An attractive market with long-term, structural growth drivers
The UK public sector is at a digital crossroads - Institutions like the NHS, MoD, MoJ, and HMRC underpin the nation’s infrastructure yet are hampered by legacy systems and outdated processes.
There has never been a greater requirement for digital transformation (DX) across the sector. Favourable long-term drivers include new policy initiatives, emerging technologies, increased global security threats and heightened citizen expectations. The capability gap is only widening, especially in newer technologies such as AI, meaning there is an ever-increasing reliance on skilled consultancy support to deliver these initiatives.
Despite these strong growth drivers there is continued pressure on public sector spend, with Labour stating a high-level aim of saving £1.2bn of consulting spend by 2026. Whilst this headline is bearish, these cost savings are expected to be achieved primarily through a reduction in large consultancy and non-IT spend, offering some protection to UK based digital consultancy SMEs.
Despite these strong growth drivers there is continued pressure on public sector spend, with Labour stating a high-level aim of saving £1.2bn of consulting spend by 2026.
Delivering high-quality, mission critical services into the UK public sector is sought after and achieving premium valuations
Firms with a clearly differentiated proposition and access to key government frameworks are well-positioned to capitalise on this growing demand for digitisation. Consultancies that can successfully navigate this complex ecosystem are highly attractive to both private equity (PE) and strategic trade acquirers.
Key M&A themes
Public sector remains a highly attractive end market for acquirers. Strategic acquirers are doubling down on verticalisation, driven by an ever-increasing need to be sector experts, as well as technology experts.
Sector focus allows consultancies to provide highly-valued strategic advice to their clients, alongside the deep technical expertise that is required to deliver complex, large scale digital projects.
Drivers of public sector M&A
- Walled garden: pre-vetted frameworks, long-term contracts, and sticky client relationships offer excellent revenue visibility and stability
- Access to large, protected government budgets provides potential to increase share of wallet over time
- Increasing opportunity for SMEs due to an increasing emphasis on best of breed suppliers
- DX delivers measurable public good and a positive social impact
- Strong exit potential as SMEs and PE platforms mature
Premium valuations are still achievable but positioning and process are playing a more important role than ever - with notable examples showing that scale alone is no longer sufficient.
Eight digital consulting public sector deals were completed in 2024 and a further three deals were completed in the first quarter of 2025 alone:
- 4x strategic trade
- 6x PE bolt-ons
- 1x PE platform
With a strong start to the year from an M&A perspective, we are optimistic that a sense of stability is emerging, offering fresh opportunities for growth and adaptation.
UK public sector spend dynamics
The UK public sector is characterised by a constantly evolving political landscape, budgetary constraints and structured framework procurement processes.
Framework agreements play an increasingly pivotal role in public sector procurement, defining procurement rules and pre-vetting prospective suppliers. Securing a place on these frameworks requires significant effort and expertise, and gaining access (or not) to a framework can meaningfully impact on a smaller consultancy’s ability to grow.
New legislation, such as the Procurement Act 2023, is encouraging SME participation which is expected to drive best-of-breed supplier selection. Simplified tendering processes and introduction of stricter performance measures for suppliers should favour more agile and innovative SMEs versus larger incumbents.
With this in mind, SME consultancies are well placed to disrupt public sector DX following the overhaul in procurement frameworks and performance monitoring.
Key M&A themes
Public sector remains a highly attractive end market for acquirers. Strategic acquirers are doubling down on verticalisation, driven by an ever-increasing need to be sector experts, as well as technology experts.
Sector focus allows consultancies to provide highly-valued strategic advice to their clients, alongside the deep technical expertise that is required to deliver complex, large scale digital projects.
Drivers of public sector M&A
- Walled garden: pre-vetted frameworks, long-term contracts, and sticky client relationships offer excellent revenue visibility and stability
- Access to large, protected government budgets provides potential to increase share of wallet over time
- Increasing opportunity for SMEs due to an increasing emphasis on best of breed suppliers
- DX delivers measurable public good and a positive social impact
- Strong exit potential as SMEs and PE platforms mature
The UK public sector's growing need for digital transformation - driven by ambitious policy goals, rapid AI adoption, and rising cyber threats - continues to create significant opportunity for M&A.
A bright, digital future
Public sector DX is both a national priority and an exceptional commercial opportunity. As governments modernise, they will increasingly lean on high-quality external partners to deliver change. For technology consultancies - particularly innovative SMEs - this represents a resilient, high-impact growth market ripe for strategic investment and transformation.
The UK public sector’s growing need for digital transformation - driven by ambitious policy goals, rapid AI adoption, and rising cyber threats - continues to create significant opportunity for M&A. While spending pressures and procurement complexity pose challenges, they also sharpen the competitive edge of well-positioned consultancies.
This environment favours agile, differentiated businesses with strong public sector credentials, access to key frameworks, and the ability to scale delivery efficiently. As a result, the sector is seeing heightened interest from both PE and strategic buyers. PE firms are actively backing platform plays with buy-and-build strategies, while strategic acquirers pursue deals to access public sector frameworks, specialist capabilities and resilient revenue streams.
We expect continued M&A momentum across 2025 and beyond, particularly focused on firms delivering end-to-end DX solutions that are trusted suppliers to key central government departments.
"Public sector digital consulting is entering a new era. As demand for transformation accelerates, we’re seeing increased interest from both PE and strategic acquirers, particularly in specialist consultancies with deep domain expertise and access to key frameworks. The fundamentals of this market are strong, and we expect momentum to continue well into 2026.”
Jonathan Grant, Director, Clearwater
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