Private Equity Not Getting IT Services - See Challenges Earlier

Private equity continues to invest heavily in IT services businesses. Recurring revenues, loyal customers, and apparently predictable renewal cycles often create a strong sense of stability. Yet many PE-backed IT services firms encounter unexpected headwinds part-way through the ownership cycle, despite sales and profit initially tracking to plan. The issue is rarely a single operational failure. More often, it stems from assumptions made early in the investment that go largely unchallenged once the deal completes.

The “Up and to the Right” Assumption

During acquisition, historic performance is frequently projected forward with confidence. Sales pipelines are assumed to convert, customer loyalty is treated as durable, and vendor relationships are assumed to remain stable.

At times, private equity drinks its own Kool-Aid, not through negligence, but through momentum and pattern recognition. When a sector has delivered consistent returns, optimism can quietly replace scepticism.

IT services, however, operates in an environment of constant external change.

The External Forces That Reshape IT Services

Several factors regularly disrupt even well-run IT services businesses:

• OEMs changing licensing, pricing, or support strategies
• Cloud economics shifting faster than contracts can be repriced
• Skills shortages driving delivery costs higher
• Expanding security, compliance, and regulatory requirements
• Competitor consolidation and aggressive repositioning

These dynamics rarely appear clearly in historic financials, yet they materially affect margins, customer behaviour, and valuation.

When Boards Focus Inward Instead of Outward

As pressure begins to show, boards often respond internally raising sales targets, tightening reporting, restructuring teams, or accelerating “professionalisation”.

While these actions may be well intentioned, they can miss the root cause. In many cases, the business is not underperforming operationally; it is responding rationally to external market forces that were never fully stress-tested at acquisition.

Seeing the Market Earlier Without Disrupting Operations

A more effective approach is to assess market exposure early in the ownership cycle before pressure appears in the numbers.

For IT services businesses, structured frameworks such as Porter’s Five Forces, adapted for the sector, allow boards to understand:

• Where competitive rivalry is intensifying
• How much leverage OEMs and vendors hold
• Whether customer buying power is increasing at renewal
• Which substitute solutions may erode demand
• Where new entrants or alternative delivery models may emerge

Crucially, this work can be done in parallel with day-to-day operations, allowing management teams to remain focused on delivery while boards develop a clearer strategic view.

Why Timing Matters More Than Detail

These insights are most valuable when developed early.

If this thinking begins two or three years into a five-year private equity cycle, strategic flexibility has already narrowed. Pricing models are fixed, vendor dependencies are embedded, and exit options are harder to reshape.

Early understanding enables measured adaptation rather than reactive intervention.

The Importance of Market-Literate Boards

IT services is shaped as much by sales execution, vendor behaviour, and ecosystem dynamics as by internal efficiency.

Boards benefit from experience that combines:

• Operating and scaling IT services businesses
• Aligning board-level strategy with sales execution
• Navigating OEM and channel complexity
• Exposure to multiple market and ownership cycles

This perspective is most effective when it supports existing executive teams rather than overriding them.

A Relevant Perspective

In this context:

• Lee Bailey is a Chartered Director, developed through extensive Institute of Directors training, alongside multiple Harvard Business School programmes covering: This is combined with over 30 years of sales and sales leadership experience, board professionalisation, and exposure to recurring challenges across multiple IT services businesses.
  • Aligning board strategy with sales strategy execution
  • Authentic leadership
  • Advanced negotiation and “changing the game” scenarios
• Chris Smith brings 30 years of experience selling and leading sales teams in IT services environments, specialising in sales strategy execution, improving performance from existing sales teams, and holding salespeople and sales leaders accountable. Chris has also undertaken Institute of Directors training, including the Certificate in Company Direction programme.

A Consideration for Investors

From 2026, Baby Blue IT & Consulting expects to make limited time available for non-executive board roles within investor-backed IT services businesses.

For private equity firms encountering challenges driven by external market forces, rather than simple execution failure, it may be helpful to speak with individuals who have seen these dynamics play out repeatedly.

Depending on the circumstances, Chris Smith and Lee Bailey may have experience relevant to supporting boards through this phase.

External forces will always influence IT services businesses.
The difference is whether they are anticipated early or discovered later through performance.