M&A in the doldrums

(By Richard Holway 10.00pm 11th Mar 09) Regent have produced a very good roundup of tech M&A in February which you can download Click here.

Although the number of tech transactions involving European companies in Feb 09 was pretty much the same as in Feb 08, the value – at $4.5b - was a third of that recorded in the same month a year back. Basically there aren’t any mega deals at the moment. On top of that, ‘distressed deals’ tend to boost the volume but not the value! The biggest UK SITS deal in Feb 09 was Eidos with its £84.4m recommended deal from Japanese rival Square Enix. See my post - Goodbye Eidos - 15th Feb 09.

2008 was a “Year of two halves” in M&A. The first half was OK – the second half was dire! And Q1 looks pretty awful too. M&A only thrives when buyer and seller value expectations are relatively close. Unless you are ‘distressed’, most owners of private SITS companies currently feel it would be daft to seek buyers in today’s market. Best to ‘weather the storm’ until valuations revive. But will they?

On the public markets, some believe that current depressed P/Es do not take into account “shortly to be announced” revised forecasts for future earnings. Once these are factored in the market might well be in for the kind of readjustment we’ve seen only too brutally in other sectors. Several of the funds and other buyers we have talked to recently certainly have the cash to do transactions but are holding off; believing that the nadir has not been reached.

So when is the time? Q3/Q4 2009 is the most common answer I get. If so, the famine in SITS M&A might start to ease in six months time. That will be too late for some. We hear that several of the biggest global investment banks have already closed their tech M&A teams; laying off highly experienced staff.