The number of acquisitions in the UK information technology sector declined by 14% in the first six months of 1991, as compared with the same period last year, according to a recent study by the Richmond, Surrey-based Regent Associates Ltd. Valuations overall increased by 15% and those in the software and services sector rose to levels similar similar to early 1990. Out of the 122 announced deals, software and services logged 53, communications and support services 22 apiece, applied technology 16 and computer hardware trailed with eight. The hardware and support services sectors were hardest hit. Regent attributes this to buyers avoiding parts of the industry that will be struggling to maintain profit margins over the next few years. Although the number of deals in the communications sector increased by 35%, valuations were markedly lower, suggesting that some segments are undergoing a period of consolidation. The software and services sector is still buoyant with price multiples based on after-tax earnings averaging 18 compared to 11 in the period from July to December last year. There was increased interest in packaged software companies as well as those offering bureau and facilities management services. Regent say that the impact of the recession is evident from the figures, with an increase in large organisations shedding non-core activities together with a drop in international acquisitions from 33 to 14. Quoted companies accounted for 31% of acquisitions, with acquisitions by fully listed companies dropping to 30 from 55 and those by companies on the Unlisted Securities Market dropping to 8 from 12. Regent says this is because quoted organisations were unwilling to disturb the current year’s performance. Acquisitions by private firms, however, rose by 12.5% as companies seized the opportunity of obtaining bargains while prices were low. Regent concludes that computer companies see an end in sight to the recession that will both open up user budgets and revitalise the acquistions arena.
