Table of contents
The European managed IT services market comprises businesses that remotely manage clients’ IT environments. Depending on the player, services offered can include the management of voice and data, enterprise networks, security, equipment, cloud, hosting, data centres and applications. The industry can be segmented based on players’ specialisation. As such, we segmented the European market into: (i) full value chain, (ii) cloud and (iii) security.
The European market has a fragmented nature and is comprised of generalist IT businesses (e.g. Computacenter, Infosys), consultancies (e.g. Capgemini, Accenture) and specialist managed services providers (“MSPs”). Local MSPs are ubiquitous as customers prefer domestic providers due to the geographic proximity, the same language and local market understanding. However, the managed IT services industry is on a consolidating track, with both large multinationals (e.g. Accenture) and PE-backed MSPs (e.g. Nasstar) engaging in active buy-and-build strategies.
Investor-led interest has been strong across Europe, with >70% of identified assets being PE-backed (February 2023). The main drivers for this significant level of interest include the favourable growth outlook of the industry, nearly full revenue visibility on the back of long-term customer relationships, as well as the mission-critical nature of managed services with respect to customers’ IT infrastructures.
ESG issues play a minor role in the managed IT services market. The main topic on top of executives’ minds is the proper handling of sensitive customer data which, in case of a breach, can lead to unrepairable reputational damage. Apart from that, some MSPs play an active role in offsetting the environmental footprint of their clients’ operations, for example by partnering with more power-efficient data centre providers.
S&P Global (January 2023) estimates that the market value of the global cloud managed services reached ~$10.9bn in 2021, growing to ~$26.9bn by 2026 at a ~19.8% CAGR. The global managed on-premises market is anticipated to register an ~8.5% CAGR from 2021-2026 to reach ~$73.1bn in 2026
According to Statista (November 2022), the global managed services market was worth ~$152bn in 2020 and is set to grow to ~$311bn by 2027 (+12.4% CAGR)
According to industry executives (interviews by Gain.pro), the European managed IT services market will grow at ~6-10% YoY from 2023-2028
Growing demand to support increasingly complex IT environments (e.g. technical debt, application modernisation challenges, dealing with multiple cloud vendors; Tequity Advisors, February 2022). The overwhelming levels of required expertise and increasing costs will force end-customers to outsource this to MSPs
Largely untapped growth potential in the public cloud computing market is ready to be released, especially as it reduces CAPEX requirements both for customers and MSPs (interviews by Gain.pro). Public cloud acceptance, such as the European initiative to create a federated and secure data infrastructure (known as project GAIA-X), is set to open up growth opportunities in this field
Accelerated digitalisation forces businesses to adapt to new environments. On the one hand, e-commerce growth triggered by COVID-19 was followed by a ~350% increase in fraudulent orders (Business Wire, November 2021). On the other hand, remote working weakened e-security enforcement and boosted the use of unprotected mobile devices (Verizon, April 2021). These novel risks necessitate the adoption of managed security services (CBI, November 2021)
Severe personnel shortages across the global IT industry are likely to both hinder the organic growth of MSPs as well as result in rising labour acquisition costs and salaries (interviews by Gain.pro). Illustrative case in points include Version 1 (+10pp staff costs as % of sales 2017-2021) and indevis (+6pp from 2017-2020)
Increasingly stringent data privacy regulations come hand in hand with time- and cost-intensive legal and technological burdens with regard to managing customer data. Apart from the absence of any pricing upside, any form of noncompliance or lagged implementation could lead to irreparable reputational damage (interviews by Gain.pro)
Rising price competition, high customer acquisition costs and the ongoing commoditisation of managed services will likely continue to drive down the bottom-line margins of MSPs (Kaspersky, November 2019). This is already illustrated by the recent financial performance of several identified incumbents, such as Netcompany (-6pp EBITDA 2017-2021) and noris network (-9pp 2016-2020)
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