Valuing The Growth Rate in the Sale of a Technology Company

If you are selling a rapidly growing business, especially one based on technology, using an EBITDA multiple will not provide an accurate valuation metric. This article presents an argument that these businesses should more appropriately be measured like the concept of Price to Earnings to Growth (PEG) Ratio that is used for rapidly growing public companies.

In the sale of privately held businesses there seems to be no mechanism and certainly no attempt on the part of buyers to account for the selling company's growth rate. In the public market this factor is widely recognized and is accounted for with an improvement on the PE multiple, the PEG or Price Earnings Growth multiple.

 Because there is no exact translation between EBITDA multiple (the primary valuation metric for privately held companies) and Earnings Per Share and PE multiple (the primary valuation metric for publicly traded stocks), the purpose of this article is to try to calculate an adjustment factor that can be applied against the EBITDA valuation metric in order to present a more accurate accounting for differences in growth rate for the valuation of privately held companies.

Experienced business buyers are masters of setting the rules for how they calculate the value of a business they are attempting to acquire. You may think that a 5 X multiple of EBITDA or 1 X Sales would be pretty cut and dried, but in practice it is open for creative interpretation. For example, if you just had your best year ever and your EBITDA was $2 million and the market valuation was 5 X, then you would expect a $10 million offer. Not so fast. The buyer may counter with, "That last year was an anomaly and we should normalize EBITDA performance as an average of the last three years." That average turns out to be $1.5 million and like magic your purchase offer evaporates to $7.5 million. On the flip side, if you just had your worst year at $1 million EBITDA, you can bet the buyer will use that as your metric for value.

The three owners paid themselves $100,000 each in salary, but the buyer asserts that the fair market value salary for a replacement for each senior manager is really $150,000. They apply this total $150,000 EBITDA adjustment and your valuation drops by another $750,000. If the family owns the building separately and rents it to the business for an annual rent of $200,000 when the FMV rental rate is $300,000, the resulting adjustment costs the seller another $500,000 in lost value.

Another valuation trap for a seller is that they want to hire additional sales resources to pump up their sales just prior to the sale. This is almost always a bad move. Most technology sales reps take a year or longer to ramp up to productivity. In the interim, with salary and some draw or guarantee, they actually become a drain on earnings. The buyers do not care about the explanation, they just care about the numbers and will whack you with a value downgrade.

The least understood valuation trap, however, is there seems to be no mechanism and certainly no attempt on the part of buyers to account for the selling company's growth rate. In the public market this factor is widely recognized and is accounted for with an improvement on the PE multiple, the PEG or Price Earnings Growth multiple. The rule of thumb is that if the stock is valued with a PEG of less than 1 then it is a good value and if it is over 1 it is not as good.

Because there is no exact translation between EBITDA multiple (the primary valuation metric for privately held companies) and Earnings Per Share and PE multiple (the primary valuation metric for publicly traded stocks), please allow me a measure of imprecision in my analysis. My purpose is to try to calculate an adjustment factor that can be applied against the EBITDA valuation metric in order to present a more accurate accounting for differences in growth rate for the valuation of privately held companies.

I have chosen two stocks for my analysis, Google and Facebook. The reason I choose these two is that they are widely known, very successful, in the same general market niche, and are at different stages of their growth cycle. Google sells at a PE multiple of 33.37 while Facebook sells for a PE multiple of 113.71. The PEG of Google which = PE Multiple/5 year growth rate is 33.37/16.85 for a PEG of 1.98. I actually backed into the growth rate using the readily available PE multiple and the PEG from my Fidelity account.

Facebook sells at a PE multiple of 113.71 and has a PEG ratio of 3.62 (may be some irrational exuberance here), which translates into a 5 year growth rate of 31.41%. For our comparison we should also include the average PE multiple for the S&P 500 of about 15. Let's make the assumption that on average, this assumes that these companies will grow at the growth rate of the U.S. Economy, say 3%.

