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2015 M&A activities in Europe for the Technology, Media and Telco sector (TMT)

According to Regent Plc, in 2015 M&E deals in Europe in the TMT sector reached a new record high with 3,530 operations announced, almost 2% on the 2014. However, the total value of deals fell by -17%, reaching US$286 billion. The number of European TMT companies making an IPO was again affected by political and economic uncertainties and fell to 80 in 2015.

In general, in the larger markets across Europe, the acquisition of technology skills and the provision of value added services is a driving consideration. Instead, the overriding consideration for channel players across Europe is either to grow to benefit from economies of scale and to maintain or to improve profit margins. Again it may be to build specialist technology or sector expertise and services, or, if neither of these two options are possible, to sell the business before it becomes too small and of no interest to anyone.

The valuation of any business depends on many factors but the primary one is usually the underlying profit of the business, i.e. the earnings before interest, tax, depreciation and amortization (EBITDA) is a frequently used measure.

In Europe, most businesses are valued in the range of 5 to 8 times EBITDA although the spread can be wider. The actual multiple within this range depends on other factors such as size, growth, customers and reputation or brand awareness.

A secondary valuation measure is the multiple of price to sales (PS) which can act as a guide to what would be a reasonable earnings multiple. For example, a 5% EBITDA margin implies a PS in the range of 0.25 to 0.4, which is typical of a low margin distributor. However, for EBITDA margins of 20%, the implied PS range would be in the region of 1 to 1.6, which is more typical of system integrators.

Unfortunately, evaluations at such multiples are not common in our country – even selective M&A is usually more cautious and, in general, the market value of an Italian company is penalized by its size and by its customers portfolio.

NEXTVALUE, founded 14 years ago, specializes in selective TMT M&A and has completed few deals in this space, also partnering with European investors. Please refer to a.gatti@nextvalue.it in case of interest.