Talents and opportunities are driving a growing wave of software development offers
With four decades of experience in software services and global outsourcing, Steve mezak knows its way in Silicon Valley as well as in many other technology centers of the Americas. As Head of Software Services Deal-Maker at Next Coastal Brokerage, Steve works closely with entrepreneurs and founders in considering their “next steps”. Steve has observed how an increase in M&A activity influences the trajectory of Nearshore IT departments:
Q: You have observed the Nearshore Software Services industry for many years. What are the elements of the current market that make it particularly attractive to companies looking to sell and acquire software development companies?
The pandemic has made remote working more acceptable, and as a result, US software engineering companies and agencies are growing. However, there is a continuing shortage of designers and developers which encourages US service companies to look outside of North America. The reluctance of companies and their clients to meet the challenges of utilizing the talents of overseas developers is mitigated by a good experience with nearshore companies. Rather than contracting nearshore companies, many US companies are looking to acquire them to increase their talent base.
American companies previously concerned about the lack of English skills and possible cultural differences are pleasantly surprised by the alignment and affinity with the culture and language of American business
The United States dominates the hemisphere economically and culturally. Latin American countries have service companies that cater to the North American market. American businesses previously concerned about the lack of English skills and possible cultural differences are pleasantly surprised by the alignment and affinity with American business culture and language. From a technical standpoint, Nearshore software engineering companies master agile development methods and processes that take advantage of time zone and cultural alignment to collaborate with clients in North America much more easily than service companies much further away.
Ultimately, Another interesting trend is that BPO / Call Center / CX companies are acquiring software services and RPA companies to improve their internal software systems and service offerings. These BPO centers are generally present in Latin America and can also acquire technical capabilities there, more cost effectively than hiring in North America.
Q: Is the focus focused on specific countries?
There are smart people everywhere and it is difficult to single out specific countries as leaders for software engineering skills. However, a few comparisons can be made. Mexico and Colombia are known for their good engineering skills and for their proximity to North America and access by air.
It takes a red-eyed flight to get to Argentina, but a lot of software engineering companies are focused on the North American market.
Now is the time to pursue mergers and acquisitions with interest rates at historically low levels and many Latin American service companies that have matured over the past two decades to become attractive targets.
Bolivia has a smaller number of developers but a low-cost leader in Latin America. Likewise, Peru and Central America continue to evolve in terms of scale.
From a mergers and acquisitions perspective, it is important to review the labor laws in each country during the due diligence process to ensure that compliance will not hamper the financial goals of the acquirer.
Q: We’ve seen a wave of nearshore IT-focused acquisitions over the past couple of years, do you see anything on the horizon that could interrupt that momentum?
No, it’s going to accelerate as we continue to enter a period of post-pandemic growth. Now is the time to pursue mergers and acquisitions with interest rates at historically low levels and many Latin American service companies that have matured over the past two decades to become attractive targets.
Meanwhile, investments in Latin America are increasing. For example, Softbank has been successful and the returns of its 2019 Latin America-focused fund have âfar exceededâ expectations. The group recently announced a second fund focused on Latin America with an initial amount of US $ 3 billion.
Of course, some economists fear rising interest rates and inflation in the future. Given these uncertainties, we continue to believe that we are in the midst of an ideal environment for closing nearshore transactions.