Brennan Libbey (pictured) is a partner at Livingstone Partners, a mergers-and-acquisitions and debt advisory firm based in Chicago. Libbey directs client engagements and manages Livingstone’s Los Angeles office. He also leads the firm’s U.S. Business Services team.

In theory, a cloud is a seemingly simple, yet beautifully complex creation of nature. Warm air rises, expanding and cooling, limiting the amount of water vapor it’s able to hold. But as things expand, they inevitably change and become uncontrollable.

The IT services industry has been experiencing a similar change - seemingly simple, yet increasingly complex. Driven by the introduction of new technology - most notably cloud applications and on-demand infrastructure - IT services have moved from customized, complex software solutions developed on client infrastructure to highly configurable, cloud-based applications that live in remote data centers, making for easier customization and integration.

Moreover, cloud technology has perpetuated a wave of new merger-and-acquisition activity across the technology and services sector. And it's not going away soon.

Today, software applications require shorter implementation cycles and less ongoing maintenance than their predecessors. The merits of this new technological revolution are undeniable and include increased scalability, easier accessibility, faster upgrade cycles, lower operating risk, and easier integration among different applications. Additionally, cloud applications and on-demand infrastructure have shifted revenue models from up-front or project-based payments to recurring revenue payments for continuous products and services. That, in turn, is changing revenue models for IT service providers. Complex cloud environments require a new breed of application and infrastructure management and administration as uptime and performance of mission-critical applications are central to many clients’ businesses. Also, a managed services solution can provide a layer between the enterprise and the cloud, allowing for a more flexible balance between the scalability and uniformity of the cloud and the need for control and customization at the enterprise level.

The future of computing and software lies in implementing and managing highly configurable infrastructure and applications that may reside in-house or in the cloud. As a result, M&A and investment activity in the IT services sector will remain robust as investors seek opportunities that capitalize on this new reality. Companies with specific areas of expertise around cloud applications -- such as Workday, Hybris, Demandware and Salesforce -- are of particular interest to acquirers seeking to mirror the growth of these dynamic companies in their services organizations.

We have already begun to see some of these consolidations, with most of the independent Workday integrators acquired, such as IBM’s purchase of Meteorix and Mercer’s acquisition of CPSG Partners, both at revenue and EBITDA multiples well above industry averages. Further, as leading ecommerce application vendors have been acquired, including Hybris (by SAP) and Demandware (by Salesforce), integrators of those applications are now highly sought after by large system integrators and advertising holding companies.