Tech M&A Forum & TMT M&A Forum - May 2019
We were delighted to again sponsor for a third year running the annual Tech M&A Forum held in London on 22 May. Corporate Partner, and joint head of TMT, Mark Howard, chaired a Panel on SAAS entitled: How M&A strategy can help software firms respond and adapt to the new normal. TMT Corporate Partner, Hamish Perry, chaired a break-out session 'assessing the next wave of deal flow' for Tech M&A.
Meanwhile, Commercial Partner, and fellow joint head of TMT, Mark Bailey, chaired a panel on Datacentres and Hosting – Satisfying the insatiable demand for processing power and storage at the TMT M&A Forum held on 21 May addressing the Telecoms, Media and Digital Infrastructure part of the sector. Both conferences were well attended and provided a great mix of learning and networking with industry professionals and corporate finance specialists.
Mark Howard's SAAS Panel considered how the shift in revenue model is affecting business strategies for software companies and vendors. The pricing model is essentially a switch from a capex to opex model, which can impact both cashflows and profits in the short term. This can present working capital challenges and may require an investor education exercise to manage longer-term strategic expectations.
Meanwhile, the change in delivery model from traditional on-site to a cloud hosted proposition requires a different product development and sales strategy and something of an internal cultural shift. Understanding the journey and how successfully it is being implemented is a key diligence item for potential acquirers.
From a valuation perspective, it was noted that unit economics is becoming increasingly relevant which is not necessarily easy to reconcile with EPS requirements for public company acquirers, presenting possible advantages to private equity backed buyers with longer term investment and pay back strategies.
Overall, the Panel was positive on the outlook for M&A activity in the software and services sector in the year ahead. In an ever more complex IT environment, the SAAS model provides opportunities for a toolkit of solutions deployed iteratively and efficiently in support of customer growth strategies, driving strong recurring revenue businesses – a much sought after opportunity.
Hamish Perry hosted an interesting break-out discussion with TMT M&A experts from industry and top advisory firms.
The panel discussed how the market was still fairly buoyant despite the macro-economic uncertainties caused, in part, by the US administration and the shadow that Brexit casting.
The panel noted that private equity acquirers still have funds to deploy and are able to move quickly. This is keeping processes competitive and valuations up, so PE firms are usually more likely to be successful than trade buyers. The competitive landscape is also resulting in acquirers looking at new sub-sectors, with AI being one of the hot areas.
Mark Bailey's panel featured well know participants in the data centre sector, including Data4, Keppel REIT and Virtus. The panel was a lively session that emphasised that the sector was not yet fully mature, but that there was a strong future for the sector. Operators had to be very clear on their target business models and clients to attract appropriate finance, particularly as regards hyperscale product. There was evidence that infrastructure funds were increasingly attracted to the sector, but high multiples on transactions would remain a feature for the more attractive assets. Different funding models would also emerge as smaller decentralised processing was required to power "edge" computing, particularly for new technologies that would rely on latency specific use cases such as autonomous vehicles and media streaming.