Marlin Associates (M&A) has published its Mergers & Acquisitions Outlook (March 2009) for Middle Market Technology and Digital Information 2009-2010.   According to the principals of Marlin Associates the outlook is encouraging in spite of the depressed general mood in the venture capital (VC) and private equity (PE) sectors.

It is back to basics: Today, getting deals done, much less achieving appropriate values, takes discipline, expertise and dedication. Events change rapidly; agreed terms are being renegotiated or even withdrawn.

Due diligence reviews are now extensive: Transactions are taking longer to close. But, even if the universe of potential buyers is smaller, or a firm is weaker, often it is still possible to get a good price from one or more of the remaining bidders.  The challenge is for both the buyer and seller to see the strategic fit, the strengths and potential, and to shepherd a transaction all the way to closing. In this environment the ability to get and sustain the enthusiasm of all parties in the process is more important than ever.

Marlin Associates state for four reasons, that the outlook for Mergers & Acquisitions among middle market (and smaller) tech and digital information firms will continue to be better and recover faster than the broader merger and acquisition market:

  • GDP growth in the U.S., Japan and Euro Zone will begin to recover in 2010 (a rising tide always helps);
  • IT spending (a good barometer) will not be down much in 2009 and will resume growth in 2010;
  • Middle-market tech firms – and the prospective buyers of those firms – are on sounder financial footing than they were after the tech crash of the early 2000s;

There are still cash-rich buyers who are looking to acquire key tech assets at reasonable values.

In spite of tough market conditions, Marlin Associates ‘venture’ to make the following predictions:

  • The IPO market for middle-market tech and digital information firms is AWOL* and will remain absent through 2010.  VC and PE players will stay on the sidelines for larger deals through 2010—but they will remain open to investments in smaller firms.  ( *AWOL = Absent without (Official) Leave)
  • M&A prices for tech and digital information transactions will be grounded in economic reality, but strong mid-market tech companies will still command strong prices.

Strategics (not financial sponsors) will make up the vast bulk (98%+) of both buyers and sellers through 2010. Virtually all deals will be under $250 million. 

Merger & acquisition prices for tech and digital information transactions will be grounded in economic reality, but strong companies will still command strong prices.  Values (when expressed as an average multiple of revenue or EBITDA) peaked in 1998, reached a nadir in 2002, climbed again through Q1 2008, and then declined.  But averages can mask underlying truths.  For most companies, multiples declined as their own top-line growth prospects declined. We advised on several of these transactions.  Where top-line growth was strong, the multiples were considerably higher than the average.

Marlin Associates also believe that cross border expansion remains an important element in the strategy of many corporations around the world and that cross-border mergers & acquisition activity will begin recovering in 2010.

The Marlin Associate assessment is reassuring.  It is no use to cry over spilled milk.  In spite of news reports that would indicate that Armageddon is upon us, middle-market (and smaller) tech merger & acquisition deals are getting done – and not just by companies in trouble, or buyers looking for bargains.  Succeeding in this environment, much less achieving appropriate values, is no game for the inexperienced or faint of heart.  It takes discipline and expertise.  As stated at the beginning: It is back to basics!  Source: Marlin Associates

BIIA Newsletter March 2009 Issue