As a mergers and acquisitions firm for the internet, software and technology sectors for the past twelve years, iMerge has witnessed many changes.
One in particular is the continued battle against net profit margin erosion for those in the B2C etail product space. In the early 2000′s an e-commerce business selling electronics could easily squeak out net profit margins in the low double digits while others outside of the electronics space saw even greater net profit margin percentages. Today, those numbers are unique feats to achieve. With the rare exception, when reviewing the P&Ls for product (vs service) based e-commerce businesses we see a continuous slow decline in the net profit margin percentages. Some of these businesses maybe going gangbusters with excellent year over year growth in both gross sales and EBITDA (earnings before interest, taxes, depreciation and amortization).
Mergers and acquisitions, after starting off the year at a bricks pace, ended up slowing significantly for the second half of the year.
According to just released numbers from Dealogic the total dollar value of corporate mergers and acquisitions for 2011 has reached $2.7 trillion, about even with 2010′s $2.74 trillion in closed m&A activity.
Considering 2010 was viewed as a road to recovery from the doldrums of 2009, coming up short in 2011 is problematic.
What happened? Europe is to blame. The continuous uncertainty within the Eurozone has many investors taking a wait and see approach in the hopes of gaining some clarity.
Listen in on a group of m&a advisors at a round table discussion and you would never know based on the boisterous conversation that the space is experiencing a stubborn slow down in mergers and acquisitions deals. The economic uncertainty of how many skeletons are in the closet is to blame.
According to Thomson Reuters investment banking fees ending September 2011 for the quarter were $16.2 billion the lowest level since the doldrums of the financial crisis in 2009. Total fees collected dropped by 36% in the third quarter, amid global economic uncertainty. Mergers and acquisitions, are down 23%. Worse fees collected from equity and debt capital raising services skidded by a whopping 55% and 46% respectively.
How to value a company or learning what a business is worth is on every business owners mind, more so than ever in the past few weeks. Exceeding even the wildest gyrations seen on Dancing With The Stars, the stock market antics has many of you calling in asking for guidance, opinions and for some, needed prodding to get out from under the desk. So what is going on and what is the impact on how buyers are going to value a company they may have in their targets?
Mergers Acquisitions
Your M&A advisor has successfully negotiated the final details of your merger and acquisition term sheet including how the deal will be allocated for tax purposes. Closing is set to take place in four weeks, no problem you say, its just a matter of transferring the agreed upon terms to the legal docs, right? Wrong, poorly managed this phase can become rife with delays. M&A deals are cyclical in nature and one or both attorneys may be buried with other deals with everybody fighting to get their folder to the top of the pile. In addition, left to their own devices lawyers will clearly show the value they bring to the table and the next thing you know there are a few dozen more issues to negotiate. The delays pile on as the lawyers work to remove all the pretty colors from the “track changes” that riddle the closing documents. Its inevitable the blame game starts, its the seller’s or buyer’s attorney’s fault, or perhaps the clients themselves are not responding to inquiries from their attorney. Perhaps the m&a advisor took his/her eye off the ball and caused delays.
Blog or Forum Worth, Value and Valuation Multiples
Entering a Google search to help determine what the value or worth of your blog or forum is leads you to many web based calculators. Most who enter the requested data into these value or worth calculators recognize its a gimmick designed to satisfy one’s curiosity. Out of curiosity, using the Huffington Post data the calculator returns a valuation of $64,551, 749 dollars, a far cry from the $315 million Arianna received from AOL. AOL paid an extremely healthy 9x multiple of reported gross revenues of $35 million. Perhaps this is the acquisition they get right?
Internet Application Software Business Valuation Multiples
For year to date 2011, within the Internet and application software industry, business valuation multiples remained steady. However, there was nearly a 50% decline in the number of announced transactions. During the first six months of 2010 there were approximately 17 privately held completed deals within the Internet or application software industry versus 9 deals for the same time period in 2011. In 2010 there were two transactions over $1 billion dollars; Stone Point Capital and Hellman & Friedman’s acquisition of Sedgwick Claims Management Services at an estimated 2.0x multiple of gross revenues and Madison Dearborn Partners acquisition of 51% controlling interest of TransUnion for $1.02 billion dollars which equates to a 1.8x multiple of gross revenues. For 2011 the largest announced deal appears to be KKR’s $425 million dollar deal for Ipreo.
Acquisition Multiples Paid For Technology, Internet, E-Commerce & SaaS Businesses
“If I sell my business today what kind of acquisition multiples would be paid?” In one form or another this is a question our clients all have. This article will breakdown the various acquisition multiples paid across a few of the more common technology sectors. For specifics please feel free to reach out to one of our advisors for a complimentary and confidential discussion about your business.
Mergers and acquisitions companies always keep a close eye the activity levels of private equity firms and how much capital they have to work with also known as “dry powder”. Today, Pitchbook is out with a report discussing the ongoing growth of private equity firms dry powder, estimated at $477 Billion Dollars, which has increased each year until 2009. Approximately 75% of that money is sitting in funds that were set up between 2007 – 2009. The availability of these PEG funds has enabled mergers and acquisitions companies to participate in some very large transactions. However, as that dry powder waits around to be used in a deal, so do the investors sit idle waiting for returns before committing more capital. To learn more download the US PE Capital Overhand Brief (You will need to enter name & email address)
For over a decade now, technology business brokers firm iMerge Advisors, has focused exclusively on the technology business sector. Our transaction expertise covers a wide range of industries from ecommerce online retailers to cloud computing SaaS providers with revenues greater than $2 million on up to $50 million. This focused niche enables all of our IT business brokers to be well versed in the latest developments in these sectors.
If you are an owner of a technology business with revenues greater than $2 million and would like to obtain a complimentary valuation and learn more about current market conditions do not hesitate to speak with one of our technology business brokers in confidence or you may complete the form below and we will follow up with you shortly.
Signal Hill Updata’s latest M&A Update report for multiples for SaaS and cloud computing software companies indicated the following:
For 2010 Signal Hill Updata’s proprietary database, which tracks SAAS, cloud computing software, infrastructure software, enterprise application software, financial technology, IT security, IT services and internet, showed a substantial increase in deal volume for 2010 compared to the past three years. This growth was driven largely by a consolidation that is occurring across the IT market, as traditional pure-play vendors begin to differentiatetheir offerings through acquisitions. The number of deals in 2010 grew over 42% compared to 2009, while total EV for announced deals ballooned to over $122 billion, an increase of 62% year-over-year. Median deal size climbed above $55 million, more than double the median for 2009 and its highest point since before 2007. Median revenue multiples reached 1.8x, a significant increase over 2009 and just below 2007 levels.
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