So to calculate a normalized PE ratio for these two companies, we are going to create an adjustment factor by dividing the 5 year compound growth rate of Google and Facebook versus the anticipated 5 year compound growth rate of the S&P 500. For Google the 16.85% growth rate over 5 years creates a factor or 2.178 or a total of 217.8% total growth over the next 5 years. The S&P factor is 1.16. So if you divide the Google factor by the S&P factor you get 1.878. If you multiple the market PE multiple of 15 by the Google factor, the result is a PE of 28.2. Not too far off from the current PE multiple of 33.37

Facebook is a little off using this method resulting in a normalized calculated PE of 50.65 versus their current rate of 113.71. This will appropriately seek a level over time and settle into a more rational range. My point here is that the public markets absolutely account for growth rates in the value of stocks in a very significant way.

Now let's try to apply this same logic to the EBITDA multiple for valuing a privately held technology company. If the rule-of-thumb multiple for your company's valuation is 5 X EBITDA but you are growing at 10% compounded, shouldn't you receive a premium for your company. Using the logic from above we assign a 3% compound growth rate as the norm in the 5 X EBITDA metric. So the 10% grower gets a factor of 1.61 versus the norm of 1.16. Dividing the target company factor by the normalized factor results in a multiple acceleration factor of 1.39. Multiply that by the Standard 5 X EBITDA multiple and you get a valuation metric of 6.95 X EBITDA.

A little sobering news, however, you will have a real challenge convincing a financial buyer or a Private Equity Group to veer to far away from their rule of thumb multiples. You will have a better chance of moving a strategic technology company buyer with this approach.  A discounted cash flow valuation technique is superior to the rule of thumb multiple approach because it accounts for this compound growth rate in earnings. If the technique produces a higher value for the seller, the buyer will keep that valuation tool in his toolbox.

Perhaps the best way to negotiate a projected high growth rate and translate that into transaction value is with a hybrid deal structure. You might agree to a cash at close valuation of 5 X EBITDA and then create an upside kicker based on hitting your growth targets.

 So for example, your EBITDA is $2 million and your standard industry metric is 5X EBITDA. You believe that your 10% growth rate (clearly above the industry average) should provide you a premium value of 6 X.  So the value differential is $10 million versus $12 million. You set a target of a 10% compounded growth in Gross Profit over the next 4 years and you calculate an earn out payment methodology that would provide an additional $2 million in transaction value if you hit the targets. It is a contingent payment based on actual post closing performance, so if you fall short of targets you fall correspondingly short on your earn out. If you exceed target you could earn more.

Successful buyers do not remain as successful buyers if they over pay for an acquisition. Therefore, the lower the price they pay, the greater their odds of chalking up a win. This is a zero sum game in that each dollar that stays in their pocket is one less dollar in your pocket. They will utilize every tool at their disposal to convince the seller that "this is market" or this is "how every industry buyer values similar companies."  It is to your advantage to help move them toward your value expectations. That is a very hard thing to accomplish unless you have other buyers and can walk away from a low offer. Believe me, if they are looking at you, they are doing the same dance with at least a couple of others. You must match their negotiation leverage by having your own options.



Dave Kauppi is a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, providing business broker and investment banking services to owners in the sale of information technology companies. To view our lists of buyers and sellers click to visit our Web Site MidMarket Capital

Buyers and Investors In Pre - Revenue Companies are an Endangered Specie

Before you dismiss my premise and label me as one who is out of step with the highly publicized social media mega deals, I am excluding them from my population. I am excluding them because they have a very important characteristic of value and that is broad customer acceptance. That acceptance was generally accomplished virally and very inexpensively. The owner of that technology will, the wisdom goes, eventually figure out a way to monetize all of those valuable users.

For purposes of this article I am limiting my population to technology based products and businesses that are aimed at the B2B marketplace. A good example might be application software. I may need a little help from Charles Darwin here with his theory of natural selection or may borrow from the saying that there are old pilots and there are bold pilots but very few old bold pilots.

Technology companies that buy other companies or professional investors that buy technology based companies generally have a first gate that all acquisitions have to pass in order to be considered as an acquisition candidate. Those targets must have real paying customers producing revenues, not necessarily profits, but that also is an often used helpful gate. 

Another gate is the level of revenues. We have small software companies approach us and say that Microsoft or Google or Apple should buy them. They have $5 million in revenue. Unless they are in the massive user base category or have a quantum leap technology, there is no chance. The corporate development people in those organizations are under instructions to only consider move the needle opportunities. It takes as much resource to complete a $300 million acquisition as it does a $5 million acquisition. Where do you think these giants are focusing their resources?

