Valuations (December 2009)
Recently I was pleased to make a presentation on Software and IT Service valuations at the World Financial Symposium in London.
Month-by-month transaction volumes are up about 25% from 2008, back to levels last seen in 2005, and bettered only by what we will look back on as the golden years of 2006 and 2007. Mega-deals in excess of $1bn, which had been noticeably absent, are now back in play – no less than nine were announced in October alone. The public markets have recovered strongly from their low point in the first quarter. Corum’s Transaction Revenue Multiple, averaged across all Software M&A deals, has lifted to 1.72x in the third quarter of ‘09, having peaked at 3.11x in the first half of ’07 and then consistently falling to 1.3x in the first half of this year.
Over the last 20 years, multiples have oscillated in five to ten year cycles between 1.5x and 3x. The single quarter upturn, taken together with the recent strong performance of the public markets and, most importantly, the recovery in transaction volumes, makes a strong case for the first half of 2009 being the bottom of the current rolling cycle of valuation multiples.
So, the prognosis for valuations and deal volumes is up. Short of there being a further crash, I would expect to see multiples continue to steadily build their way back through the long term average of 2x to 2.5x and on to the next peak, as happened between 2002 and 20
Posted by JohnMelotte, Regional Director on 22 December 2009
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