The Polish software publisher market is consolidating its strengths.
Software publishers, or companies that develop software for their customers, are a Polish export in the IT sector. This is confirmed by data from Clutch, which is the most important ranking service, including for software development companies. Its database contains 843 software houses from Poland, while only 430 are from Germany and 95 from the Czech Republic. These companies operate globally – supporting both Polish and foreign markets with their services. The main characteristics of Polish software companies are not only their attractive prices due to lower labor costs, but also their extraordinary mastery of programming, many years of experience and ability to solve problems. flexibly.
Software companies in Poland have coped well with the effects of the economic freeze during Covid-19. According to the latest report from the Association of Employers of IT Services (SoDA) “The impact of Covid-19 on the software house industry in Poland”, managers of Polish software houses are optimistic. The assessment covers both the liquidity and the financial results of companies in this sector and the operational sphere of the industry as a whole. Managers also point out new trends; such as the acceleration of digital transformation among customers and more frequent experiments with marketing tools. However, the market absorbs and needs new employees. Software companies have also decided to increase their marketing budgets.
“Despite initial concerns, in the second quarter of 2020, companies reported increasing revenues by 20% on average, compared to a projected profitability of 15%. Additionally, more than a quarter of companies reported strong revenue growth – up to 30%, and some exceeded the 100% year-over-year growth cap. – write the authors of the report.
Despite such good results and positive feelings, after more than 30 years the industry is starting to hit the wall as measured by organic growth potential. The obstacles to the development of the industry, identified by the experts, are: fragmentation, which often involves companies made up of several people, as well as problems of hiring new employees, both developers and executives. The solution most frequently applied by the most mature software companies is consolidation, which allows these companies to evolve the fastest.
At present, some of the most mature software houses in Poland see their opportunity for dynamic growth in consolidation. The report: “Does Poland have a chance to become the IT hub of Europe” by the Citi Handlowy Foundation, in collaboration with SoDA, indicates that in terms of growth trajectory, 20% of companies choose the scaling strategy by acquisition. The trend of growth by acquisition is confirmed by Adam Demusiak, partner at PwC, head of the Mergers and Takeovers team, who predicts further consolidation of the sector and greater interest from private equity funds in this sector of market in a comment given in the report above. : „Consolidation in the software publisher market seems inevitable. The market is very fragmented and very competitive right now. Despite very good teams and strong skills, a significant number of smaller entities are achieving breakeven results. In addition, it is difficult for small entities to invest in building good marketing and sales teams, and they base their income on a small group of 2-3 critical customers, which increases business risk. I expect that in the medium term, i.e. 3 to 5 years, some of the larger entities will remain in the market, which will be characterized by higher profitability and better diversification of the client portfolio.
The report indicates two leaders in the trend of consolidation of the market, who publicly communicate the takeovers and the intention to continue their strategy of mergers and acquisitions: Netguru and TenderHut. As stated in the report, besides the implementation of a dynamic growth strategy involving the acquisition of small IT companies in Poland and abroad. Recently, TenderHut Group announced in a strategy document that it had identified 36 entities that could become acquisition targets. 33 of these entities operate in the Polish market, while the other 3 operate outside of Poland. The company also indicated that the sustainable inclusion in the consolidation trends of the IT industry and the maintenance of high growth rates in the individual business segments during the years 2021-2025 are important elements of the strategy of development.
Why consolidate since everything is going so well?
Regarding the issues hampering further growth, mentioned above, most consolidations in Poland have a buy-hire model, i.e. takeover through talent acquisition. The value of these transactions is generally relatively small, but the scale of this phenomenon has increased in recent years.
„Consolidation through the acquisition of smaller companies not only takes over tight-knit coding teams, but also, and most importantly, senior management that will be part of the overall direction of the organization.”- explains Robert Strzelecki, CEO of TenderHut Group. This method of recruiting is more efficient because managers of small organizations know the challenges that software houses face at the lowest level: “In a small organization, they have to do everything from customer service to issuing invoices and collecting debts. They understand that cash flow is important. Managers acquired in this way also add more value as they know what works and supports growth and what does not and could cause problems. – adds Strzelecki.
Small software houses often have huge success developing very advanced projects. This is done thanks to experienced and united teams. But the operational part of the business becomes a problem when you have to take care of basic things like HR, marketing and debt collection, explains Piotr Nowak, boss of Olsoft, a company acquired by TenderHut: “A bigger organization can do more. It can better manage its resources and allocate tasks to people who specialize in specific areas. It also has all the resources that small businesses lack. I am not talking here only of the accounting teams or the secretariat, but also of human resources management, marketing and public relations. In terms of organizational culture, this has been a huge leap in quality for us ”.
Announcing the recent merger with TenderHut, Maciej Kotok, CEO of Evertop Silesia, explained the decision this way: “Joining the group was an important decision for us. By merging with TenderHut, we became part of a great organization overnight, an organization that can execute global projects on the scale that we have always had in mind. Simply put, a large organization can do more.
Besides the process of acquiring and merging organizations into one body that is taking place in the market, it can also be seen that this is a path to expanding skills. The apparent trend shows that teams of IT analysts and architects, UI / UX designers and researchers are acquired in this way. Software testers, cybersecurity specialists, and business analysts also form a large group.
The most important acquisitions of software publishers in recent years:
Asseco Poland: in the first quarter of 2021, as a group in the European market, it acquired Things Solver, which deals with software in the field of artificial intelligence and machine learning, and Vebspot, which provides services in as a web portal where registered users can purchase products, proximity services and travel services. In turn, in the Israeli market, the company acquired ITSoft, which provides services in the field of outsourcing of R&D workers, and Kol Hamas, which is a provider of payroll, accounting and tax services. .
Ailleron finalized the sale of shares in Software spirit. They were taken over by a financial investor – Enterprise Investors. The entire services segment of Ailleron – Enterprise Services has been transferred to Software Mind. The value of the separate part of the business has been assessed at PLN 150 million (PLN 221 million after contribution of assets).
Oaktree Capital and Cornerstone Partners consolidate the market through Avenga Group
With the takeover of IT Kontrakt in June 2017, thanks to the cooperation between Oaktree Capital Management and Cornerstone Partners, Avenga Group was founded. The group specializes in full IT outsourcing services for clients in Western Europe, Scandinavia and the United States. The organization has made a series of acquisitions: Solibrain (Poland), Sevenval (Germany) and CoreValue (USA / Ukraine).
Tenderhut: an active player in the consolidation market, which recently acquired Evertop, thus extending its scope of intervention in Poland to the region of Silesia. The managers of the company have joined the general management of the companies making up the IT group. TenderHut had previously acquired a series of other smaller companies, such as QBurst Poland, which served as the development arm of QBurst Technologies, head office in India, Javeo, Order of Code and Olsoft. After the merger, the heads of these organizations assumed key roles on the boards of directors of TenderHut subsidiaries.
Netguru – many buyouts, but smaller teams
Netguru – in recent years this software house has taken over entire teams, strengthening its technological skills. The company’s most significant deals include team acquisitions of Vorm, Bitcraft, and 7ninjas.
Written by Robert Strzelecki, Managing Director of TenderHut.
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