In working with entrepreneurs we see several recurring themes. They are wonderfully optimistic. With the odds of succeeding  in a start-up business not in their favor they must employ emotional blinders in order to press on. They believe their product compares very favorably on a feature/functionality basis with the leading competitive solutions on the market. Their estimate of both the TAM (total addressable market) and their eventual share of that market are highly aggressive. They under estimate the difficulty of reaching a critical mass of paying customers. And most importantly, they believe in their mission and deliver their message with the passion and commitment of a Billy Graham sermon.

We know from first-hand experience having represented several of these promising companies over the years. With this arsenal of optimism, these entrepreneurs have been pitching the corporate development departments, angel investors, venture capital funds, individual investors, friends and family, etc. You know what the buyers and investors all found out (even the super stars from Silicon Valley fail on 8 out of 10) was that they were not particularly good at picking the winners pre-revenue or pre- critical mass revenue.

Getting back to my Charles Darwin reference, the survivors evolved. They developed a characteristic that has enabled them to prosper. They no longer try to predict the winners pre-revenue. They let the market do it for them. No guru, no survey, no analytics is ever going to match the predictive power of the wisdom of crowds casting their economic vote to identify the winner. 

The second gate, the size of revenue also performs a very important function especially when it comes to information technology or emerging technology. A large company will often expend as much internal resource in integrating a new product into their organization and rolling it out to their sales channel as they originally spent for the company acquisition. Given that backdrop, they want to eliminate or reduce as much as possible, the technology risk. In other words, does the stuff work and will it stand up to the rigors of thousands of users. A product that has achieved a critical mass of users has been subjected to the quality control of paying and renewing customers with other choices. The major bugs have been worked out and the product has gone through a continual feedback loop of improvement.

The company buyers/investors survivors recognized that it was too difficult to predict the winners pre-revenue, even with the smartest guys in the room, without a natural market vetting process. The economic vote of a critical mass of customers has proven to be the best of all predictors of success. When a technology entrepreneur hits this gate with his targeted buyer and gets quickly dismissed, it doesn't mean that he has a bad product, it means that he has one more step to take before the money starts to flow. Focus your resources on generating sales.

Dave Kauppi is a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, providing business broker and investment banking services to owners in the sale of information technology companies. To view our lists of buyers and sellers click to visit our Web Site MidMarket Capital

Bridging the Valuation Gap between Business Seller and Business Buyer

Statistics show that a surprisingly low percentage of businesses for sale actually sell during their first attempt. The major reason for that is the valuation gap between the buyers and the seller. This post discusses how that gap can be breached resulting in completed business sale transactions.

In an earlier article we discussed a survey that we did with the Business Broker and the Merger and Acquisition profession. 68.9% of respondents felt that their top challenge was dealing with their seller client's valuation expectations. This is the number one reason that, as one national Investment Banking firm estimates only 10% of businesses that are for sale will actually close within 3 years of going to market. That is a 90% failure rate.

As we look to improve the performance of our practice, we looked for ways to judge the valuation expectations and reasonableness of our potential client. A Mergers and Acquisitions firm that fails to complete the sale of a client, even if they charged an up-front or monthly fees, suffers a financial loss along with their client. Those fees are not enough to cover the amount of work devoted to these projects. We determined that having clients with reasonable value expectations was a key success factor.

We explored a number of options including preparing a mock letter of intent to present to the client after analyzing his business. This mock LOI included not only transaction value, but also the amount of cash at closing, earn outs, seller notes and any other factors we felt would be components of a market buyer offer. If you can believe it, that mock LOI was generally not well received. For example, one client was a service business and had no recurring revenue contracts in place. In other words, their next year's revenues had to be sold and delivered next year. Their assets were their people and their people walked out the door every night.

Our mock LOI included a deal structure that proposed 70% of transaction value would be based on a percentage of the next four years of revenue performance as an earn out payment. Our client was adamant that this structure would be a non-starter. Fast forward 9 months and 30 buyers that had signed Confidentiality Agreements and reviewed the Memorandum withdrew from the buying process. It was only after that level of market feedback was he willing to consider the message of the market.

