M&A in the UK IT services sector: Q3 2025
Market volatility amidst uncertain economic backdrop
151
deals completed
+3%
Moore Kingston Smith
IT Services Index
78%
deals backed by PE
Our view of the market
M&A activity in the UK IT services sector is experiencing significant quarter-on-quarter volatility, with Q3 seeing a marked reduction in the number of deals completing. Acquirers have turned bearish, more reluctant to invest when questions remain around the strength of the UK economy and what measures, particularly increased taxes on businesses, might be announced in the budget.
We counted 151 completed transactions in Q3 2025 – a noticeable 21% decrease on the 190 deals we recorded in Q2. UK M&A activity has slowed amid global and domestic economic uncertainty, driven by geopolitical tensions and poor UK economic data.
This environment has prompted investors to be more selective, resulting in reduced deal volumes. However, high-value strategic acquisitions, particularly in AI and resilient, cash-generative businesses, remain a focus; particularly for private equity, which was involved in a record-breaking 78% of all the transactions we recorded in Q3.
Quarterly deal volume
Q2 deals by sector
“After a great Q2, it is disappointing to see the market slip back during Q3. We expect buyers to exhibit caution at least until the Chancellor reveals her budget at the end of November. Once acquirers and target companies have greater certainty about the rules of engagement, we expect more paused processes to start again in earnest.”
Nick Thompson, Corporate Finance Partner
Spotlight on: AI
Business intelligence, data analytics and AI made up 29% of all the transactions we recorded in the IT consulting space, a significant increase from the 12% in Q2. Multiple well-financed acquirers are currently pursuing targeted buy-and-build strategies in this highly competitive space.
The UK government recently issued a press release highlighting that, last year, a record £2.9 billion was invested in UK AI companies, which currently contribute £11.8 billion to the domestic economy. In a speech to city bosses and tech firms at Mansion House in September, Technology Secretary Peter Kyle called on industry to step up and match the UK government’s ambition when it comes to AI – in a bid to drum up further investment and see more AI companies call the UK home.
Moore Kingston Smith’s corporate finance team was active in this space. We supported and advised University of Cambridge start-up Cytora on its sale to Applied Systems, a global provider of insurance software solutions. The acquisition brings together Cytora’s AI-enabled risk digitisation platform with Applied Systems’ suite of insurance solutions, enabling greater intelligent automation, connectivity and efficiency across the insurance lifecycle.
Trending: Cyber security
Cyber security deals accounted for 61% of all the transactions we recorded in the data and security space, up from 55% in Q2. With the growing importance of cyber security for end clients, managed service providers are increasingly opting to acquire specialist cyber security firms, rather than investing in the development of proprietary in-house capabilities within their existing service portfolios.
In July, Vorboss, a UK fibre internet provider, acquired 40fi, a cyber security business, and Optimity, a managed IT services provider, to expand its capabilities beyond business-focused fibre internet into end-to-end managed IT and security solutions.
Also in July, German cyber security software company SecurityBridge snapped up the UK’s CyberSafe, which specialises in multi-factor authentication and single sign-on solutions for SAP users.
Matt McRae, Corporate Finance Director
Private equity
Of the 151 IT services transactions, a staggering 78% involved private equity (PE) investment, either directly or via an existing portfolio company. This is the highest level we since we started recording quarterly activity in 2021. An interest rate cut in August, reducing interest rates to their lowest level for two years, may have provided a boost to PE transactions, allowing more affordable leverage to come into the market. However, hopes for further rate cuts before the end of the year dissipated in September as less favourable UK economic data emerged.
The IT services sector is underpinned by business models that are inherently scalable, facilitating rapid growth and efficient resource deployment. These attributes have heightened the sector’s appeal to PE investors, who focus on achieving accelerated value creation and timely exits within three to five years. The attractiveness is further reinforced by structural features of the UK IT services market, which remains highly fragmented and therefore conducive to consolidation strategies.
