Business values recovering in IT sector

The value of UK IT businesses is on the rise following the lows of 2008, according to Clearwater Corporate Finance.

In 'The Wire', the firm’s report on merger and acquisition activity in the technology sector, Clearwater reveals that, while the number of UK transactions fell by around 22 per cent in the first half of 2009 compared to the same period the previous year, IT has remained one of the strongest sectors for corporate deals.

Price-earnings ratios for listed IT companies in the second quarter of 2009 were up by 35 per cent to around 12x compared to the low in the fourth quarter of 2008. Market intelligence suggests that the median value of a privately owned technology business is currently around six times forecast EBITDA (earnings before interest, tax, depreciation, and amortisation).

According to Clearwater, the fact that values for technology businesses are starting to improve indicates that the worst of the downturn is now over.

“Values have started to recover and are now, some would say, at a more sensible level. In the case of a high growth business and a strategic purchaser, this value could easily be surpassed,” says Clearwater technology analyst, Emma Leathley.

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