We decided to eliminate this approach because the effect was to put us sideways with our client early in the Mergers and Acquisitions process. The clients viewed our attempted dose of reality as not being on their side. No one likes to hear that you have an ugly baby. We found the reaction from our clients almost that pronounced.

We tried probing into our clients' rationale for their valuation expectations and we would hear such comments as, "This is how much we need in order to retire and maintain our lifestyle," or, "I heard that Acme Consulting sold for 1 X revenues," or, "We invested $3 million in developing this product, so we should get at least $4.5 million."

My unspoken reaction to these comments is that the market doesn't care what you need to retire. It doesn't care how much you invested in the product. The market does care about valuation multiples, but timing, company characteristics and circumstances are all unique and different, when our client brings us an example of IBM bought XYZ Software Company for 2 X revenues so we should get 2X revenues.

It is simply not appropriate to draw a conclusion about your value when compared to an IBM acquired company. You have revenues of $6 million and they had $300 million in revenue, were in business for 28 years, had 2,000 installed customers, were cash flowing $85 million annually and are a recognized brand name. Larger companies carry a valuation premium compared to small companies.

When I say my unspoken reaction, please refer to my success with the mock LOI discussed earlier. So now we are on to Plan C in how to deal with this valuation gap between our seller clients and the buyers that we present. Plan C turned out to be a bust also. Our clients did not respond very favorable when in response to their statement of value expectations we asked, "Are you kidding me?" or "What are you smoking?"

This issue becomes even more difficult when the business is heavily based on intellectual property such as a software or information technology firm. There is much broader interpretation by the market than for more traditional bricks and mortar firms. With the asset based businesses we can present comparables that provide us and our clients a range of possibilities. If a business is to sell outside of the usual parameters, there must be some compelling value creator like a coveted customer list, proprietary intellectual property, unusual profitability, rapid growth, significant barriers to entry, or something that is not easily duplicated.

For an information technology, computer technology, or healthcare company, comparables are helpful and are appropriate for gift and estate valuations, key man insurance, and for a starting point for a company sale. However, because the market often values these kinds of companies very generously in a competitive bid process, we recommend just that when trying to determine value in a company sale. The value is significantly impacted by the professional Mergers and Acquisitions process. In these companies where there can be broad interpretation of its value by the market it is essential to conduct the right process to unlock all of the value.

So you might be thinking, how do we handle value expectations in these technology based company situations? Now we are on to Plan D and I must admit it is a big improvement over Plan C (are you kidding)? The good news is that Plan D has the highest success rate. The bad news is that Plan D is the most difficult. We have determined that we as Mergers and Acquisitions professionals are not the right authority on our client's value, the market is.

After years of what are some of the most emotionally charged events in a business owner's life, we have determined that we must earn our credibility to fully gain his trust. If the client feels like his broker or investment banker is just trying to get him to accept the first deal so that the representative can earn his success fee, there will be no trust and probably no deal.

If the client sees his representatives bring multiple, qualified buyers to the table, present the opportunity intelligently and strategically, fight for value creation, and provide buyer feedback, that process creates credibility and trust. The client may not be totally satisfied with the value the market is communicating, but he should be totally satisfied that we have brought him the market. If we can get to that point, the likelihood of a completed transaction increases dramatically.

The client is now faced with a very difficult decision and a test of reasonableness. Can he interpret the market feedback, balance that against the potential disappointment resulting from his preconceived value expectations and complete a transaction?

Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, providing business broker and investment banking services to owners in the sale of lower middle market companies. For more information about exit planning and selling a business, click to subscribe to our free newsletter The Exit Strategist

Information Technology and Software Companies for Sale by MidMarket Capital

Client # 54476 SI
Smart Grid Middleware Software and Engineering Company
SIC Code: 7372 Prepackaged Software
Location: Midwest
2009 Revenue: $4.35 MM
2009 EBITDA: $479 K

The Company General Description

Founded in 1983, Company offers proprietary real-time communications and application integration products and services that are used worldwide primarily in the electric utility, manufacturing, and automation industries by leading OEMs, system integrators, and end-users. Company’s products and services are based on internationally-accepted standards, and reduce the development costs, technical risk, and time-to-market for its customers to adapt existing and emerging open standard-based technologies to build more robust, open, and cost-effective solutions for their mission critical products and systems.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%23%2054476%20SI%20Profile%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com

Client # 100929 A

CAD Software – Large Install Base(4,000 + sites)

SIC Code: 7372 Prepackaged Software
Location: Southeast
2009 Revenue: $3.51 MM
2009 EBITDA: $305 K

The Company General Description

Founded in 1984, Company is the world’s largest third-party provider of general-purpose software products for MicroStation. Today, Company is known for its design-time–reducing software and also as the largest third-party provider of e-learning courses for MicroStation users, with 101 full courses and growing.

