Place your bets wisely - not all will survive.

The IT landscape is changing - as with all major structural shifts in the economy, there will be winners and there will be losers. With the advent of Covid-19 and the subsequent reduction in IT spend and venture capital funds, we expect to see a flurry of acquisitions over the coming months. For any new vendor selection process, it is now very important to also take into account the stablity and likely short to medium term challenges that your new IT partner may be facing.

Over the last few years we have seen a continued reliance upon investor funding for some businesses to maintain their growth rates even though on paper they are unprofitable. This funding has pushed up the market valuation of the businesses and helped them recruit sales teams and invest in marketing to drive up the top line. However, without this funding the fundamentals of the business are perhaps not as strong as the company brand may appear. As we navigate our way through the virus and its aftermath, we can assume that there will a relative drop-off of corporate spending and this will impact the vast majority of the IT vendor community. With the reduction in top-line revenue comes more focus on the bottom-line and external funders will be acutely aware that this will drive a requirement for more investment and investors - diluting their stake in the business and the value they may see from any returns.

We anticipate that this will bring a great deal of pressure and scrutiny upon the businesses that are relying upon venture capital funding. If Covid-19 impacts investor confidence we might expect that well-known and up and coming vendors may need to take drastic action to ensure that they survive the crisis. We should expect:

  • Stable and cash-rich vendors to look at bolt-on acquisitions.

  • Employee reductions impacting sales, marketing and operations.

  • Small and medium-sized vendors considering mergers.

  • A reduction in some non-core products and services.

  • Potential Chapter 11 proceedings for businesses already struggling pre-Covid.

Viewpoint Analysis therefore advises customers to proceed with caution and apply an extra level of scrutiny on IT purchases where new vendors or significant new contracts are under negotiation. Some vendors will no longer provide what they do today or may not operate the same tomorrow.