Technology Company Mergers and Acquisitions

March 3rd, 2015 | Posted by Sarah Jones in Guest Blogs - (Comments Off)

This week on NVTC’s blog, Alex Castelli, partner and Technology Industry Practice leader at CohnReznick LLP, discusses the acceleration of investment and acquisition activity in the technology sector. 


It is no secret that valuations for high quality technology companies are at historic levels. This, combined with a strengthening economy, and an abundance of cash on the balance sheets of most strategic and financial investors, is helping to accelerate investment and acquisition activity.

M&A activity will continue to accelerate into 2015, as corporate buyers make strategic acquisitions to fuel future growth. CohnReznick’s 2014 Middle Market Private Equity Outlook predicted strong transaction and deal-flow in 2014, a forecast that has accurately reflected activity through the last half of the year. Many major technology companies, venture capitalists, and private equity firms have cash available and they are under pressure from shareholders and investors to utilize these assets in order to meet their investment objectives.

The latest research confirms that the current market conditions are fueling high valuations and high levels of M&A activity. Leading private equity data provider PitchBook reports that in 2014, there was an increase of almost 200% (based on multiples of their EBITDA) in the valuations of technology companies undergoing a M&A transaction. This figure is up from an average of 8.4x in 2013 to 17.1x to date this year. Interim figures from PitchBook also reflect that total capital invested is up 45% in 2014.

Technology markets go through regular cycles of innovation, and currently a number of core markets are experiencing such activity – including social media, mobile, big data analytics, cloud computing, storage, and security. These areas continue to attract strategic investors who recognize that many times, it makes more financial and competitive sense to acquire intellectual capital and property rights in these areas than it does to build them organically. Interested investors include not just traditional enterprise software companies seeking to innovate by acquisition, but also include organizations that were not previously considered technology-dependent; these companies are being driven by consumers’ growing digitization demands to purchase technology companies.

Beyond consumer drivers, economic reasons for the current high rate of M&As include the fact that the Dow, S&P and NASDAQ are performing at or near historic highs. In addition, high-valuation public IPOs encourage valuation inflation in the private M&A market.

While achieving a high valuation is desired, technology company leaders seeking investment may decide that focusing on building a strong business, rather than trying to position themselves directly for a merger or acquisition, is a reasonable strategy. Investors are interested in companies that can provide long-term, incremental revenue growth, so CEOs should set their sights on creating a successful, sustainable business. There are measures companies can take to position themselves for sustainable success. Foremost is to instill a focus on long-lasting growth and profitability rather than short-term liquidity. Such a strategy will inevitably make a company more attractive to investors.


Alex Castelli is a CohnReznick LLP Partner and the Leader of the Firm’s Technology Industry Practice. Alex has nearly 25 years of experience managing the audit, accounting, and reporting issues of entrepreneurial companies. Contact Alex at alex.castelli@cohnreznick.com. Follow CohnReznick’s Technology Practice on Twitter @CR_TechInd.

 

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3 Reasons Why M&A Will Continue to Thrive in 2015

February 17th, 2015 | Posted by Sarah Jones in Guest Blogs | Member Blog Posts - (Comments Off)

This week on NVTC’s blog, guest blogger Gretchen Guandolo of member company Clearsight Advisors discusses the success of M&A in 2014 with the return of gargantuan deals, largely seller-friendly transaction structures and premium valuations, and offers three reasons why 2015 will be just as successful.


dollar-exchange-rate-544949_1280In what was widely considered a banner year for M&A, 2014 was the return of gargantuan deals, largely seller-friendly transaction structures and premium valuations. In spite of the turbulent equity markets being driven by fluctuating oil prices, a gathering storm in Europe, and uncertainty around rising interest rates, we at Clearsight are already seeing the makings of a very big M&A year. Globally, investment banks are seeing increased deal flow and expanding pipelines. Our team is already out to market with several deals that are garnering high demand and premium valuations from a number of unique buyer groups. We expect the rising M&A tide to continue through 2015, as we believe demand for niche leadership positioning, strong growth trajectories, and seasoned management teams is unlikely to dissipate. First, a few fun facts from 2014 that will continue the momentum through 2015:

  • In 2014 there was $3.5 trillion worth of global M&A activity, which is up 47 percent from the year before
  • Global private equity investments totaled at $561.9 billion. That’s the highest figure since 2007, and a 43 percent bump over 2013 – with 60 percent of 2014 buyout activity focused on add-on investments
  • Venture capitalists disbursed a massive $87.8 billion (compared to $50.3 billion for 2013) via 7,731 deals
  • Companies raised around $249 billion in global IPOs in 2014, which was the busiest year for new listings since 2010

So what do we expect for this year?

  • There is likely to be a frenzy of activity in certain verticals, including: healthcare, energy and technology. Technology continues apace with no sign of slowdown and while the energy sector is harder to predict, one thing is clear – disruption in a regulated industry makes for a great M&A environment
  • Investor interest in certain technologies is likely to grow. Some of our favorites include: customer experience, big data, and human capital management. Technologies that enable us to get into the minds of customers and lead them on a journey to experience and buy a product has become the goal of retailers, financial services companies and even government! We see the market of big data continue to evolve and mature. This year will be a great growth year for data analytics consulting businesses who leverage Hadoop and other open source technologies to deliver predictive behavior, lower costs and drive increased revenue. Human capital technologies will continue to surge as employers seek out the best talent and retain and train individuals in a hyper competitive market.
  • As seen in 2014, both private equity and strategic acquirers will drive robust market competition. Nearly all of our processes include both strategic and financial buyers and as private equity grows increasingly aggressive in pricing in an effort to put money to work, we see strategic buyers dominating 2015.

Growth will continue to be the main driver of valuations throughout 2015. Premium multiples go to the companies with a demonstrated high growth track record and robust pipeline for future growth. Growth eclipses profitability through 2015.

 

 

 

 

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