Company has greatly penetrated their current available market with reliable, trusted, and cost-effective products. They have engaged our firm to conclude an acquisition by a strategic buyer that will leverage Company’s large install base and client relationships to offer the acquiring company’s products and services that appeal to the same clients.

Potential acquirers include firms with established market and sales presence in the AutoCAD market, who could distribute the CAD data warehousing product the Company is developing.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%23%20100929%20A%20Profile%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com

Client # 54273 H

Network Provisioning and Reconciliation Software Company

SIC Code: 5734-01 Computer Software
4813-02 Telecommunications Services
Location: Midwest

Projected 2010 Revenue: $1.8 MM 2010 EBITDA: $195K

The Company General Description

The Company has been delivering successful, timely, and lasting telecommunications solutions for over 18 years. The Company’s core product suite is a software platform that automates the provisioning and reconciliation of network elements, operation support systems/business support systems (OSS/BSS) and billing systems. Supporting both time time-division multiplexing (TDM) and voice over internet protocol (VoIP) technologies, the software reduces the cost of ownership for legacy and next generation networks by eliminating manual tasks associated with switch maintenance.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%2354273%20H%20Profile%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com


Client # 54644 Z

Advanced Networking Technology Development Contractor
SIC Code 7371 Computer Programming Services
Location: Northeast
Projected 2010 Revenue: $2.5 MM 2010 EBITDA: $211 K

The Company General Description

Company is a technology services company specializing in network technologies, cyber defense, adaptive systems, and service-oriented architecture (SOA) products, which are funded by research and development contracts with the Department of Defense (DoD) and other federal agencies. The Company is actively seeking strategic partnerships to enable commercialization of these technologies on a national/global scale.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%23%2054644%20Z%20Profile%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com

Client # 54582 A

Anatomic Pathology Laboratory Information Systems Company

SIC Code: 7371-03 Computer-Systems Designers & Consultants
Location: New England
2009. Rev: $918 K
2009 Recast EBITDA: $222 K
(40% growth in 08 & 09)

The Company General Description

The Company is a software developer, currently focused exclusively on the healthcare market. Their primary product is a laboratory information management system sold to anatomic pathology labs primarily in the US.

The Company’s primary customer market is small to medium sized anatomic pathology labs, which are further broken down into the following:
• Hospital labs
• Independent labs
• Physician office labs

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%2354582%20SB%20Profile%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com

Client # 54170 Y

Systems integrator and reseller of IT products to Federal Government clients
SIC Code: 7379-Computers-Networking
Location: Washington DC Area
2009. Rev: $2.712 MM
2009 Recast EBITDA: $66K

The Company General Description

The Company Founded in 1997 is a woman-owned, disabled veteran-owned computer systems integrator and reseller of products and peripherals to Federal Government clients throughout the US and overseas stations. Recently moved into HUB Zone location in a building within blocks of the future new Homeland Security Offices.

The Company prides itself on next day delivery and offering pre-sale technical support. The owner has over 20 years experience with various federal government clients and thoroughly understands how to streamline the buying process. In 2009, the Company sold over 100,000 computer products covered by 137 invoices ranging from $900 to $250,000.

This is a 13-Year old firm that has ongoing relationships with 15-20 different governmental agencies. They also have a business partnership (mentor/mentee) with a substantial master VAR that provides them with access to thousands of products and outstanding technical and sales support.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%2354170%20Y%20Profile%20and%20CA%20Final.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com

Client # 100217 WM

Web Content Distribution and Compliance Management Software Company
SIC Code: 7371-03 Computer-Systems Designers & Consultants
Location: Southeast
2009. Rev: $370 K
2009 EBITDA: $178 K

The Company General Description

The Company’s software business got its start after consulting projects developing several large scale browser-based software solutions for global not-for-profit organizations. As a result the company has developed a rich suite of SaaS tools that facilitate the management of hundreds or even thousands of Web Sites from a single installation.

