Technology, Communications & Media
- Internet and Digital Media
- Traditional Media and Marketing Services
The Technology, Communications & Media sectors have maintained momentum better in some sub-sectors than others over recent quarters. Generally, areas of high growth and efficiency-oriented new technology have continued to draw interest from both strategic and financial buyers, although like other industries there has been recent downward pressure on valuations. Sub-sectors such as equipment and hardware have faced greater challenges, driven by customers’ slowing or delayed demand for capital investment.
Trends we are seeing in this sector include:
- Some potential buyers have been constrained by an emphasis on cash conservation.
- Large technology companies with cash on their balance sheets are looking to acquire solid growth technology and IP.
- Earlier-stage technology companies that need to raise follow-on rounds of financing may face difficult valuation considerations.
- Buyers looking for tuck-in acquisitions that can expand product offerings to their customers or bring new customers to their platform.
- Media activity has been driven by conflicting pressures: solid growth and appetite for electronic and new media has been overshadowed by the difficulties of traditional media companies caused by the combination of high existing levels of leverage and rapidly changing dynamics in the advertising market and consumer consumption patterns.
Many sub-sectors driven by increasing technology standards, where growth due to longer-term trends will be valuable despite short-term financial impact.
The number of transactions in the Technology, Communications & Media sector has remained healthy over the past two years, and valuations have stabilized from the 2008-2009 turmoil in the capital markets and softness in the economy. Volume and valuations have remained stable into early 2012, although raising capital continues to be very challenging and expensive for earlier-stage companies.
In terms of valuations, quarterly average enterprise value / revenue multiples have ranged from 1.2x to 2.1x since the beginning of 2009, with the average revenue multiple in the sector for Q1 2012 being 1.9x. Average enterprise value / EBITDA (earnings before interest, taxes, depreciation and amortization) multiples for this same period ranged from 6.9x to 10.1x, and the average EBITDA multiple in the sector for the most recent quarter was 7.7x.
We expect the software, services and digital media sectors to continue rebounding more quickly than the hardware and traditional media markets as the economy continues to recover very slowly from recent difficulties. But in general this industry saw improving trends in 2011 over 2010 and 2009, and this positive momentum should carry forward into 2012.