Channel awaits investor interest surge in 2010

Investment-hungry resellers have been urged to prepare for a swathe of private equity interest in 2010, with invest­ors prepared to pay a premium for the right company.

Figures from Clearwater Corporate Finance reveal that the number of buyouts in the UK tech sector last year was down 19 per cent on 2008. But private equity deals rose by a fifth to 39 – comprising 23 acquisitions and 16 sales.

In the second half of 2009, private equity houses were involved in 38 per cent of tech buyouts, up from 16 per cent in the same period in 2008. Emma Leathley, senior technology analyst at Clearwater, claimed IT services firms, telecoms resellers and printer and copier dealers could prove tempting investments this year.

“If a business has performed reasonably well during the downturn, investors realise it will not go off a cliff,” she said. “People are looking at the reseller market; we see an upturn in private equity interest.”

Prices for buyouts of software firms stand at 8.2 times EBITDA, with IT services firms fetching 7.3 and telecoms specialists 7.7. Multiples are unlikely to return to 2007 levels in the near future, claimed Leathley. But she asserted that firms interested in selling should keep an eye out for investors.

“Now is the time to at least start thinking about it,” she said. “There is pent-up demand from corporates that are looking for assets.”

Clearwater says acquisition activity in the technology sector compared favourably to other industries last year.

“The number of private equity sales was somewhat surprising as there is still concern around exiting the market,” said Leathley.

Gary Dobson, sales director at VAR DTE, claimed private equity investment would particularly benefit ambitious smaller players.

“If we were approached, it is something we would consider,” he said. “We have the potential to grow quickly and I do not want cashflow or credit lines to hold us back.”