ICT M&A during COVID-19 crisis
20/07/2020
ICT M&A during Covid19 COVID-19 crisis

It seems that COVID-19 has impacted the M&A market quite heavily, which is not surprising. The overall number of transactions will drop steeply during 2020. However, the number of ICT transactions seems not to be dropping so much. The reason for that is explained later in this article.

Technology is important

One reason for interest in IT acquisitions is that the pandemic has shown how important technology is during a crisis. It has also demonstrated how quickly people can start to use technology when needed. There is no way back to the time before COVID-19. Organizations have adopted new ways of operating and may decide that there is no incentive to change back fully. Instead, saving on rent by having smaller offices may be more attractive.

The importance of domestic ICT companies has attracted the interest of many government agencies. It seems that they even want to prevent cross-border deals of critical technology. There are some signs of that, at least within the EU. This may mean sometimes that the buyers need more suitable targets on the long list than normal in order to close a transaction. It may also mean that the geographical scope should be wider.

ICT companies are maintaining valuations

On the valuation side, ICT mergers and acquisitions are again the exception. Although valuations in general are going down, ICT companies are maintaining the same valuations as before. Cross-border M&A deals are still in progress, at least in Northern Europe. The pace is a bit slower, but deals are moving. Most likely the number of deals will decrease, but as long as the companies can perform, valuations will not decrease.

The market need for shareowners to own fast-growing technology companies and acquire comprehensive technology hasn’t disappeared. By acquiring comprehensive technologies and customers, the management of tech companies can keep shareholders satisfied. For management, it is paramount to demonstrate the competency to navigate a crisis. It’s not a good to time to wait and see. Quite the opposite: it’s time to act and set your course.

An interesting opportunity for the seller

From a seller’s point of view, the market is still quite interesting because the valuations remain at a very good level. If you are not using the changing economy for growth, it may be a good option to cash out and start something new.

In the ICT industry there are certain hot areas where valuations are even expected to grow. AI, machine learning, cloud computing, big data and some others are definitely interesting areas for the near future. Still in 2020 there will be more buyers than sellers. Companies in those areas are growing fast, and market need–for example, AI in health care—is easily understandable. There are obvious needs to find new technology in a fast-growing market. Those needs will also boost M&A activities.

On the other hand, in every industry, the “old rules” of focusing on recurring revenue growth, profitability and the company’s own IP still work and make every company more valuable. So, the fundamentals from the owners’ point of view are still the same irrespective of the industry. And from a buyer’s point of view, it may be better to buy than build. Plus, many companies and PEs still have funds available. So, you can get funding for your M&A transactions. You can get a loan for M&A purposes because banks understand the importance of ICT companies in this digitalization boom. In many countries, government agencies offer assistance and funding to help local technology companies stay competitive.

Not all ICT companies are doing so well. Sometimes the owners have several other businesses to focus on. You may wonder what to do with a company or business unit that isn’t performing well and growing. There are solutions for those situations as well if you want grow shareholders’ value. We have a new consolidation model to boost your company’s value and sell it, or sell it in part so you can do a partial exit of that business. Of course, you can also consider spinning off non-core operations and acquiring more strategic business units. We can help you increase the value of your businesses.

ICT M&A strategy options

So, whatever your strategy or need is, now is the right time to talk with an advisor and consider different options to increase the value of your shares or exit the business and get a good price. There are so many possibilities in these circumstances. We can help you to evaluate the right way to move on and come out of this crisis a winner.

If you think there could be interesting options for your company but aren’t sure how that would work, we can help you there. We can also scan the market and check the needed details for making the right decision. We have developed many new methods for different kinds of value creation needs. Value creation from an owner’s point of view can also be a full exit. If you need help with new ideas or executing your ideas, let’s talk.

Let’s go through your updated COVID-19 strategy and build a plan for you to come out as a winner from the pandemic. Updating your M&A strategy together with us may open up very interesting new opportunities for you. It’s definitely not a good moment to wait and see—it’s time to rethink and see new opportunities. They may be closer than you think.

So, buying a company or selling a technology company continues to make sense in 2020. For both parties there are still plenty of options—not so many as before the pandemic, but enough good options anyway. We are happy to help you.

Jarmo Kuusivuori

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