Telefónica Tech continues its shopping spree with Incremental addition

Spanish telecoms and IT group Telefónica is willing to splash the cash to become a major player in the UK IT services market.

Its digital transformation arm Telefónica Tech has made yet another acquisition. This time it is Glasgow-based Incremental, and the price tag is £175 million. Incremental is a data analytics provider and Microsoft partner that resells the software giant’s Dynamics, Azure, Power and 365 portfolios, and offers services for companies migrating from Skype for Business to Teams. It focuses on the public sector, not for profit, professional and financial services, manufacturing and energy sectors.

Acquiring Incremental makes Telefónica Tech one of Microsoft’s largest partners in the UK, and adds to its end-to-end cloud services offering for medium and large enterprises, and government customers. It also adds a further 350 employees spread between the UK, Bulgaria and India, bringing Telefónica UK&I’s total headcount to around 1,000, almost 25 percent of Telefónica Tech’s total workforce.

“This acquisition enables us to strengthen our position as a leader in the UK market for IT services. We are now able to provide end-to-end Microsoft services, including digital transformation, managed services and data analytics, and achieve attractive cross-selling synergies with Telefónica Tech UK&I, complementing and positioning us as a leading Microsoft-focused company in the UK,” said Telefónica Tech CEO José Cerdán, in a statement on Monday.

It’s a timely purchase for Telefónica Tech. Gartner predicts that global IT spending will reach $4.5 trillion this year, up 5.1 percent on last year. Enterprise software is expected to be the fastest-growing category, with spending coming in at $671.7 billion this year, up 11 percent on 2021. In addition, consultancy Transforma Insights last year ranked Microsoft as the leading hyperscaler when it comes to supporting enterprise digital transformation.

The Incremental deal is the latest in a string of acquisitions for Telefónica Tech. One of the more noteworthy buys took place late last July, when it spent €398 million on professional services firm and Microsoft reseller Cancom UK&I. That came just weeks after it bought Spanish IT consultancy and Google Cloud partner Altostratus for an undisclosed fee. In April, Telefónica subsidiary Acens, which offers cloud and security services to Spanish SMEs, was folded into Telefónica Tech. It capped off last year by acquiring Geprom, a small company based in Spain that specialises in the digital transformation of manufacturing processes.

Telefónica Tech was one of the growth engines launched under Telefónica’s most recent strategic plan, unveiled in late 2019, and so far it seems to be fulfilling that role. In 2021, its turnover grew by 33.6 percent to almost a billion euros. However, putting to one side that impressive performance – and the obvious advantage of consolidating that revenue on the group balance sheet – it’s not clear how it benefits Telefónica’s core business of selling network access. It begs the question, what is the endgame for Telefónica? Does it want Tech to become a standalone IT services giant? Or will it one day seek to monetise the asset through a float or stake sale, and plough the proceeds into its core operation?