InSight

Exit and Growth Strategies for Middle Market Businesses

Expansion of Tech M&A

By Catherine Patience | May 27, 2015

Upward Chart Money SignThe recently published KPMG 2015 M&A Outlook Survey Report suggests that one of the top industry sectors that will benefit from robust M&A activity this year will be technology, continuing a trend that began in 2013.  Cloud computing, big data, mobile devices and social media are segments that will command the attention of both financial and strategic investors alike.

So why should we expect this tech M&A growth expansion to continue?  Fueled by historically low interest rates and historically high EBITDA multiples, corporate growth through acquisition has been the fast track to higher profits.  This approach appears to cost more up front, but the immediate boost to the bottom line more than compensates by the resulting increase in EBITDA.  Combined with Private Equity investors’ buckets of “dry powder”, you have a recipe for expansion in 2015.  Private Equity investors will also add their own twist to the increase in M&A activity in the sector by entering the profit taking arena.  Many of their tech investments made in prior years have reached the expiration point and Private Equity will be liquidating tech assets this year.  We will likely continue to see consolidation in the industry with larger companies snatching up smaller ones when the time is right.

Preparing your company to take advantage of a surge in M&A activity is all about revenue and timing.  The highest possible revenues generate the highest possible EBITDA margins.  In addition, a strong and wide customer base is important.  In tech, the opportunity for M&A opens and closes quickly and you need to be ready to move when the opportunity presents itself.  Make sure your financials and your financial reporting is ready and you are prepared to put your due diligence team to work.   Your M&A advisor can then roll up his sleeves and get to work.

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