United States

Q4 2017 Information Technology Industry Spotlight

INSIGHT ARTICLE  | 

Spotlight

New revenue recognition standards contributing to change

The new standards cover a whole slew of changes, ranging from a new comprehensive model for accounting for contract modifications, to addressing both deferred and advance payment terms. Technology will be most impacted, but as David Van Wert, partner with transaction advisory services, notes: “Any industry that could potentially have deferred revenue or ambiguity in terms of services or work that is actually being provided could see material changes.”

Key findings

  • Although more resilient than other sectors, mergers and acquisitions (M&A) volume within the information technology (IT) sector finally began slowing in 2017, although aggregate deal values remained historically healthy.
  • Record-high transaction multiples for IT companies are deterring speedy closes and incentivizing greater diligence on the part of prospective acquirers, contributing to diminishing volume.
  • A significant jump in debt to EBITDA ratios enabled that rise in overall EBITDA multiples.
  • Private equity (PE) buyers are propelling overall M&A more than ever before, accounting for well over 30 percent of all IT M&A volume in the final quarter of 2017.

Looking ahead

As more financial sponsors look to make inroads into the technology sector, and tech giants boast massive cash reserves that some are looking to repatriate, investing in not only organic growth initiatives but additional acquisitional growth will continue to power the IT M&A cycle going forward. However, the heights observed during recent years are unlikely to be achieved overall, as prices have simply risen too high for many to justify. Accordingly, newer equilibria will be reached via the typical supply and demand dynamic, with the potential for outlier purchases of highly valued late-stage startups boosting aggregate M&A value in coming years.

Datagraphic available for download.


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