pandemic.

66)Mergermarket IT Services Transaction Data. 25 June 2020. DC Analysis

67)451Research IT Services Transaction Data. 25 June 2020. DC Analysis