Gambit Corporate Finance LLP’s Software and IT Services (SITS) Q223 M&A Market Review highlights the SITS M&A market’s resilience in Q223 and the optimistic outlook for H223.
UK SITS M&A activity during Q223 was strong as volumes were 73% above the pre-pandemic levels of Q419.
Despite a 0.75% increase in the Bank of England base rate during the quarter, multiples have remained resilient at 15.4x in Q223.
‘Buy and build’ strategies are increasingly prevalent, as cash-rich corporates acquire innovative intellectual property such as AI-related software belonging to disruptive start-ups.
As the macroeconomic outlook improves during H223, with the gradual softening of inflation and a forecast rise in GDP growth from 0.1% in Q223 to 0.4% in Q223, we expect SITS valuation multiples to improve to Q423.
With inflation forecast to decrease from 7.9% in Q223 to 5.0% in Q423, the Bank of England will face pressure to reduce its base rate and stimulate financial growth. This in turn will improve the affordability of leveraged buy-outs and drive M&A
activity.
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.
