Mergers and acquisitions (M&As) have been a major trend in the industry throughout 2004, and recent M&A activity has continued to reduce the number of significant players, according to IDC
"Many key European services markets are reaching maturity, resulting in a larger number of players competing harder for smaller opportunities under tougher economic and operating conditions," said Khalid Irshad, senior analyst in IDC's European Services group. "Overcrowding means that some markets - such as France - are in desperate need of consolidation. A reduction in the number of players through consolidation will make these saturated markets healthier places to win business and compete for larger and more lucrative deals."
IDC expects future services industry consolidation to be driven by: · Large vendors buying smaller low-margin local-point service providers to cut the cost of delivering low value service components · Large IT-focused players acquiring consultancies or BPO providers to increase business services expertise and BPO providers trying to make themselves bigger by buying other BPO firms · Leading players trying to strengthen their European presence, large local players needing to grow outside of their core domestic markets, and midtier players needing to compete against larger competitors IDC believes that it is inevitable that the European services industry will to continue to consolidate, although it is also difficult to predict exactly which combinations will take place. However, much of the activity will be in Germany, France, the U.K., and the Nordic region, with the most likely buyers including U.S. global services players and large Indian offshore service providers. Another shock merger between two of the biggest names in European services may even be around the corner.