Despite the economic uncertainties forecast to continue into 2011, IT Mergers and Acquisition specialist firm Knight Corporate Finance predicts a very positive year for valuations in the IT sector especially for software companies adopting the SaaS monthly subscription model.
Knight CF Director, Adam Zoldan says: “Over the last two years there has been much discussion about convergence in a variety of forms – voice and data, fixed and mobile, or IT and telecoms. This is finally becoming reality through mergers and acquisitions. Valuations in IT businesses are on the increase with a number of trade buyers plus a heightened level of interest from the private equity sector injecting interest and financial resources into the sector.”
Adam Zoldan and Paul Billingham
Knight CF warns that businesses that generate profit mainly from selling equipment and professional services will miss out on the valuation boom. “It’s all about customer ownership, recurring revenue and a fundamental shift towards managed services”, continues Adam Zoldan. “The perceived quality of earnings derived from a contracted customer that pays on a monthly or quarterly basis will deliver the highest valuations. Managed hosting, connectivity, hosted SaaS applications are all high on buyers’ agendas as we move into the cloud”.
Interestingly, the telecom resellers who are seeing their voice revenues decline are making some real headway in this space. They already have the billing systems and back-office infrastructure in place and adding additional Cloud-based services to the customers’ solution is a relatively simple affair, especially with the high level of support they can receive from the SaaS suppliers.
Knight CF co-founder and director, Paul Billingham comments: “We expect to see significant consolidation in 2011 as larger providers look to gain scale or compliment organic growth. Organic growth is now more difficult and more expensive to achieve, and the desire to add scale, alongside the necessity to develop new expertise is the driving force behind most acquisitions. In an era where capital expenditure is being closely monitored, businesses need to consider ways to increase value as contracted managed services gain widespread acceptance. At Knight CF we have helped realise maximum value of more than 20 businesses in under two years and we look forward to helping many more”. For more information see the Knight CF website .
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