Updata Advisors IT Services M&A Transactions

185071 Resource 125361 126226 200444 1191272412550 1214509870192 Controlled The Transformative Imperative of M&A

Is consolidation within the sector the path to value for IT staffing companies?

<p>In the classic business school framework, industries undergo stages of development which guide actions taken by players to remain competitive.  The full lifecycle of an industry’s evolutionary stages is often generalized as 25+ years, from startup to scale, followed by competitive expansion, consolidation, and inevitable (and dreaded) maturity.  But one industry’s maturity is another’s opportunity, and it is in that context that we have to assess deals like the attempt by RCM Technologies to merge with Computer Task Group.  Both firms have had good histories, and one would think at this mature phase in their lifecycles an aggregation of their offerings would be greeted by market applause.  Why isn’t this deal, a consolidation play in a mature industry, getting favorable attention?  Isn’t consolidation the normal course for a maturing industry?   In fact, why do so many attractive, profitable, private and public IT staffing firms with critical mass stand ready and waiting for a proposal of marriage that rarely seems to come?</p><p>In this writer’s opinion, like so many classic American industries, the IT staffing sector relied too long on a strategy of scale rather than creative innovation and differentiation.  For a sector peopled by creative individuals whose principal skill is brain power, the lack of entrepreneurial firepower and industry reinvention in the IT staffing industry is surprising.  Do not get me wrong, many former IT staffing firms have maneuvered and evolved through the super-fast competitive waters over the last 10 years and thrive today as supermarkets of differentiated IT services.  But those who stuck to their knitting, circa 1998, are struggling to find their way and are having their lunch eaten by commoditized offshore and low-cost onshore players en route.  The question IT staffing companies must ask is whether consolidation through M&A with their own kind is a path to reignite value.  There is great risk of 2+2 equaling only 4, and less than 4 in the long-run.  For the M&A market, not to mention the competitive survival of an industry, that is not good enough.  Critical mass arising from a merger may be a competitive buffer for a while, but will probably not drive profit-creating synergy.  RCM+CTG is appealing in a comfortable, old school way, but it may only equal RCMCTG and therefore nothing new.  A more radical pairing (think multishore, verticalization, app maintenance) would be transformative for either of these fine firms and create dramatic new opportunity.  That’s not easy -- the risks seem greater and the discomfort level higher in the short run.  But the long run has to be the end-game here, and the risk of staying in the comfort zone is just too great to ignore.</p> 9 application/xml false Computer Task Group IT services IT staffing RCM Technologies Updata Advisors IT Services M&A Transactions Recent IT services mergers and acquisitions deals completed by Updata Advisors http://updataadvisors.com/transactions.asp?sector=13&level2id=54&level2name=IT%20Services&sectorname=ALL%20SECTORS Mozilla/4.0 (compatible; MSIE 6.0; Windows NT 5.0; .NET CLR 1.1.4322; .NET CLR 2.0.50727; InfoPath.1) 127.0.0.1 127.0.0.1 fbartolomey 208.82.213.22 false true false false true 125361 blog blogsite/UpdataAdvisors/web