Mergers and Acquisitions (M&A) deal volume increased by 39% year-over-year (YOY) and 15%
successively to 872 deals and at corporate volume reported 806 deals, reporting
its fourth consecutive increase, up 17% successively and year-over-year rise of
41%. Cloud and smart mobility have been responsible for about 42% of technology
deals, with the global technology M&A rising by 57% to (USD) $52.4 billion
this year, according to a new report by Ernst & Young. The report noted
that the disclosed value of M&A deals rose by 70% to $119 billion during
the second half of 2014, while the value dropped 21% in 2Q14 compared to Q1.
During the quarter, private equity (PE) volume dropped by 6% consecutively
following five consecutive quarterly increases, while rose 16% YOY and its
aggregate value reached $5.9 billion, declined 55% sequentially and 58% YOY.
In addition, the average value of PE deals reached $266 million, reporting
41% drop sequentially and 58% YOY, marking the lowest level in three years.
However, the overall average deal value declined 24% consecutively and 7% YOY
to $231 million, the report added.
Overall, global technology M&A is on path for a record year in 2014.
Technology companies are cash rich, and interest rates are low. Buyers are in
full force looking to acquire companies that are strategic to their business
and growth initiatives. In addition, the IPO market has open its gates again in
2014 which feeds further M&A transactions.
There were several M&A transactions announced within the IT services,
cloud and managed services sectors in July and August 2014. We expect it to
continue into the rest of 2014 and into 2015.
Cloud services firms are in high demand for private equity firms because
they like their recurring revenue and longer term contracts. We have been in
recent contact with a number of private equity firms that continue to express a
strong interest in acquiring cloud services firms.
We are seeing average valuation ranges from 0.8x to 1.0x TTM revenues and
6.0x – 9.0x TTM EBITDA for most IT services firms including project based
systems integrators and IT consulting firms. The more profitable, the larger
the revenues and higher amounts of recurring revenue have commanded higher
transaction premiums. Cloud, managed and hosting services providers are
currently commanding a an average valuation ranging from 1.9x – 2.3x of TTM
revenues and 7.2x – 9.4x TTM EBITDA multiples YTD 2014.
M&A Valuation
Multiples - August 2014
|
IT Services
|
Cloud, Managed and Hosting Services
|
VAR
|
Enterprise Value/Revenue
(ttm)
|
0.8x – 1.0x
|
1.9x – 2.3x
|
0.2x – 0.4x
|
Enterprise Value/EBITDA
(ttm)
|
6.0x – 9.0x
|
7.2x – 9.4x
|
6.0x - 7.7x
|