A mass exodus of technology stock from the Alternative Investment Market (AIM) is paving the way for more M&A activity in the sector, according to a report from investment bank Close Brothers Group.
The report found the total value of London Stock Exchange-listed software and IT services firms that have delisted since March 2007 following takeovers exceeds £2.6bn.
Paul Lewington, a director at Close Brothers, said: “Small and mid-cap publicly listed firms in the [technology] sector feel unloved and are voting with their feet, which has resulted in a large-scale equity leak.”
This has acted as an invite for private equity groups and overseas investors to take advantage of lower prices. In particular, channel companies are seeing increased interest from private equity firms, with high-profile examples including Northgate Information Solutions, Calyx Group and Civica, which was the subject of a £190m management buy out (MBO) at the end of last month.
Lewington predicted this activity will continue. “We expect further M&A activity as private equity groups and cash-rich overseas firms take advantage of depressed prices.”
Nitin Joshi, director of ChannelMoney, agreed. “Prices have come down and this allows the asset-based lenders and private equity firms to move in. It is also a buoyant market for MBOs and management buy-ins. Etailers, system integrators and traditional dealers are the worst hit.”
Neil Robertson, chief executive of consultancy firm Channel Wisdom, said: “The valuation of AIM-listed technology companies has been taking a pounding recently, which leaves many open to a bid. Channel firms need to look at their core markets and see if those markets will be hit by a possible downturn.”
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