Aurelius AG, a German venture capital group, has just announced the takeover of Steria’s operations in Spain. It is their second acquisition in less than a year in Spain, following the takeover of the operations of another French IT services provider in Spain, Thales CIS, at the beginning of 2012.

As previously anticipated by PAC in our various market reports on Spain, such acquisitions come to confirm that the soft state of the IT providers present in the mid layer of the Spanish IT services market (suppliers with annual revenues between 30-75 million euro) leads to market consolidation. Many of the IT services providers in this range have been struggling to stay profitable if not fighting to recover from negative profitability.

With the acquisitions of Steria Iberica and Thales IS Espana, Aurelius AG jumps in the Top 20 Core IT services providers in Spain, ahead of IT suppliers such as Altran or Sopra. Both Steria and Thales IS had similar size in Spain, placing Aurelius AG at almost 90 million euros in combined revenues.

The tough conditions in Spain are forcing various International IT services providers lacking critical mass to reconsider their presence on the Iberian market. At the same time, the frail state of many small and mid-tier domestic IT suppliers provides opportunities for international IT providers to gain or expand foothold on the Spanish IT services market. Such was the case in 2011 when Logica (today part of CGI) entered Spain with the takeover of Grupo Gesfor, a mid-tier IT services provider.

In the next one-two years, PAC believes there will be more takeovers similar to the ones of Steria or Thales in Spain. The IT services sector is not likely to change course from contraction until 2014, painting a discouraging outlook for many mid-tier IT services providers.

by George Mironescu