IT Managed Services

The UK IT Managed Services market comprises businesses that provide a range of outsourced technology services, including hosting, connectivity, business continuity, unified communications and the resale of hardware and software. A portfolio of services (as opposed to products) is often sold to customers on a monthly subscription as a single line on the invoice. This enables customers to move their IT procurement from a capex model to an opex model, while increasing simplicity of operations through a reduction in the number of suppliers that they have to deal with. Hosting (or Infrastructure as a Service) is often the lead solution in the stack, with applications ranging from websites, through O365 to bespoke line-of-business (and hence mission-critical) systems. We are also increasingly seeing the convergence of IT Managed Services with Cyber Security Services and Managed Print Services, although these propositions continue to exist as sectors in their own right. While many companies are generalists, we also work with many specialists, where specialism is delivered by industry (e.g. legal sector), by vendor (e.g. Microsoft), by solution (e.g. unified comms or networking), or by customer focus (e.g. micro SME or enterprise).

For the most part, these are UK businesses selling critical services and solutions to UK customers, meaning they have been resilient to macroeconomic headwinds such as Brexit and Covid-19, with the latter actually being a driver of growth. As a result, the sector continues to attract considerable interest from Private Equity investors, many of whom are pursuing consolidation strategies in a market that remains largely fragmented. The more valuable businesses typically have >75% recurring revenue, EBITDA margins of >20% and a Net Promoter Score of >50%.

For owners and investors of IT Managed Service businesses, the key challenges are around differentiation, competitive advantage, and quality of earnings, as these are the main drivers of shareholder value. Adherence to SLAs and excellence on the helpdesk should be ‘givens’ but customer referencing still reveals wide variance in performance across the sector.

It is a truism to say that information technology is a dynamic and constantly evolving industry in which innovation continues to change the way in which businesses interact with their customers. Big data analytics, Artificial Intelligence and the Internet of Things are all having an impact. If you are an owner or investor considering how best to maximise the value of your IT Managed Service business, Fairgrove has vast experience in this sector and would welcome the opportunity to work with you. With technology being pervasive throughout the business world, no sector is more important to keeping the global economy moving.