Market Update

Could a “Minsky Moment” Be Around the Corner? Our February Infotech M&A update

February 2019

Dear Clients and Friends,

We hope that your New Year is off to a strong start. The Infotech m&a market sure is. As you will see from the report below, m&a deal volume and values are still up in the dozen+ segments of the information technology industry that we follow, and sometimes lead. We’re busy.

Last month we put out a set of fairly rosy m&a market predictions for 2019 and we are sticking by them. Global equity markets are still strong; interest rates remain relatively low; banks are lending; corporate buyers and financial sponsors have plenty of money and are on the hunt for strong companies with proprietary products, scale, and strong growth prospects. We still believe that private company valuations will remain strong for middle-market Infotech companies – in 2019 – unless the politicians mess it up – and that’s our one concern.

Dysfunction among politicians is not new. Politicians have been going at each other for 2000 years. But it does seem to be getting pretty virulent as Brexit looms; Greens rise; Russians rattle; Saudis bomb; ISIS reels, Iranians threaten and the US 2020 election cycle heats up. In the US, we see some Democrats threatening impeachment hearings; some Republicans threatening (another) government shutdown; and President Trump suggesting that he could fire Fed Chairman Jerome Powell; win a trade war; take on Iran; build the wall (without congressional approval); and stifle Special Counsel Robert Mueller. 

We don’t see a “Minsky Moment” coming. But there are some worrying signs. (A Minsky moment is a term coined by Paul McCulley, the former Pimco portfolio manager, in a reference to the U.S. economist Hyman Minsky, who suggested that good times can breed overconfidence, which can lead to higher values – until those markets become unstable – and then some exogenous variable such as the collapse of Lehman Brothers – can lead to a sudden crash in asset values. The term has been used to describe what happened to the tech market in 2000 and the housing market in 2008.)

For now, confidence remains high and that’s a big reason why it remains a good time to be in this market. We’ve closed one transaction this year and are working on a dozen others. We are aware of several areas that could bring on a Minsky Moment – including another war in the Middle-East; a collapse in Unicorn values; a precipitous decline in China’s GDP growth; or a global trade war. But for now, we’ll continue hope for sanity in global capitals and take advantage of the continued strength in the dozen+ segments of the Infotech world that we follow and sometimes lead. Minsky should stay home. 

A few of the more interesting recent transactions include:

  • Fiserv (NasdaqGS:FISV) agreed to acquire First Data (NYSE:FDC) for $21.3bn, valuing the company at an implied 4.8x LTM revenue and 12.8x EBITDA,
  • Clover Health (Jersey City, United States) raised $500mm in a Series E funding round led by Greenoaks Capital Partners,
  • Dropbox (NASDAQ:DBX) agreed to acquire HelloSign for $250mm,
  • Zix Corporation (NASDAQ:ZIXI) agreed to acquire AppRiver for $275mm,
  • Collibra (Brussels, Belgium) raised $100mm in a Series E funding round led by CapitalG and included return investors ICONIQ Capital, Index Ventures, Dawn Capital, and Battery Ventures,
  • Marlin & Associates client Sermo completed a recapitalization with Abry Partners. For more details, please click here.

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See below for our February Infotech M&A Update.

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