Slumping in the home stretch

by Brenon Daly

After slumping to the end of Q3, tech M&A rebounded slightly in the opening month of the final quarter of 2019. Acquirers spent $28bn on 358 tech and telcom transactions announced around the world in October, according to 451 Researchs M&A KnowledgeBase. Although spending in the just-completed month doubled from September’s lowly totals, our data shows that October still came in about 30% lighter than the average monthly spending through the first three quarters of the year.

October’s low overall deal value came despite some pretty high valuations in last month’s prints. The M&A KnowledgeBase indicates that buyers paid an average of 3.6x trailing sales in the transactions they announced last month. While acknowledging there tends to be a high degree of variability in valuations in any given month, we would nonetheless note that last month’s average price-to-sales ratio is a full turn higher than the average of 2.6x paid in deals announced from January through September.

Certainly, the M&A KnowledgeBase has some pricy prints for October. That includes both of last month’s largest transactions:

In last month’s blockbuster deal, Digital Realty paid $7.3bn in equity  an eye-popping 13x trailing sales and 30x trailing EBITDA  for European rival Interxion.

Sophos got a growthy valuation of 5.5x trailing sales in its $3.8bn take-private by buyout shop Thoma Bravo.

The relatively soft October spending comes after an even softer September. (Our database shows that the total value of tech acquisitions in the two most recent months barely equals the average spending for a single month in the first half of 2019.) Taken together, the late-summer slowdown has effectively removed 2019 from the top rank of tech M&A, with full-year 2019 spending on transactions on track to drop about 20% from 2018.

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