Gambit Corporate Finance

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Software and IT Services - Favourable timing in the M&A market

11 May 2021

Our latest report considers the opportunity for SITS companies to capitalise on the latest wave of market consolidation and ensure optimal value realisation before anticipated changes to CGT are implemented - analysing the factors underpinning heightened valuations and M&A volumes in the sector.

To read the full report, click here.

Gambit’s SITS valuation index shows an appreciation in EV/EBITDA multiples of 23.2% from Q120 to 20.57x. This has been driven by demonstrable resilience to Covid-19, with many businesses outperforming pre-pandemic results and utilising investor confidence to revisit growth strategies and M&A.

Key points in focus

  • The next six months presents a significant opportunity for business owners to utilise the current Capital Gains Tax regime ahead of the Autumn Budget, when additional tax rises are expected to feature.
  • With the Conservative manifesto promise (to the extent it still applies) not to raise income tax, National Insurance or VAT, there are few options left for the Chancellor to consider to offset a proportion of the Government’s emergency COVID-19 spending.
  • The Office of Tax Simplification report reviewing the UK’s CGT regime outlined eleven recommendations, including more closely aligning CGT rates with income tax rates and reducing the annual exempt amount. The Government is likely to take heed of at least some of these recommendations, meaning that proceeds to owners from future business sales could be adversely affected if such transactions are not completed before the changes are enforced.
  • Changes to CGT are likely to realign vendors’ priorities, therefore, it is of paramount importance that business owners fully consider and analyse the effects of the potential changes with expert advisors to ensure optimal value realisation.
  • Many business owners contemplating a disposal were significantly impacted by the reduction in the lifetime limit on Business Asset Disposal Relief announced in March 2020. Any further changes announced in the Autumn 2021 Budget may be effective immediately.
  • The disproportionate attention on the SITS market from investors looking to deploy record levels of capital will spur an active M&A environment and provide an opportunity for those looking to exit at historically strong valuations.

To read the full report, click here.