Percentage of PE-backed deals
In this context, PE-backed acquirers have increasingly pursued buy-and-build approaches, capitalising on the opportunity to drive scale, capture market share and generate cost synergies through integration. This trend not only accelerates growth trajectories but also strengthens competitive positioning, making portfolio companies more attractive to potential buyers at exit. As the sector continues to evolve, consolidation is likely to remain a defining theme, supported by both operational efficiency gains and the strategic imperative to build end-to-end service capabilities.
Nottingham-based Hg portfolio company Ideagen, a compliance and risk management software provider, actively pursued a roll-up strategy in 2025 and was particularly busy in Q3. Hg invested in Ideagen in 2022 and the company has made six acquisitions in total this year. It acquired SafeFood 360 and Authenticate in July, and WorkSafe Guardian and Edinburgh University spin-out Reactec in August.
Notable UK mid-market deals
In July, BGF portfolio company and IT services provider Celerity announced it had acquired Silverstring to add strength and differentiation to its managed services portfolio. BGF first invested in Celerity in 2021 and backed it in its acquisition of Chilli IT in May 2024, as well as this more recent transaction.
In August, LDC-backed cyber security company Red Helix acquired security consultancy Risk Crew to expand its existing client offering with new cyber assurance capabilities.
In September, UK public sector software provider Civica acquired OLM Systems, a provider of cloud-native social care management solutions in the UK. Civica was itself acquired by Blackstone in 2024.
Stock market performance
Global stock markets continued their bull run. After delivering 10% gains in Q2, the S&P 500 ended Q3 up a further 8%.
The Moore Kingston Smith IT Services Index finished Q3 up by 3%, somewhat behind the general market. This was also well behind the performance of our two technology-specific indices, the FTSE TechMark Focus index, which increased by 9%, and the MSCI World Information Technology index, up by an impressive 14%.
We lost one company from the Moore Kingston Smith IT Services Index, with the delisting of NTT Data, which was taken private by its majority shareholder in September. Of the 20 companies remaining in the index, more than half ended in negative territory, with just nine seeing their share prices rise.
Tech stocks, particularly US tech stocks, have powered equity markets to record heights in 2025. However, concerns about surging spending on AI infrastructure, missed earnings targets, IT budget constraints and tariffs applied to components sourced outside the US have led to share prices weakening in recent weeks. There may also be an element of investors booking profits after what has been a great run. One party that is currently sitting on an unrealised profit is the US government. In August, the Trump administration negotiated an $8.9 billion investment in US chipmaker Intel, taking a 10% stake in the company at a cost of $20.47 a share. By the end of September, the shares were trading at $33.55 – a 64% increase in just a few weeks.
Our worst performer in Q2, Atos, became our star performer in Q3, seeing its share price increase by 80%. Admittedly, this is off a low base because Atos shares had lost almost all their value before the share consolidation and restructuring in Q2. Now its worst days are behind it, it seems investors see opportunities for the company and some value in its stock.
Oracle continued to perform strongly. Having delivered a 48% increase in its share price in Q2, its shares rose by 36% in a single day in September, after the company reported much better than expected cloud demand numbers. Oracle ended the quarter 28% up overall, and may be about to become a $1 trillion market cap company.
Our worst performer was Xerox, which saw a 33% decline in its share price. Xerox’s most recent reported results fell short of market forecasts, leading analysts to lower their price targets and express concern over the company’s future growth prospects. Other contributing factors to the company’s share price decline included a significant cut to its quarterly dividend, increased debt and negative free cash flow.
Moore Kingston Smith IT Services Index
Q3 2025 sector subcategories
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Methodology
In compiling our deal tracker we use Pitchbook, an international financial data provider that gives access to comprehensive data on the private and public markets. We analyse every deal with either a UK buyer or UK seller or both. Where the target company is classified as IT consulting, outsourcing and distribution, or data and security, the transaction is entered into the deal tracker.
