Almost half of the UK information technology acquisitions in 1991 were as a result of companies shedding subsidiary businesses. The total number of transactions declined marginally to 269, but the number of divestitures jumped to 48% of all deals compared to 21% two years ago. Regent Associates, the Richmond, Surrey-based information technology business advisers, says that its latest analysis of the UK market indicates that prices paid for companies throughout the IT sector are based on valuations still some 10% below pre-recessionary valuations. The software and services sector has rebounded most strongly with prices back at 1989 levels. Regent claims that including some allowance for the usual deferred consideration involved in deals of this kind, price multiples on after-tax profits for software and service companies are averaging 18, about one times turnover. Regent’s analysis includes all announced transactions with valuations over UKP500,000, and it claims that there was a decline of some 47% in the number of transactions involving hardware companies last year compared with 1990. At the same time, there was a jump in acquisitions of communication companies, particularly those supplying local and wide area networks, as well as those in cellular communications. Regent says that the acquisitions in the hardware sector tend to be among those companies providing sub-system and board-level products. It is those companies with innovative ideas and strong development skills that are being targeted by larger organisations seeking access to new technology. Foreign buyers tend to favour communication companies, especially if they are attempting to buy market share by obtaining an established customer base. The two most active, says Regent, were Hutchison Whampoa Ltd and Thomson SA of France. The number of acquisitions of software and services companies was 122, the same as in 1990. Transactions involving software houses declined marginally, but they represent the largest individual segment, although acquisitions of consultancies, bureaux and packaged software suppliers showed substantial increases over the previous year. Regent says that classic box-shifters – dealers and small distributors – are in a desperate state. The market is demanding specific skills, either vertical or horizontal, and added value is increasingly important. Regent believes the investment community is being more supportive of the IT industry, with the number of deals in 1991 that were underwritten by banks and venture capital rise by 38%, though many of these were management buyouts.
