March 8, 2012

Cloud Services – The Next Big Opportunity in IT Services

Earlier this week, Cloud Sherpas announced its merger with GlobalOne along with a $20 million investment from Columbia Capital. Cloud Sherpas, a leading Google partner, and Global One, a leading partner, will form one of the pre-eminent Cloud IT Services firms. Both of these firms have been built from the ground up focused on Cloud Services and the combined entity, employing over 300 consultants globally will be a global leader.

The transition to the cloud is widely believed to be a more of a revolutionary transition than the move from mainframe to client server which was the main driver of IT Services becoming a meaningful business segment in the 1990s. The need for IT Services expertise in this transition will be even greater.Not since the late 1990s when corporations were worried about Y2k have we seen so much enthusiasm around the IT Services market. Back in the late 90s the demand for IT services talent was so great that we saw IT Services companies being acquired for 2,3 and even 4x revenue multiples. The extraordinary growth rate of IT Services companies, oftentimes 100+%, helped support these valuations but as we now know the market changed dramatically post Y2K, not to mention the concerns about Y2K issues were largely not realized. The excitement around Cloud services is much different, the need is well substantiated and the market is only in its infancy.

Consequently, we are seeing the larger consulting firms aggressively seeking out cloud services practices that they can acquire to build upon. Private Equity firms are also taking notice recognizing that there is a unique opportunity to find businesses that have some level of critical mass and are poised for substantial growth. We expect to see many more transactions to be announced over the succeeding quarters and keep your eyes on firms like Bluewolf, Appirio and Astadia.