Gambit’s Software and IT Services (SITS) Q4 Market Review highlights the continued attractiveness of the SITS sector to both financial and strategic acquirors as a resilient and robust investment during recent geopolitical and macroeconomic volatility.
As markets stabilise, acquirors’ focus continues to be on assets with defendable operating margins, sustainable free cash flow levels and, most importantly, evidence of withstanding and successfully navigating volatile market conditions.
Despite challenging macroeconomic conditions and geopolitical tensions, UK SITS M&A activity has demonstrated resilience, with volumes increasing by 5% from Q322 to Q422 and remaining 67% above the pre-pandemic levels of Q419.
Digital transformation, portfolio optimisation and accelerated innovation cycles remained key drivers underpinning UK SITS M&A activity in Q422. However, acquirors’ approach to transactions has altered, placing emphasis on prudent due-diligence exercises due to a decreased risk appetite in light of turbulent market conditions.
As inflation, base rates and the cost of capital recedes, we forecast UK SITS M&A activity to steadily increase throughout 2023.
Continued strength in major global currencies relative to Sterling makes UK SITS assets an attractive investment proposition for international acquirors as they perceive UK assets to be priced at a relative discount.
With anticipation of a General Election and subsequent rise in the UK Capital Gains Tax rate in 2024, SITS business owners should consider their options whilst the current tax environment remains favourable and acquiror appetite remains high.
To read the full report, click here.
