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Rational expectations (mostly) continue driving info tech M&A values upward.

Aug 26, 2016

Rational expectations (mostly) continue driving info tech M&A values upward.

Fintech, Healthcare IT, Market Update, Uncategorized , , , , , 0 Comments

The US equity markets are now officially in the midst of the second longest continuous rise ever – and they just keep on ticking.

It’s been more than 2,700 calendar days since the 2009 bottom – without a 20% pull back.

Can it continue? Can we surpass the to 3,452 day bull market that ended with the tech market crash in 2000? Maybe we can – at least in the dozen+ sectors of the information-technology industry that we follow and sometimes lead.

Every week, we talk to the CEOs, Board members, investors and others connected with a wide range of information-technology companies of all sizes, from startups to mega-billion dollar multi-national behemoths – and the funny thing is – most are totally pragmatic.

Their businesses may not all be growing at huge rates. But most are solidly growing – and profitable.

It’s not 1999, when many savvy investors and owners recognized that the transaction values of many tech-related companies could not be justified by expected future cash flows.

Then, it was all about limited supply and irrational demand.  But now, most buyers and sellers are coming to agree on values that are rationally based.

Yes, there are always those high profile irrational Unicorn values (Theranos?) and a few the over-the top transaction values – often paid by firms that can well afford the risk ($26 billion for LinkedIn? $3.2 billion for Jet.com? Really?) But they are the exceptions.

Verizon’s $4.8 billion price for Yahoo! is a better example; it’s a rational price for a perfect strategic fit.

As you will see from our report, found here, top line growth, increasing profit and strong market positions are driving rational values in the information technology sector.

And so far it shows no sign of abating. We’re keeping a sharp eye on it. Details on sector performance as well as on some of the more notable recent transactions can be found here, in our August 2016 Market Update Report.

A few of those transactions include:

  • Verizon (NYSE:VZ) agreed to acquire Yahoo (NASDAG:YHOO) for $4.83bn,
  • Onex Corporation (TSX:OCX) and Baring Private Equity Asia agreed to acquire Thomson Reuters’ Intellectual Property & Science business for $3.55bn,
  • BM&FBovespa (BOVESPA:BVMF3) acquired a 10% stake in Bolsa de Valores de Colombia for MXN 39.8bn (~$2.1bn),
  • AVG Technologies N.V. (NYSE:AVG) agreed to acquire AVAST for $1.5bn,
  • MasterCard (NYSE:MA) agreed to acquire 92.4% of VocaLink for approximately $920mm (700 mm GBP),
  • Thoma Bravo agreed to acquire Imprivata for approximately $544mm,
  • Blackboard Inc. (Washington, D.C.) agreed to acquire Higher One Holdings for $260mm,
  • Nuance Communications (NasdaqGS:NUAN) agreed to acquire TouchCommerce for an implied enterprise value of $215mm,
  • Evolent Health (NYSE:EVH) agreed to acquire Valence Health for approximately $145mm, and
  • Oracle (NYSE:ORCL) agreed to acquire NetSuite (NYSE:N) at a 19.0% premium to the prior day’s trading price. The transaction valued NetSuite at an implied enterprise value of $8.7bn or 10.3x LTM revenue

Click here to read more.

P.S. The publication date on my book, The Marine Corps Way to Win on Wall Street  is fast approaching.  More info on it is HERE.

 

Ken Marlin

Ken Marlin

Ken Marlin is Managing Partner and Founder of Marlin & Associates and the author of "The Marine Corps Way to Win on Wall Street: 11 Key Principles from Battlefield to Boardroom" (St. Martin's Press 2016).

Over the course of more than 30 years Ken has advised scores of U.S. and international middle-market technology enabled firms on the best ways to buy, sell, grow and thrive. Along the way, he's been an entrepreneur (three times), a tech company CEO (twice), a senior corporate executive (twice) and an investment banker.

Seventeen years ago, Ken embarked on a journey to create a different sort of investment bank - one that would meld the investment banking skills he learned over 20 years on Wall Street with lessons he learned as a tech entrepreneur and the principles he learned during the decade he spent on active duty as a U.S. Marine Corps infantry officer. Today, Marlin & Associates is one of the most active M&A advisers in the information technology arena.

Institutional Investor Magazine has five times named Ken as one of II’s “Tech 50” and the II “FinTech 35” - both of which honor the most influential figures in the financial technology data and analytics sector.

Outside the office, Ken is a trustee of the Madison Square Boys and Girls Club, which serves underprivileged kids throughout the five counties of New York City; and an active supporter of the Phoenix House Foundation, The Wall Street Warriors Foundation, The Marine Corps Heritage Foundation, University of the People, the Hurricane Island Outward Bound School, and Outward Bound Peacekeeping.

Ken’s book has garnered strong reviews and is consistently ranked among the top in governance, finance and leadership. One reviewer called it a compelling vision to improve Wall Street by returning to solid core values like taking the long view, behaving with honor, delivering excellence and working for a cause greater than money.

Ken earned a BA from the University of California (Irvine), an MBA from UCLA, and a post-MBA Advanced Professional Certificate in Corporate Strategy from New York University. He lives in New York City with his wife, daughter, a dog, a cat and turtle.

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