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M&A Market Trends

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June 12, 2015
Mergers and Acquisitions
John Rovani

In 2014, global merger and acquisition (M&A) volume was strong.  2015 and 2016 should continue to see robust activity. This belief is driven by the current state of the economy, strong public equity markets, significant availability of capital ($1.6 trillion in cash on public company balance sheets at March 31, 2014), and competition among private equity players to deploy their enormous stash of capital.  The travel and hospitality technology M&A market remains particularly robust as the fragmented sector continues to consolidate.

Total technology M&A deal volume spiked in 2014, both in the number of deals and dollar value. The IT sector recorded 2,615 transactions in 2014, up 12 percent versus a year-ago, with fourth quarter deals alone representing 57 percent of the annual value. More than 75 percent of these deals included strategic buyers, which points towards an active M&A market, fueled by excess cash, synergistic opportunities and demand for investor return. Breaking down the activity by sector, software-as-a-service (SaaS) companies dominated the technology M&A market, recording more than 250 transactions. SaaS companies, known for high recurring revenue streams, strong operating margins and impressive growth, garnered premium valuation multiples as buyers sought to take advantage of these attractive business fundamentals.  And, of particular interest, deals in the internet sensor (IoT), security and advertising and marketing technologies spaces received increasingly premium valuations.

Global Technology M&A
Several high-profile, highly publicized sector deals have occurred over the past 18 months, including SAP’s acquisition of Concur, Oracle’s acquisition of MICROS, and Thoma Bravo’s acquisition of TravelClick. Further, the recent acquisitions by companies, such as Priceline, TripAdvisor and other B2C players, of companies outside their core markets and competencies, are evidence of the wave of consolidation in the marketplace. These deals and many others, point to an attractive time for business owners to explore strategic options, including complete liquidity events.

Public valuations across SaaS, B2B, big data and business intelligence companies serving the hospitality industry have kept or outpaced the S&P 500 and NASDAQ indices. In addition to strong equity appreciation, industry leaders, particularly those in fragmented markets, have demonstrated the willingness to offer premium prices for strategic acquisitions. This is due, in large part, to record high levels of available cash that CEOs must put to use to satisfy shareholder demands for continued returns on equity.

There are several factors to monitor that could hinder the M&A market including:
  • Slowing of global growth amid uncertain geo-political environments;
  • Continued uncertainty in the Euro Zone; and,
  • Intervention by governments in increasing interest rates, thereby potentially adversely impacting equity markets

Despite these cautionary risks, we remain bullish relating to sell-side M&A activity across travel and hospitality technology sectors. Appetite exists, capital remains available and shareholders continue to demand returns on capital invested.  The end result: This is a seller’s market.

This article is based on John Rovani’s presentation given at the annual Executive Vendor Summit in March of 2015. Ponterra Business Advisors is an independent, strategic business and mergers and acquisitions advisory firm with a unique focus on the global travel, hospitality, retail and foodservice technology and services sectors. By John Rovani is the managing partner of Ponterra Business Advisors.

©2015 Hospitality Upgrade
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