Technology & Business Services M&A in 2021: Is the M&A Market Still Hot?
How has the IT Services sector fared in M&A activity over the last 18 months?
On this episode of Deal Talk with 7MA — part of a series recorded during the ACCESS 2021 Conference Hosted by 7 Mile Advisors — Partner John Cooper provides an update on the M&A landscape. He walks us through how 7MA sees the M&A landscape including general market trends, commentary from the firm, target markets, and Q&A from the audience. View the accompanying presentation here.
7MA has closed 29 deals since October of 2020 with another 10 deals under LOI. Alongside positive deal stats, they are also hiring aggressively in response to the strong market.
Over the last number of years, key international players have made aggressive M&A moves around the Technology sector. Those in the private equity market are also looking to make strategic moves to deploy capital in the Tech sector, as it's viewed as an attractive and growing space.
In regards to market trends, the IT sector (including software, digital technology, global SI’s, management consultancies, and digital marketing) has been trading at all-time highs.
Enterprise software is reporting double-digit revenue multiples and digital technology companies are trading at multiple historically found by software companies. These technology gains have since cooled off a bit as people’s perspectives have changed causing a bit of back and forth volatility, but overall strong gains for the sector as a whole.
While private equity investors may approach deals with more caution and heightened standards, they’re not avoiding IT. We’re seeing some companies in the Enterprise Software and Digital Tech Services categories trading at all-time highs. Deal activity with IT companies have accelerated — comprising 22% of all deals done in 2021.
The support and interest in the IT sector reflect the role tech is playing in the workplace including businesses trying to be more creative in terms of remote employees, a push to stay connected with the brand’s consumer journey, optimizing marketing channels, and the need to utilize CRM data to remain competitive in the marketplace.
North America as a whole has seen strong M&A activity. The expectation is that we will see a very strong Q4 to close out a strong year of M&A activity in terms of deal count and deal value. Deal values have been on a downward trend since 2018, this trend was reflected in 2019 and 2020, however, 2021 shows a strong rebound. Megadeals and SPAC activity have helped drive the 2021 rebound by driving additional M&A funding through these channels.
As we close out 2021, John explains that he doesn’t predict an immediate slowdown in the market. There is a continued need for data, IT, SaaS, and technology services that will continue to power M&A. There is already some pent-up demand that will carry into 2022 from deals that are ready to go to market and he predicts that the current momentum will continue.
John also responded to questions from attendees, including:
- How do you think about the impact of sustained inflation on margin pricing? (28:44)
- Are we, or why are we seeing a significant increase in employee wages? (31:23)
- How do you calculate time horizons to evaluations received? (32:17
- What are your top three criteria for investing in LATAM (Latin America) (34:56)
💡 Featured Guest 💡
Name: John Cooper
What he does: John is a Partner at 7 Mile Advisors with more than 15 years of financial experience. He...
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