Corporate Acquisitions in the IT Industry: Trends, Value Drivers, and Success Strategies

The German IT landscape is undergoing a transformation. An intense wave of consolidation, driven by various buyer groups, is fundamentally reshaping the market. At the same time, modern acquisition models such as Entrepreneurship through Acquisition (ETA) and Search Funds offer new pathways to entrepreneurship. For business owners and investors, understanding the key value drivers and current valuation benchmarks is crucial for successful transactions in this dynamic environment.

The Consolidation Wave: Drivers and Key Players

The traditional, fragmented German IT market, with its thousands of mid-sized providers, is experiencing an unprecedented phase of consolidation. This development is driven by several factors:

Why is Consolidation Occurring?

• Digitalization Pressure and Complexity: Customers demand more comprehensive solutions from a single source
• Technological Convergence: Boundaries between IT sectors such as cloud, security, and data analytics are blurring
• Demographic Change: Over 25,000 IT companies face succession challenges
• Increasing Internationalization: Global competition requires larger organizational structures

The Most Active Buyer Groups

Four main groups are actively driving consolidation:

1. Private Equity Investors with Buy-and-Build Strategies

   • Prominent players: Waterland, DBAG, Carlyle, EQT
   • Strategy: Building platforms through add-on acquisitions

2. Strategic Buyers from the IT Sector

   • Leading companies: Bechtle, Cancom, Adesso, Datagroup
   • Focus: Portfolio expansion, geographic growth, talent acquisition

3. International IT Corporations

   • Active buyers: Accenture, Capgemini, NTT Data, Indian IT service providers
   • Strategy: Market entry, expansion of local expertise, industry access

4. Family Offices and Entrepreneurial Investors

   • Longer-term investment horizon compared to traditional PE investors
   • Closer alignment with mid-market culture

These buyer groups particularly focus on:

• Managed Service Providers with recurring revenues
• Specialized IT consultancies with technology or industry focus
• Industry-specific software providers
• Cybersecurity specialists and AI experts

Value Drivers in IT Companies: What Increases Enterprise Value?

For entrepreneurs planning a sale or aiming to increase their company’s value, several factors are especially relevant:

1. Recurring Revenue as a Central Value Driver

The share of recurring revenues (ARR – Annual Recurring Revenue) is the most important value driver in the IT sector:

• SaaS companies are valued at 5 to 15 times their ARR
• For IT service providers, increasing the share of recurring revenue by 20% leads to 1 to 2 times higher EBITDA multiples
• The shift from project-based business to subscription models offers significant value enhancement potential

2. Reducing Dependencies

Dependencies significantly reduce enterprise value:

• Customer Concentration: A single customer accounting for more than 20% of revenue can reduce the multiple by 1 to 2 points
• Technological Dependencies: Proprietary or outdated technologies increase the risk profile
• Key Person Dependencies: Concentration of knowledge and customer contacts in a few key individuals lowers valuation by 10-30%

3. Building a Second Management Layer

A competent second management tier can increase enterprise value by 25-30% through:

• Ensuring continuity after ownership change
• Reducing dependence on the founder/CEO
• Improving scalability and growth potential
• Lowering risk profile for potential buyers

4. Scalability of the Business Model

The ability to grow profitably without proportional cost increases is critical:

• Technical: Cloud-native architectures, microservices, API-first approaches
• Organizational: Standardized processes, self-service, knowledge management
• Financial: High gross margins (>70%) lead to 30-50% higher multiples

5. Financial Performance and Metrics

Key indicators with direct impact on valuation multiples:

• Rule of 40: The sum of growth rate and profitability should be at least 40%
• Net Revenue Retention (NRR): Values above 110% can increase multiples by 1 to 3 times
• Customer Acquisition Cost (CAC) Payback: Under 12 months leads to 10-20% higher valuations
• EBITDA Margin: 5% above industry average results in 0.5 to 1.0 times higher multiples

Current Valuation Multiples in the IT Industry

Valuations vary significantly depending on segment, business model, and company size:

Software-as-a-Service (SaaS) Companies

Growth Rate	ARR Multiple	EBITDA Multiple
>40%	10-15x ARR	25-35x EBITDA
20-40%	6-10x ARR	15-25x EBITDA
10-20%	4-7x ARR	12-18x EBITDA
< 10%	3-5x ARR	8-12x EBITDA

