Debt finance shortage stymies channel investors

80 per cent of private equity firms questioned want to make an ICT investment in the next 12 months

A shortage of debt finance could put paid to private equity firms’ desire to make further investments in the channel this year, a new report has suggested.

A number of resellers have taken on private equity in recent years and according to new research from Grant Thornton UK LLP there is a significant appetite among backers to continue investing in the channel.

Eighty per cent of 40 private equity investors quizzed by the finance and business advisory firm said they wished to make an investment in the UK ICT sector in the next year.

However, 75 per cent of respondents said the current debt financing environment continues to act as an obstacle.

The price dislocation between buy and sell-side parties was also seen as an issue, with 68 per cent citing it as the most significant obstacle. Just 35 per cent picked out competition from cash-rich corporate acquirers as the main barrier to splashing their cash.

Niki Dixon, technology partner at Grant Thornton, said: “There are several steps ICT companies can take to be seen as an attractive investment opportunity by potential investors.

“They must enter the market with realism about multiples, deal structures and timetables and the supporting story about their growth potential must be robustly defended. There must also be enough resource within the business to cope with the demands of the process to give the investor confidence that management can deliver the transaction.”

Smaller ICT firms are finding it particularly difficult to secure finance as investors are avoiding start-ups with speculative growth prospects, Grant Thornton added.

Overall deal sizes have gone down, with 53 per cent in the sector last year in the £15-100m range and 33 per cent in the under £15m range.