Looking for signs of life in the M&A market? Try given middle-market technology sectors, says TM Capital. Providers of enterprise application software, infrastructure management tools and information technology services saw 439 deals in the third quarter, roughly level with deal activity in the previous quarter and slightly ahead of totals in the year-ago period, according to a new
report from the boutique investment bank. What fell sharply for the sector was aggregate deal value for the quarter, as big-ticket M&A transactions for software makers and tech services companies all but disappeared.
The growing number of deals, coupled with their shrinking value, shows that corporate tech buyers view middle-market acquisitions as a "safe haven," TM says. Why? Because strategic acquirers have to keep buying to remain competitive, especially when organic revenue growth is harder to come by. Meanwhile, corporate leaders are directing M&A staff to focus on smaller targets to fill out their product lines and push into choice markets.
"These middle market opportunities still carry tremendous strategic value when plugged into global product and distribution platforms, but have less integration risk and lower cost of capital hurdles than larger deals," TM Capital says.
M&A activity among enterprise application software companies was particularly strong in the third quarter, illustrating the renewed focus on mid-tier players. There were 185 transactions announced in the period, up slightly from 181 deals in the second quarter, while deal value fell to $6.1 billion, from $6.7 billion. Deal multiples are also sliding. Enterprise software transactions in the third quarter were valued at an average of 9.5 times Ebitda, down sequentially from 10.2 and from a peak of 14.7 reached in the fourth quarter of 2006, when mergers were booming.
--Alain SherterSee TM Capital's third-quarter technology industry update
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