PE investors eye tech firms in 2011

More activity predicted in the technology sector over the coming year, according to Grant Thornton

The technology sector is a red hot investment target for private equity (PE) firms this year, research has claimed.

According to a PE Barometer report from finance and business advisors Grant Thornton UK, 37 per cent of private equity firms are expecting to be more active in the technology sector in the next 12 months.

Technology has overtaken healthcare and manufacturing as an active PE target and is level with the consumer retail and food sector. However it is still lagging the business support sector.

Grant Thornton said that expectations of multiples have been revised down from the 7.7 times EBITDA seen in the last quarter to 7.1 times EBITDA this quarter.

Wendy Hart, technology corporate finance partner at Grant Thornton UK, said: “There has been a clear shift in sector preference over the last six months. 2010 saw private equity groups making their return to the technology sector and this activity has helped it recover from the recession better than most. This appetite has continued, and improved into 2011, albeit multiple expectations have fallen.”

Hart added: “The PE Barometer shows that the sector is holding up remarkably well. Given the large number of mandates we are seeing in the sector involving PE as either vendors, investors or acquirers, it is reasonable to contend that both 2011 and 2012 will continue to see relatively high level of deal completions.”

Alan Watkins, director of PE firm Blackhawk Capital said the results were positive for the industry.

“I’m convinced we are going to see more consolidation this year. There are too many resellers for the vendor community and it is getting harder for smaller companies to continue to grow and break through that glass ceiling.

But he sounded a note of caution on multiples.

“Vendors have to be careful about the blend of project-based services and annuity. Buyers want certainty and predictability of revenue and margins. They don't want a company to present them with a nice set of accounts for a historic year that can't be repeated in future years.”