VRC, a leading provider of third-party valuation services, published its 2017 report on the Maturing Tech M&A Cycle, reviewing deal pricing, multiples and volume for the IT sector and the US M&A market.
The report, with data provided by PitchBook, confirmed a slight slowdown in overall M&A volume, albeit with increasing valuations and deal multiples. Although the M&A cycle appears to be maturing, prices and multiples are increasing, a phenomenon partly related to a dearth of M&A targets. Within the IT sector, deal prices, multiples and volume continue to climb higher as companies look to consolidate and turn to M&A for growth.
“This is more of a seller’s market,” said PJ Patel, co-CEO and senior managing director of VRC. “As a result, sellers can be aggressive in their demands on price, structure or time to close.”
Buyers, for their part, need to be aware of the risks in paying a high price, inflated multiples or rushing to close the deal. The deal may not provide the type or level of synergies anticipated in the deal model.
“At this stage of the market, buyers will want to maintain their discipline in order to ensure that deals end up being good transactions for the acquirer over time,” said Justin Johnson, co-CEO and senior managing director of VRC, underscoring the need to stay focused on valuation analysis and err on the side of conservatism when it comes to synergies.
The 2017 Maturing Tech M&A Cycle report also discusses the expansion of financial acquirers into the tech M&A arena. More PE firms have entered the game, accounting for a growing share of IT M&A in the U.S., proportionately speaking.
“Many PE firms still have dry powder that they need to put to work, while worthwhile targets may be more difficult to identify,” said Johnson. “We’re also seeing an increase in the incidence of leveraged recapitalizations and secondary buyouts in the market as PE investors look to obtain liquidity and participate in further upside through a rollover minority stake.”