IT services: The next gameboard for private equity in Spain

Some factors contributing to this growth are:

• Continuous drive towards digitalisation
  Significant investments in digitising processes to enhance competitiveness and service delivery.
  
  
• Advanced technologies
  Adoption of AI and Internet of Things (IoT) technologies is transforming industries by enhancing business efficiency, innovation, and competitiveness.
   
• Growth in data usage and cybersecurity
  Growing data usage and cloud adoption have increased the demand for strong cybersecurity to protect against sophisticated cyber-attacks.

The sector has seen significant consolidation in the last five years, with over 150 M&A transactions, a trend expected to continue as companies seek to expand capabilities and scale operations. 

Domestic players like Izertis, Sngular and Altia have led M&A activities to build critical mass; while larger groups like Seidor, Minsait and Telefónica Tech have strengthened their positions through strategic acquisitions. 

International players such as Globant and Devoteam are establishing operations in Spain, leveraging a strong domestic economy and Spain’s strategic position as a gateway to Latin America and a near-shoring hub for Northern Europe.

Private equity (PE) is increasingly influential in the sector

Historically limited, PE activity has surged since 2020, with notable investments in firms like Babel, Plain Concepts, Vass, and Ayesa. After a slight slowdown between 2022 and 2023, PE interest rebounded in 2024, highlighted by investments by PE firms in Plexus (Portobello) and Seidor (Carlyle) and the recent acquisition of Babel by Mubadala.

As a result, PE-driven transactions now account for more than 50% of deals in the country.

Looking ahead, this new competitive context will pave the way to an expansive consolidation phase in the sector.

Organic growth will not be enough to reach the value creation expectations of PE funds, and they will need to complement their strategy with an active agenda of acquisitions, both domestic and international.

PE-backed players will increase competition in M&A processes, alongside international and national groups with critical mass. This should result in a rise in multiples in upcoming transactions, partly driven by the expected decline in interest rates from the peak levels reached in 2023.