Market Update

IPOs and Fool’s Gold: Our August Infotech M&A update

August 2018

Dear Clients and Friends, 

Our latest report on the values and trends in the dozen+ segments of the information technology industry that we follow, and sometimes lead can be found below.

Recently, two CEOs of mid-sized information technology companies asked our opinion about taking their company public. In both cases, our advice was the same: Don’t do it, you are too small. It’s Fool’s Gold.

Close followers of our reports may note the gradual reduction of the number of public companies worldwide. A recent New York Times article noted that “…in the mid-1990s, there were more than 8,000 [publicly traded companies] on exchanges in the United States. By 2016, there were only 3,627…” 

From our perspective, as m&a advisors, there are several good reasons for this trend: first, while public ownership can make a lot of sense for some fast-growing companies with $200m or more of “float”, m&a valuations for most privately held mid-sized information technology companies are often higher than for similarly situated public companies. It’s all about the strong demand for private companies (there is more than $1 Trillion in unspent m&a capital available) combined with constraints on demand for stock in smaller publicly traded firms; second, public companies are often unwilling to accept the dilution – and sellers are often reluctant to accept as m&a currency, public stock, when that stock is perceived as illiquid and the price is stagnant – which is what we often see for smaller public firms. (That same New York Times article noted that: “…in 1975, 61.5 percent of publicly traded firms had assets worth less than $100 million, using inflation-adjusted 2015 dollars. But by 2015, that proportion had dropped to only 22.6 percent.”) And third, the modern world offers multiple effective ways to bring cash to a private company’s balance sheet (or for shareowner liquidity) without the expense or the intrusive compliance burden that comes with being a public company. (See that same $1 Trillion of available capital.) The result of all this is the rise in both number and values of privately held companies. (There are now more than 200 private firms with values in excess of US$1 billion – including 57 that became Unicorns in 2018.)

We enjoy advising owners of mid-size information technology companies as they seek to develop strategic alternatives. It motivates us. You can see m&a values and trends in our industry below. Some of the more interesting recent transactions over the past month include:

  • State Street (NYSE:STT) agreed to acquire Charles River Systems for $2.6bn, valuing the company at an implied 8.4x LTM revenue and 17.4x LTM EBITDA,
  • The Interpublic Group of Companies (NYSE:IPG) agreed to acquire Acxiom’s marketing solutions business unit for $2.3bn,
  • SS&C (NASDAQ:SSNC) agreed to acquire Eze Software for $1.45bn, valuing the company at an implied 5.2x LTM revenue and 13.8x LTM EBITDA,
  • Ipsos (ENXTPA:IPS) agreed to acquire four divisions of GfK Custom Research: Customer Experience, Experience Innovation, Health and Public Affairs for £105mm (~$121mm),
  • Xero (ASX:XRO) agreed to acquire Hubdoc for $70mm in a 35% cash and 65% stock transaction.

Also, ACQ Magazine announced its ACQ5 awards recently. We are pleased that they named Marlin & Associates as the Boutique Investment Banking Firm of the Year. We always like when our hard work is recognized. Details on the ACQ5 awards can be found here.

Please see more of our market update below.

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