Private equity fuelling tech M&A deals

Clearwater Corporate Finance's The Wire report also points to an increase of large-value deals in 2011

Private equity is spearheading the revival of UK Technology M&A in 2011, according to the latest report from Clearwater Corporate Finance.

Deals involving domestic targets or acquirers increased by 25 per cent in the first half of the year to 122, compared with H1 2010.

The number of large transactions also increased, with 14 deals worth £100m-plus during the first six months of the year, compared with the same number throughout the whole of 2010.

Domestic deals made up the majority of transactions in the first half – with US buyers in the period accounting for just 10 per cent of all acquisitions – mainly down to the recent HP and Autonomy bid.

Carl Houghton, partner and head of the technology sector team at Clearwater, said: “Private equity activity in the technology sector maintained a steady state in the first half of this year, healthy in both deal size and volume.

“Furthermore, private equity continued to make net gains in the space, with investment outstripping exits by more than two to one,” he said.

However Houghton said exits have continued at ‘reasonable’ levels this year as private equity sellers make the most of the attractive valuations on offer. “Solid businesses that have performed well through the recession and are now demonstrating growth, recurring revenues and good IP can often realise values north of 8x EBITDA and, for the very best, north of 10x EBITDA is not out of reach,” he added.

However, the continuing economic gloom could have an effect, he warned. “Whether this progress continues in light of current market fears over sovereign debt remains to be seen, but the outlook remains broadly positive.

“In particular, the strong activity by private equity at the top end of the market, should begin to drift down into more activity in the mid-market, and corporates should also look to maintain share price through acquired growth where organic growth is tougher to deliver,” he said.