CIOs could bring much-needed caution to technology sector takeover panels, according to a senior EY M&A expert.
"When such panels were constituted in the past, typically CIOs and CTOs were not on the table. In wake of recent concerns over data security and effective merging of a target firm’s IT estate with the potential parent firm’s infrastructure, IT heads are being increasingly invited to sit in on takeover talks," Simon Pearson, EY's technology sector M&A partner, told CIO UK.
However, he added that the extent of their involvement was often "circumstantial and not a given."
"If the acquisition target is a software business, the CTO will be a crucial member of the acquisition panel. If the target involves a large scale merger of the IT estate of the bidder and target – the CIO would be part of the deliberations. The nature of the times we live in has started dictating this," Pearson said.
The UK technology M&A market itself has turned a corner, the EY partner added. "Valuations for technology firms with a unique selling proposition (USP) are much healthier than last year. So looking ahead to 2014, we see an uptick in technology sector M&A of around 20 to 25 percent in year-over-year terms."
"Taking a more global viewpoint in tandem with a mixed bag of anecdotal and empirical evidence and research conducted by the likes of Mergermarket, I’d say around 400 USP firms are around carrying US$1 billion worth of dry powder. The figure sums up the potential for 2014."
Furthermore, in the brutal ideas driven technology world, the "hunters" could morph into the "hunted" in no time, Pearson opined. "I'd not like to name names, but legacy companies who have not focussed on their cost base could become the fallen stars of tomorrow – that’s the competitive nature of the business for you."
M&A agenda of technology firms and to a certain extent that of telcos, was being driven by corporates within both sectors looking to supplement their organic growth with acquisitions. "To this mix, add the Private Equity guys who come to the table with a different psyche. The technology assets PE firms seek tend to be smaller players with predictable growth patterns, which they can ultimately repackage and sell on few years down the line."
Atop Pearson’s thoughts on the state of affairs in the UK, a recent EY study also found global technology M&A enthusiasts in bullish mood. As part of its ninth bi-annual Capital Confidence Barometer series, EY noted that 33 percent of the 181 senior technology sector executives polled for the survey were in a mood to pursue an acquisition, compared with 20 percent a year ago.
Pearson said the notable increase in sentiment was indicative of an improvement in the number and quality of opportunities available in the sector. "One thing is certain; there is plenty of competitive bidding on the cards. Tangible, bankable technology sector assets will get scarce as activity picks up in line with market consensus," he concluded.