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M&A Market: Services to SaaS

M&A market overview

A lot of technology businesses are trying to understand what is happening in the M&A market and how this is affecting value and appetite to do deals. What we are seeing is a deep divergence in the market, a simple split down traditional fault lines of businesses with good quality of earnings – services to SaaS (software as a service), MSPs (managed service providers), retainer driven revenue model – and those that do not have this.

Most clients in the technology and media sectors that have project revenue have all suffered a marked shift to the right, and whilst this makes these businesses less attractive to acquire as earnings soften, the same is happening with buyers. This is the most common story we hear from business owners and hence there is a focus on how they can change their business model to mitigate this risk.

Compounding this is a general sense of nervousness that has crept into the M&A market. The broad tech sector remains resilient – 85% of Cowgills deals in our last financial year were technology companies – but with rising costs of borrowing, it is having a long-term effect of dampening demand.

The most marked impact is trade M&A is massively reduced – this is creating a buyer’s market for PE and, you guessed it, this means major pressure on valuations.


Optimism towards services to SaaS

So where is the optimism in all this? Pure SaaS deals and businesses with a services to SaaS strategy are getting lots of interest, and because these are so sought after and remain a rare commodity we are seeing some very punchy valuations placed on these types of businesses. In addition, there is a willingness to accept higher risk around growth, market and management to have an underpinned earnings base.

PE remain – and I believe will do for the next 6 months – the key acquirers in the market. They have lots of cash that’s looking for a good home.


Get in touch

If you would like advice or support on an SaaS deal – or of course any technology deal or otherwise – please get in touch with me at sam.davies@cowgills.co.uk, or you can contact us via our website here.

services to SaaS

The information was correct at time of publishing but may now be out of date.

Corporate Finance
Posted by Sam Davies
25th July, 2023
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