Among all M&A deals announced last year, 15% were acquisitions of technology companies, more than any other sector and totalling roughly $125B USD.
2017 looks poised to be another blockbuster year for sellers of software and technology companies. In fact, a recent survey of global deal-makers from across the corporate, private equity, and investment banking communities showed 74% believe technology M&A will be just as big, if not bigger, than levels in 2016, as a perfect set of conditions is aligning to continue and possibly even raise M&A activity levels in 2017. Public company valuations are at an all-time high. Strategic and financial buyers have ample cash ready to invest, and favourable changes to tax policies are anticipated which could further unlock cash available to fund deals.
M&A activity, like the economy and public markets, runs in cycles and is largely based on business confidence in the near-term future. In the lead-up to the end of the 1990’s, and again to 2007, markets and valuations were high, and M&A activity was extremely busy. After each of the market crashes of 2001 and 2008 there were about 3 years in a trough where valuations declined and acquisitions slowed dramatically. Whatever a company was worth, it was hard to find buyers that weren’t bottom feeders and even harder to conclude transactions.
Company acquisitions by strategic buyers has had a huge positive run from 2011 to 2017, with record numbers of transactions at very high valuations. Public markets are at all-time highs, IPO’s – particularly for tech companies – are going out at unsubstantiated valuations, housing prices in the major cities in Canada are in a bubble, and the US political climate is unpredictable. The economic issues of Europe haven’t been resolved just drowned out by other news. Issues with Russia, China, and now North Korea, are adding to global uncertainty.
Based on a lifetime of history, it would seem we’re overdue for a correction. When it comes, it will be several years before M&A activity and valuations pick up again.
For founders who are later in their careers, or those with a plan to sell in 2-4 years, we’d recommend a pause to think about the impact of timing. Common sense says that if business is good and there are buyers interested in our firm, perhaps now is the time to explore a sale. If you miss this cycle, it may be 5 years before you get the chance to get a value equal to what you would today.
It isn’t as important to those early in their careers or those looking at long-term timelines, but it may have a substantial impact on those who don’t have the desire to hang around and wait it out. If any of this resonates with you, click here to schedule a call.