Depressed M&A landscape brightened by rising tech and Asian valuations
Against a backdrop of declining global deal volumes and valuations in the first half of 2012, a recent resurgence in technology and Asian M&A valuations is giving global shareholders and dealmakers hope, according to research from valuation firm American Appraisal.
American Appraisal’s first Global M&A Valuation Outlook provides analysis into global M&A valuation trends based on more than 25,000 valuation data points from transactions across 28 countries.
According to the research, median EBITDA multiples for M&A valuations in the Asia Pacific region increased by 63 per cent during 2011 to 9.8x (compared to 6.0x in 2010), dipping only in the final quarter of the year. The first half of 2012 saw a rebound in average acquisition multiples with median EBITDA multiples rising back to 9.6x, up significantly from the median of 7.9x observed in Q4 2011 as corporate valuations in the region continue to rise.
Meanwhile, the survey reveals that average technology EBITDA multiples on M&A valuations nearly doubled in 2011 to 14.1x compared to 7.7x in 2010, as ongoing innovation, regional demand shifts and growth in certain segments like social media give rise to high acquisition premiums. This trend has continued during 2012 with high prices being paid for technology assets, even for those yet to generate a single dollar of revenue, such as Instagram, which was bought by Facebook in April for USD1bn.
Mike Weaver (pictured), managing director of American Appraisal in the UK, says: “In a climate of suppressed growth and heightened uncertainty, deals are under more scrutiny than ever – a trend evidenced most clearly by the number of high profile deals rejected by shareholders last year. During the first half of 2012 valuations generally suffered as a result of persistent global economic malaise, although there is considerable variation across different regions and industry sectors.
“There are positive signs in Asia for the key economies such as China where outbound deal valuations are on the up. We expect Chinese companies will continue to make more acquisitions abroad and given the current climate they will be looking for undervalued assets especially in Europe.
“We have seen the highest acquisition multiple growth in the technology space, where there is fierce competitive tension between buyers as higher levels of risk are offset by potentially large payoffs. Cloud technology has seen the strongest growth projections, whereas more mature areas such as telecommunications are seeing ongoing consolidation. Still, following last year’s antitrust blockage of the USD39bn AT&T merger with T-Mobile USA, major operators in mature markets may look to focus more on deals motivated by diversification or expansion overseas.”
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