The IT Services Industry in Czech Republic
by NorthStar Corporate Finance
Over the years, the Czech Republic has witnessed a substantial number of M&A deals, with about 5,444 transactions announced since 1991, collectively amounting to around €176bn. More recently, in 2022, there were 187 deals announced, marking a 32% decrease compared to the 275 deals recorded in 2021. Similarly, the total value of these transactions in 2022 amounted to €2.97bn, reflecting a 77% decrease from the €13bn recorded in 2021.
As of July 2023 (Jan-Jul), around 69 deals were announced, worth approximately €1.2bn. In comparison, the same period in the previous year saw 109 deals valued at €1.6bn. These figures indicate a decline of 37% in the number of deals and 22% in their respective values.
Looking ahead, the projected number of M&A deals for the year 2023 is estimated to reach around 118, with a total value of approximately €2bn. This projection suggests a decrease of about 37% in the number of deals and a 30% decrease in the total value compared to the total M&A value in 2022.
The Czech Republic IT Market size is forecast to increase by $2.34bn, at a CAGR of 3.64% between 2023 and 2028. The growth rate of the market depends on several factors, including the rising adoption of IT solutions among Czech Republic SMEs, the increased adoption of cloud-based services, and the growth in IT consolidation and IT modernization.
The Czech IT market is an integrated platform consisting of hardware, software, and services that help organizations store, process, transmit, and retrieve information. The IT department of an organization manages all the IT-related services, solutions, and software that integrate and streamline different processes to facilitate a smooth flow of information across the organization.
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NorthStar Corporate FinancePrague, Czech RepublicStuttgart, Germany
Hans BayerContact Hans
David WolfeContact David
Selected M&A trends observed in Czech Republic:
The dealmaking has slightly shifted to intercountry deals, i.e. both a seller and a buyer from the Czech Republic.
PE funds and Family Offices have been still quite active looking for suitable targets and making deals. Secondary PE buyouts continued to proliferate.
After a long period, acquisitions by the public sector have returned (N4G – gas transmission, gas storage infrastructure, Robin Oil – petrol stations).
The number of distressed assets analyzed by our team slightly increased. Problematic FCFF profiles are reported namely in segments subjected to increased energy prices (e.g. heavy production) and/or falling consumer demand (especially on-line retailers).
In addition, we have observed FCFF healthy targets with excessive debt including “impressively” leveraged past acquisition situations.
The number of deals requiring earn-out / staged acquisitions / asset deal approach has generally increased.
Market Growth Driver
One of the key factors driving the market growth is the rising adoption of IT solutions among Czech Republic SMEs. SMEs, also known as Mittelstand, are considered the backbone of the German economy and account for more than 99% of the total number of enterprises in the country. These enterprises range from sole proprietorships to enterprises with hundreds of employees and export their products and services across the world.
Moreover, Czech Republic SMEs are known for introducing and aggressively promoting product and process-level innovations. They invest in IT to keep themselves abreast of the latest technologies. SMEs in the country extensively use technologies such as cloud computing, Big Data, and IoT to improve their operational efficiency and find new avenues of revenue generation. These factors are driving the market growth during the forecast period.
Market Growth and Trends
A key factor shaping the market growth is the increased adoption of mobility solutions. With the growing availability of wireless networks, mobility is touching every aspect of government operations, including data collection using mobile devices and unified communication. In addition, mobility enables e-government initiatives in Tier II and Tier III cities and rural areas, which lack IT infrastructure. Thus, mobility facilitates uninterrupted data sharing.
Moreover, financial inclusion can be achieved using mobile solutions, and people without access to a bank can use m-commerce, mobile banking, and mobile money. In addition, unprecedented growth in the smartphone market leads to an increase in mobile app users. Furthermore, mobile application developers require IT services such as backend as a service (BaaS) and web-integrated development environment (IDE) solutions for innovative mobile application development solutions. Hence, such factors are driving the market growth during the forecast period.
Market Restrain
The increase in cyberattacks is one of the key challenges hindering market growth. Cyberattacks have a major impact on Czech Republic enterprises and lead to production challenges and revenue loss. For instance, according to the National Office for Cyber and Information Security (NUKIB) data, the police recorded nearly 157 cases of cybercrimes in 2021, an increase of 36.9% from 2020.
Moreover, SMEs in the Czech Republic are the key targets of cybercriminals. These enterprises are severely affected by espionage, sabotage, and data theft. The lack of proper IT security infrastructure and the allocation of small internal IT budgets make SMEs vulnerable to threats, resulting in cyber-attacks such as ransomware attacks. Hence, such factors are hindering market growth during the forecast period.
Selected deals of reference:
EC Investments AS acquired DIVR LABS sro for an undisclosed amount. DIVR LABS sro is located in Prague, Czech Republic and develops games software with dimension of virtual reality. (2022)
Solitea AS, a portfolio company of Sandberg Capital správ spol AS, acquired Gesteem Society AS for an undisclosed amount. The acquisition strengthens Solitea’s competencies in data analytics and business intelligence solutions and also expands the market presence of Solitea in Central and Eastern Europe. (2022)
SUDOP Consulting & Information Technology AS, a subsidiary of Sudop Group AS, acquired Impromat Computer sro from Impromat Int Sro for an undisclosed amount. Impromat Computer sro is located in Czech Republic and serves large corporate clients in the Telecommunications, Utilities, Banking, Insurance, and Industrial sectors. It has over 100 employees. (2023)
Elvaston acquired Abra Software for approximately €50m. Northstar introduced Elvaston to the Czech Republic for the first time and did a thorough search of ERP targets, of which ABRA was selected and a transaction succeeded.
NorthStar advised Inekon Systems on its sale of 100% to Abra Software for approximately €3m. Inekon is the holder of Business Navigation methodological concepts and develops the BNS product.
