Since the beginning of 2022, there has been a significant decline in the number of M&A transactions. However, not all sectors have been affected by the decline in the number of deals, with the IT sector holding up well. Experts at AURIS Finance, an M&A advisory firm, explain why.
In 2021, mergers and acquisitions (M&A) rose sharply, with total transactions estimated at $5,800 billion worldwide, up from $4,500 billion the previous year. The French market was part of this upward trend. In addition to large groups, ETIs and SMEs stood out, benefiting from a catch-up effect after the Covid health crisis. According to In Extenso, Finance & Transmission ranking, the Media Technologies and Telecommunications sector ranked first in terms of the number of deals completed in the €1-50 million valuation segment, with 329 transactions completed in 2021.
In 2022, the IT sector is holding up well
Inflation, a tense geopolitical backdrop, and rising interest rates have seriously slowed market momentum, which has been on a downward trend since the start of 2022. The IT sector has escaped the general downturn, with transaction levels remaining stable. This exception can be explained primarily by the nature of the companies in the sector. Unlike other sectors, which are already highly concentrated, the French IT sector is still made up of a large number of players, in particular family businesses that have become SMEs or ETIs (“intermediate-sized companies”). With a turnover of between €2 million and €5 million, these companies use specific or niche technologies that are of great interest to manufacturers and investment funds. As a result, they are easily absorbed by larger companies which, in a context of dwindling liquidity, are more inclined to target SMEs and ETIs than large companies.
Many potential buyers
These companies are also more likely to want to be snapped up by a manufacturer or an investment fund. Even if their businesses are profitable, they are rarely able to fund major development projects that would enable them to scale up, mostly due to a lack of cash. They face a number of buyers. On the one hand, there are the large companies, but also the unicorns, companies valued at more than a billion dollars, of which there are 27 in France today. Thanks to major fund-raising campaigns, they are able to spend large sums to acquire a niche technology that will enable them to consolidate their position in their market. In addition to the unicorns, there are investment funds with long-term holding strategies that invest in specialised IT companies to support their development and then sell them on.
What are the valuation levels?
In the stock market, technology stocks have recently experienced a sharp downturn. The same applies to the market for company sell-offs. For industry experts, this is a “reasonable adjustment” following the global run-up in these stocks during the health crisis. Compared with other sectors, valuations of IT companies remain high and continue to attract strong investor interest.
Get the support you need
The experts at AURIS Finance are specialised by sector. Carlos Bedran, who joined AURIS Finance in January 2022, has dedicated his entire career to the IT sector. With the help of his teams, he will be able to assist you throughout your sale or acquisition project.
