Smarter Thinking

A look at the key players in cloud computing and M&A in this space

19th December 2019

By Sheana O’Sullivan

Mergers and acquisitions are a huge part of the tech space, with a new hot trend every year. 2019 was the year for cloud computing software – but is it bigger than 15 minutes of fame? With technology leaders like Amazon getting involved, I believe this trend is going to remain strong in the next year.

In its 3Q earnings report, revenues from Amazon’s cloud business grew by 35%, the slowest rate since Amazon started disclosing these numbers in 2015. Yet with current revenues at $9bn Amazon is still the world’s leading provider of cloud solutions.

So I decided to take a closer look at the cloud computing space. In particular, I’ll be exploring exactly what’s happening from an M&A perspective and how this is impacting the market.

Key players in the cloud sector

The cloud infrastructure sector continues to grow strongly, with Q219 spend on these services jumping 39% year on year according to new data from Synergy Research Group.

There are five key cloud providers currently making up the sector; Amazon, Microsoft, Google, Alibaba and Tencent. But it isn’t exactly an equal fight. Half of all money spent on cloud infrastructure services comes from Amazon and Microsoft. And Amazon remains the outright leader, with a strong hold on 33% worldwide market share.

Four other cloud providers are also in the running – IBM, Salesforce, Oracle, Rackspace – but their lower growth rates and niche offerings prevent them from reaching the top of the pack.

M&A landscape

So, how does M&A affect this dynamic?

In recent years the M&A landscape has been mostly characterised by tech giants gaining smaller tuck-ins. This helps companies build out their service platforms and accelerates the overall trend of companies moving to public cloud.

In 2019 we saw a potentially game-changing exception. IBM completed a $34bn deal to acquire Red Hat, open-source technology company, in a push to do more work in the cloud. IBM hope that this deal will drive their quarterly revenues out of decline and give them the edge against Amazon and Microsoft.

How does the US compare with Europe?

Cloud software is hot commodity in the US market, with most tech giants using bolt-ons as a key tactic in their race to be the champion.

At the start of 2019 in the US, we saw AWS pick up TSO Logic, a Vancouver startup that helps companies simplify cloud planning and IT transformation. Microsoft, despite Azure trailing AWS, had a similar strategy. This software also helps businesses streamline their cloud migration process, so in a bid to strengthen their market position they have absorbed SaaS start-up Movere for an undisclosed amount.

Meanwhile Google, which is generally seen to be trying to play catch up in this space, made several strategic M&A moves in the past year. The company has acquired data analytics start-up Looker for $2.6 billion, as well as Alooma, a small cloud start-up which helps companies migrate their data from multiple sources to one data warehouse.

And Europe has also seen its fair share of activity. Several aspects of cloud software have been notable in this sector.

Tech deals have been abundant; AWS acquired Israeli disaster recovery startup CloudEndure, Insight Venture Partners invested $500mn into Veeam in Switzerland, the leader in cloud data management, and French telco Iliad acquired Jaguar Network, provider of cloud-based hosting network services for approximately €96mn. FirstCapital were also prominent in the sale of CoScale, a Belgian infrastructure software company focused on monitoring container and microservices environments, especially Kubernetes, to New Relic.

Companies that focus on helping the transformation to the public cloud are also receiving heavy interest in Europe, particularly from private equity and other investors.

Related deals include the February 2019 acquisition by RDX, a Pennsylvania-based provider of managed database and cloud services owned by Madison Dearborn Partners, of clckwrk Limited, a London-based provider of Amazon Web Services (AWS) cloud migration, implementation and management services. Additionally we saw Nelite, a provider of expertise on Microsoft infrastructure, virtualization and cloud services being acquired by Exakis, a subsidiary of France-based Magellan Consulting, for an undisclosed amount in January.

And let’s not forget about the myriad of investment transactions. Examples include the €10mn investment into iQuate, a provider of a hybrid cloud management platform designed to plan migration projects, in a deal led by Atlantic Bridge Capital in September 2019, as well as the €20mn investment into Nordcloud in Finland by OP Financial Group and Finnvera in February 2019.

Outlook for 2020

2019 has been a snatch-and-grab for cloud software across the globe. But there’s no signs of it stopping.

The market forecast for cloud infrastructure services may reach $150 billion by the end of 2020. Analysts say that 81% of all enterprisers have a multi-cloud strategy laid out or in the works, and that in a year’s time 67% of all enterprise infrastructure will reside in the cloud.

It’s a safe bet to say that the growing adoption of cloud services is opening up exciting opportunities for companies to help achieve the transformation of enterprise infrastructure. We predict this sector will become an even more attractive area for growth in Europe in the months to come.