M&A Update - IT Services, Cloud and Managed Services (August 2014)

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

For the full report, please go here: http://generationequityadvisors.com/wp-content/uploads/2014/08/GEA-IT-Services-Cloud-and-Managed-Services-MnA-Update-Aug-2014.pdf        

First Half 2014 Shows Further Upswing in Technology M&A Transactions

We noted a further uptick in announced mergers and acquisitions for technology companies in Q2 2014.  Technology mergers and acquisitions worldwide more than doubled in the first half of 2014, with deals worth $383.4 billion in that span, up 122% from the year-earlier figure, according to Mergermarket.

The majority of technology deals happened in the U.S., trailed by the Asia Pacific.

More than half of the M&A activity this year was during Q2 2014. The value of M&A's in Q2 tripled to $200.9 billion from $67 billion in Q2 2013.

Yahoo! (NASDAQ:YHOO), Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB) have been especially active in M&A this year as they all expand into new businesses and technologies. The telecommunications sector also showed a heavy uptick as it further consolidated.


For more information regarding Technology M&A, please contact us: mergers@generationequityadvisors.com


Generation Equity Advisors is a Los Angeles based technology and digital media M&A advisor and investment banking firm. Its professionals have completed over $20 billion in M&A transactions and are experienced investment bankers. For more information about Generation Equity Advisors, please go to: www.generationequityadvisors.com

Technology Mergers on Upswing in Q1 2014

2014 is off to a strong start for technology M&A announcements. We noted a number of new transactions announced in January and early February 2014. According to several M&A research reports and surveys, including KPMG's 2014 M&A Survey, we expect a solid year for technology M&A announcements.  These efforts will reflect a better global economy and market conditions than were available in previous years. In addition, the top reasons as to why we will see more M&A transactions in 2014 include:

• Large amounts of cash sitting on corporate balance sheets and in PE funds
• Opportunities in emerging markets
• Availability of credit and favorable terms
• Improved customer (and executive) confidence
• Improving equity markets
• Improved employment numbers
• Recovery of certain industry sectors, including financial services

A well executed integration plan, reasonable deal price/value, effective due diligence and positive economic conditions are all important factors in M&A success.

We see an uptick in dealflow for the first half of Q1 2014 within software, IT services, cloud services, digital media and financial technology and expect it to increase further.

Due to this expected uptick for M&A in 2014, Generation Equity Advisors plans to continue its growth and efforts to lead and advise on technology M&A transactions by adding additional talent and expertise to its experienced staff.  In addition, it plans to form strategic partnerships with companies that can enhance its M&A reach to the global markets.

For further information, please contact its M&A team at mergers@generationequityadvisors.com