Mapping Opportunities: Australia's Independent IT Services Landscape (L.E.K. Consulting)

Summary

• ANZ mid-market IT services represents a $10 billion to $15 billion opportunity for private equity investors.p.1
• Independent providers primarily serve organisations with 100 to 1,000 employees.p.1
• Enterprise SaaS specialists show growth of 5%-8% with EBITDA margins of 12%-15%.p.3
• Managed ICT providers (MSPs) show growth of 10%-12% with variable margins of 8%-20%.p.3
• Managed network and voice providers show growth of 5%-7% with margins of 15%-25%.p.3
• Managed cybersecurity services stand out with 12%-15% EBITDA margins and growth approaching 20%.p.4
• MSPs maintain 6x-12x multiples with 60%-70% recurring revenue.p.6

Key insights

1. The next 12 to 24 months are likely to bring increased deal activity as more investable assets come to market.p.1
2. Segments with high recurring revenue, particularly those with three-to-five-year contracts, consistently command premium multiples.p.5
3. Cloud-native consulting trades at 8x-10x multiples with only 10%-30% technically recurring revenue.p.6
4. Enterprise SaaS partners trade at 8x-12x multiples with strong platform potential.p.6
5. Digital services remain challenged at 6x-8x EBITDA multiples, with revenue that is 90% or more project-based.p.6
6. Managed network and voice providers have multiples around 6x-8x despite 40% recurring revenue and create more value as bolt-on acquisitions.p.6
7. Recurring revenue should be a central focus across all segments when valuing businesses.p.7
8. L.E.K. maintains a proprietary database of 200-plus ANZ providers.p.8