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RECAP & FORECAST
2021 was a record year for the industry. Contracting activity was strong across nearly all sectors. Full year managed services ACV was up 16%, with exceptionally strong growth in ADM (up 40% Y/Y) and engineering (up 170% Y/Y). As-a-Service activity continued to smash records. IaaS ACV was up 40% Y/Y and SaaS was up 31% Y/Y (see Data Watch).
Wage inflation continued, increasing pressure on project-based work. Rates for in-demand skills were up 4% - 7%. Managed services prices held steady; however, the decreased use of cost-of-living adjustments in contracts may have an outsized impact on some providers in the near term.
Attrition is near all-time highs, which is putting tremendous pressure on providers as they try to respond to strong demand. We expect the high levels of attrition to begin to abate in two to three quarters. As unprecedented numbers of campus hires start to come online this year, the imbalance between digital talent demand and supply will start to equalize.
M&A activity set a record as providers sought out capabilities in cloud, engineering, analytics, user experience and cybersecurity. M&A activity by transaction count was up nearly 50% compared to 2020, and transaction value was up over 60% compared to 2020.
Though our forecasted 5.1% growth in managed services in 2022 will not match 2021, it will still be two and half times the historical industry average growth rate. As-a-Service will grow 20% in 2022 – and, while we see some headwinds, technology providers aligned with secular growth themes and pricing power will still outperform.