Managed Service Providers (MSP) and IT System Integrators

Recurring Revenue Share	EBITDA Multiple	Revenue Multiple
>70%	9-12x EBITDA	1.2-1.8x Revenue
50-70%	7-9x EBITDA	0.9-1.2x Revenue
30-50%	5-7x EBITDA	0.7-1.0x Revenue
< 30%	4-6x EBITDA	0.5-0.8x Revenue

IT Consultancies and Implementation Partners

Level of Specialization	EBITDA Multiple	Revenue Multiple
Premium Strategy Consultancies	10-14x EBITDA	1.8-2.5x Revenue
Specialized Technology Consultancies	8-11x EBITDA	1.5-2.0x Revenue
Standard IT Consultancies	6-8x EBITDA	1.0-1.5x Revenue
Labor-Intensive Implementation Partners	5-7x EBITDA	0.8-1.2x Revenue

Company Size and Multiples

Company size significantly influences valuation:

Revenue Size	EBITDA Multiple Premium
> €50 million	+2.0 to +4.0x
€20-50 million	+1.0 to +2.0x
€10-20 million	+0.5 to +1.0x
€5-10 million	Benchmark (0)
€2-5 million	-0.5 to -1.0x
< €2 million	-1.0 to -2.5x

Alternative Acquisition Models: ETA and Search Funds

Alongside classic corporate acquisitions by strategic buyers or private equity, alternative models are gaining importance:

Entrepreneurship through Acquisition (ETA)

ETA describes the process where an entrepreneurially minded individual acquires an existing company to lead and develop it as CEO:

• Reduced Risk: Taking over an established business model instead of founding a new company
• Faster Path to Cash Flow: Immediate revenue without a long ramp-up phase
• Utilization of Existing Resources: Access to established teams, customers, and suppliers
• Various Forms: Individual acquisition, Search Fund, self-funded search, accelerated programs

Search Funds as a Structured Approach

A Search Fund is an investment vehicle where one or more "searchers" raise capital to specifically identify, acquire, and then manage a mid-sized company:

• Typical Process: Capital raising → Search phase (1-3 years) → Acquisition → Management phase
• Benefits for Sellers: Sustainable succession solution, preservation of company character, access to investor expertise
• Benefits for Searchers: Company management without significant personal capital, investor support, equity participation
• Benefits for Investors: Diversification into the mid-market, attractive returns (historically 30-35% IRR in the U.S.), direct influence on company development

These models offer particularly interesting perspectives for the German Mittelstand facing imminent generational transitions.

Recommendations for IT Entrepreneurs

For Entrepreneurs Considering a Sale

1. Transform the Business Model Toward Higher-Valuation Logic

   • Increase the share of recurring revenues
   • Focus on scalability and process automation
   • Build intellectual property and proprietary technology components

2. Reduce Dependencies

   • Diversify the customer base (no customer >15% of revenue)
   • Establish a second management layer
   • Document knowledge and standardize processes

3. Early Preparation (18-24 Months Before Exit)

   • Optimize financial metrics and reporting structures
   • Clean up risks and legacy issues
   • Engage professional transaction advisors and M&A experts

For Companies Remaining in the Market

1. Clear Differentiation in Niches

   • Specialize in growth areas (cloud, security, AI)
   • Develop proprietary methods and solution components
   • Focus on industry expertise rather than pure technology competence

2. Active Participation in Consolidation

   • Selective acquisitions to expand competencies and portfolio
   • Strategic partnerships with complementary providers
   • Explore alternative financing models for growth

3. Continuous Innovation

   • Invest in new technology fields
   • Transform existing services into scalable products
   • Build data-driven business models

Outlook: The Future of the IT Industry in Germany

Consolidation of the German IT landscape will continue in the coming years:

• Emergence of New Mid-Sized Champions with revenues of €100-500 million
• Increasing Segmentation between premium and volume providers
• Specialization as a Survival Strategy for smaller providers
• Ongoing Internationalization of German IT service providers
• New Acquisition Models such as ETA and Search Funds as solutions for succession challenges

For IT entrepreneurs, this dynamic market phase presents both opportunities and challenges. Clear strategic positioning, continuous focus on key value drivers, and a deep understanding of market mechanisms are essential—whether aiming for a sale or maintaining independence.

Those who consider these factors and act proactively will not only survive but also outperform in Germany’s evolving IT landscape.