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High multiples persist in the information technology industry

4Q 2015 Information Technology Industry Spotlight


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The headwinds of change in the information technology (IT) sector continue to blow, accelerated in part by considerable volatility in the global economic landscape. Hunting for innovation has been a catchphrase in explaining many trends in the IT space for some time—now, with China’s slowdown in growth, in particular, spooking financial markets and provoking fears of a ripple effect among other emerging economies, there is likely to be a growing emphasis on the aspects of innovation that are most sustainable and immediately additive.

In terms of M&A activity, deal flow slid only fractionally between Q2 and Q3, with 405 closed deals in Q3 worth an aggregate $32.6 billion, representing a decrease of only 1.5 percent in count and an increase in value of 23.6 percent. The median deal size in Q3 hit a 2.5-year high at $63 million, indicative of the volume of middle-market activity edging toward the upper end of the segment and also reflecting how valuations, particularly in software, have yet to see any significant shift. However, the IT industry is more resistant to the high multiples negatively impacting deal volume. Companies offering new and different technology can often demand a premium.

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