Global IT mega deals recover strongly in 2023

Mega global IT deals saw strong recovery in 2023. There were more deals with annual contract value (ACV) of $100 million in 2023 than there have been since 2014. Deals worth $6 billion were awarded in 2023 against $3.50 billion the previous year, but less than the high of $6.75 billion in 2014, according to data by the US-based research firm ISG.

There were more awards with $100 million of ACT in 2023 than there have been since 2014. Mega awards made up almost 15 per cent of the total ACV in the industry last year, and were one of the key reasons for the strong ACV growth.

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Deal activity

The IT and business services industry reversed a nearly 10-year trend of declining mega-deal activity. By both ACV and award counts, 2023 was the best year for big deals in a very long time.

There were 34 mega deals in 2023 with a combined ACV of nearly $6 billion, with 18 of the deals in the Americas; 12 in EMEA, and four in Asia Pacific, according to the ISG data.

The reasons for the mega-deal growth include companies needing to optimise costs and providers getting better at shaping large deals, said the research firm.

There are a couple of reasons for the increase in the mega deals. First, companies continue to be laser-focussed on cost optimisation. These are not small cuts here and there. Many firms are looking for fundamental change in their cost structure and outsourcing is a lever they are pulling to make that happen.

A decade ago, mega deals were infrastructure-heavy. Lots of IT assets were moved to a provider, and the provider managed it for less. With the advent of cloud, infrastructure outsourcing ACV started to decline, which means there were fewer assets to transfer – and this led to a decrease in mega-deal activity.

As providers recognised that these large, infrastructure-heavy deals were on the decline, they started to focus on shaping deals that combined different areas of scope, modernisation, re-badging the people who supported these areas and financial engineering to create near-term value for clients.

What’s next?

Given the continued need to optimise costs in 2024 and the fact that more providers are growing their big deal teams, ISG expects the environment will be conducive to more large deals in 2024.