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| Home - Software M&A Review - Mar 03 Issue |
Software M&A: Outlook for 2003
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| Deal Value |
% Of Deals |
| $500+ million |
3% |
| $100 to $500 million |
14% |
| $50 to $100 million |
12% |
| $20 to $50 million |
22% |
| $10 to $20 million |
13% |
| Under $10 million |
36% |
2003 outlook.
We anticipate M&A activity to continue at the same pace as in 2002 until the uncertainty that shrouds the world is lifted. Key leading indicators to watch in 2003 include:
Geo-Political Tensions
When geo-political issues are resolved, equity markets will rebound. This will have a positive effect on M&A activity. The primary concern is Iraq.
Public Company Earnings Outlook
As business stabilizes and becomes more predictable, we expect to see a sharp rebound in deal making activity, as there is a huge pent-up demand. The leading indicators in this trend will be public technology companies reporting growth in new license revenue, new customer wins, more sales over $1 million dollars, and raised earnings guidance.
IPO Markets
Signs of life in the IPO markets in late Q3 will show that investors’ appetite for risk has returned. Renewed IPO activity will bring renewed confidence back to venture capitalists and ultimately ease the fund raising crisis.
Credit Markets
A credit crunch is hurting M&A activity as deal financing is difficult to obtain. An indicator that the credit markets are easing would be a decrease in the credit spread between corporate and government bond yields. Watch for this easing, as these funds will help fund deal making activity.
Prepare ahead of the wave.
The companies that will benefit the most will be those that are prepared for a merger event and are on the market by the middle of the year. This is the same phenomenon we saw during the Y2K era, when pent up demand in 2000 created a frenzy of buying activity that benefited primarily those firms that were already on the market and “in play”.
Even though getting deals done in 2002 was a challenge, it was still relatively active year for M&A since markets and venture capital remained closed to most firms. The overall deal volume was similar to 1996/1997. For 2003, we are already seeing an up-tick in both the U.S. and Internationally. We are anticipating a 40% improvement in deal activity, kicking in to high gear in the last half of the year.
About the Author: Bruce Milne is the founder of Corum Group, a premier provider of M&A services to software and information technology companies worldwide, and a frequent author and lecturer on valuations and software acquisitions. He can be reached via email at: brucem@corumgroup.com.
 
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