Should You Merge with a Peer? Pros and Cons of Horizontal Consolidation in IT Services

You’ve built a steady IT services firm — 50 employees, loyal clients, solid revenue. But lately, growth feels… stuck. Big enterprise deals seem out of reach. Clients keep asking for services you don’t offer. And finding senior talent? Harder than ever.

At this stage, many founders quietly start asking the same question: Should I merge with a peer?

What does “merging with a peer” actually mean?

In simple terms, it means partnering with a company that is quite similar to yours — of comparable size, offering similar services, and possibly located in the same area.

This type of “horizontal consolidation” doesn’t attract as much attention as when Accenture acquires a boutique AI consultancy. It’s more understated, such as a $7 million Dynamics firm in Bangalore merging with a $9 million Salesforce consultancy in Chennai, or a 40-person managed service provider (MSP) in Texas joining forces with a DevOps team in Colorado.

And here’s the thing: it’s happening more than ever

Why are founders suddenly looking sideways, not just upwards?

• Margins are under pressure. Competing with offshore giants and VC-backed startups leaves little room to raise prices.
• Clients want “one-stop” partners. A client who came to you for Microsoft 365 support now wants cybersecurity and cloud migration too. A merger fills those gaps overnight.— In 2022, Ahmedabad-based Intech Systems — a Microsoft partner — merged with SAP specialist CorporateServe 1. Overnight, clients got both ERP stacks from one shop.
• Talent is the real bottleneck. Every founder says the same thing: “We can win work, but we can’t staff it fast enough.”
• Exit paths are narrowing. Private equity and large strategics usually want $20M+ revenue targets. Two sub-$10M firms merging can suddenly hit that threshold.

The upside: When 1 + 1 really can make 3

Merging with a peer isn’t just about getting bigger — it’s about getting better.

• Broader client portfolio
  Founders often discover they’re serving different corners of the same ecosystem. A DevOps consultancy in Austin and a managed services firm in Boston might combine to serve clients coast-to-coast, without stepping on each other’s toes.
• Shared costs, stronger margins
  Two firms paying for separate sales teams, separate HR, separate offices… all that duplication disappears. A merger can turn thin 8–10% margins into a healthier 15–18%.
• Better positioning for the “next buyer”
  Private equity and large strategics often skip over sub-$10M firms. Merge with a peer, hit $20–25M, and suddenly you’re on the radar.
• Founders gain breathing room
  Many small IT company founders are trapped in the day-to-day — managing delivery, handling clients, chasing invoices. Post-merger, responsibilities can be divided, allowing founders to focus on strategy (or finally take that vacation).

The challenges: what founders don’t see coming

Let’s be honest — it’s not all champagne and synergies.

• Culture Collisions
  Differences in work styles, policies, and even email etiquette can create friction. One founder humorously remarked, “It took us six weeks just to agree on what to call a ‘project kickoff.’”
• Leadership Decisions Get Messy
  Deciding who becomes the CEO and who leads sales can be complicated. Dual-CEO setups rarely endure; ultimately, someone will need to take charge while another must step back.
• Client Concerns
  Some clients choose to work with you because of your involvement. A merger may lead them to question, “Will we still receive the same level of attention?”
• Integration Fatigue
  Aligning payroll systems, billing processes, and even project scoping is not a quick task. Founders often underestimate the significant effort required for true integration.

What makes a peer merger work?

From the deals we’ve seen succeed, a few patterns stand out:

• Shared Culture and Values: Aligning technology stacks is relatively straightforward, but aligning team cultures can be challenging. If work styles are incompatible, the merger is likely to face difficulties as well.
• Clear Leadership Structure: Establish a single CEO and a unified decision-making process. Eliminate any grey areas to ensure clarity.
• Real Synergy Math: Instead of simply claiming that “we’ll be bigger,” clearly outline how costs will decrease and how revenue will benefit from cross-selling opportunities.
• Client-First Thinking: Frame the merger with a focus on clients: “This means better service for you—more offerings, wider coverage, and enhanced expertise.”

So, should you merge with a peer?

Here’s the real filter:

• Are you growing but plateauing?
• Do you have service gaps clients already ask about?
• Are you too small to attract the buyer you want?

If the answer to any of these is “yes,” a peer merger isn’t about losing control. It’s about gaining scale, stability, and strategic strength for what comes next.

Final thought

Merging with a peer isn’t just a transaction — it’s the start of a new company you’ll be building together. Done well, it’s not about diluting your identity. It’s about giving your firm the muscle to go after deals and clients you could never chase alone.

At Ecosystem Ventures, we’ve sat in the room for these conversations — founders debating, hesitating, finally shaking hands. If you’re wondering whether merging with a peer is a step forward or a step you shouldn’t take yet, let’s talk. Sometimes, the partner you need isn’t across the ocean. They’re across the street.