Two market sectors that could immediately realize benefits from this software are financial services and franchises. In financial services, there is a critical need to have all content run through the compliance office, yet wealth management professionals and financial advisors for example, want the ability to have their own Web Page with their local identity. The current process and solutions are both inefficient and restrictive. In franchises, these tools would provide the ability to control the corporate branding and message while providing the local operators the ability to tell their story.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%23%20%23100217%20WM%20PROFILE%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com

Client # 54243 CN

IT and telephony system design and support for small and mid-sized organizations.

SIC Code: 7379-Computers-Networking
Location: the New York Tri-State Area
2009. Rev: $1.412 MM
2009 Recast EBITDA: $247K

The Company General Description

The Company offers small and mid-sized organizations state-of-the-art IT and telephony system design and support. The Company evaluates the technology objectives of clients and leverages the appropriate cross-practice capabilities to define the right solution for its organization.

The Company has developed a proven methodology to ensure on-time provisioning of internet connections for business customers. Company’s managed process has been designed to anticipate every possible difficulty associated with circuit ordering and implementation, ensuring total accuracy in communications, swift turn-around times, quality service and guaranteed functionality

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/%2354243%20CN%20Profile%20and%20CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com


Client # 90922 TT

Next Generation Wireless Electronic Monitoring Company
Hardware, Software, Firmware, Software as a Service

SIC Code 7371 Computer Programming Services
Location: Chicago Area
2009 Revenue: $500 K
2009 EBITDA: ($345) K

The Company General Description

The Company’s monitoring business got its start when they converted a generator monitoring system using wired phone connections to a wireless and Internet based system. They were approached by representatives of the billboard industry inquiring if the generator monitor could be adapted to monitor billboard lighting as well. Concurrently, the company was approached by one of its existing utility customers inquiring into the feasibility of monitoring street lights as well.

The founders recognize the market potential that could result from the broad range of monitoring applications so they invested in developing the best-in-class hardware, software, firmware, and Internet system. They also recognize that the company lacks the distribution breadth to begin to approach its market potential.

If you would like more information, please email me or cut and paste this link into your browser to print the Confidentiality Agreement

http://dl.dropbox.com/u/12507505/90922_TT_PROFILE_and_CA.pdf

Dave Kauppi 630 325-0123 davekauppi@midmarkcap.com


Dave Kauppi is a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, providing business broker and investment banking services to owners in the sale of information technology companies. To view our lists of buyers and sellers click to visit our Web Site MidMarket Capital

Survey Results - Information Technology Merger & Acquisition Trends from MidMarket Capital

We surveyed CEO’s and Directors of Mergers and Acquisitions over a broad cross section of software, Healthcare IT, IT services, and Information Technology. We were pleasantly surprised by the robust growth projections and level of optimism from these Information Technology Executives. Below are the results from this brief survey:

After a very difficult 2009, the executives surveyed were surprisingly upbeat, with 32% of respondents believing that their business will grow by more than 20% over last year. 57.7% of those surveyed are either actively seeking acquisitions or would make an acquisition if the right opportunity were available. With customer acquisition one of the greatest challenges for IT companies, not surprisingly, the most important acquisition criteria was to acquire customers at 26% of respondents. 19% would use an acquisition to enter a new market.

The top three growth categories, according to the respondents were projected to be Mobility/Smart Phone Apps, Healthcare/Electronic Medical Records, and SaaS/Web Based Apps. The hottest areas in terms of potential acquisitions were SaaS/Web Based Apps, at 22% and Healthcare/Electronic Medical Records at 20% of respondents. It sure looks like these IT executives are confident that their sector will be one of the engines to drive this economy into recovery.

To view the complete survey results visit
http://www.midmarkcap.com/Documents/survey/RESULTS_GRAPHS.pdf


Dave Kauppi is a Merger and Acquisition Advisor and Managing Director of MidMarket Capital, providing business broker and investment banking services to owners in the sale of information technology companies. For more information about exit planning and selling a business, click to visit our Web Site MidMarket Capital