Software & IT Services Market Review – Q1 2023

Gambit’s Software and IT Services (SITS) Q123 M&A Market Review highlights the continued attractiveness of the SITS sector, with acquirors prioritising assets that offer defendable operating margins, sustainable free cash flow levels and innovative digital solutions that enhance efficiency and competitiveness across a range of end-markets.

UK SITS M&A activity has demonstrated significant growth in Q123, with volumes increasing by 20% from Q422 to Q123 and remaining 101% above the pre-pandemic levels of Q419.

EV/EBITDA multiples have remained robust, increasing by 2.6% from 15.2x in Q422 to 15.6x in Q123, supported by returning investor sentiment given the increasingly positive growth prospects for the UK economy.

As macroeconomic uncertainty continues to unwind, with businesses reconfiguring supply chains and benefitting from softening in wholesale gas prices and the easing of cost inflation, we expect SITS valuation multiples to continue to strengthen throughout 2023.

With inflation forecast to decrease from 10.1% in March 2023 to 5% in Q423, the Bank of England will face pressure to reduce its base rate and ease financial conditions across the economy. This in turn will help increase the affordability of executing leveraged buy-outs, thus driving M&A activity as a result.

SITS business owners should leverage the current ‘window of opportunity’ whilst the tax environment remains favourable, as Capital Gains Tax rules are likely to be revised following the anticipated General Election in late summer 2024.

To read the full report, click here.

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