Impact of COVID-19 on valuation levels in the global technology, software and IT services sector

GCA Altium has published a report assessing the impact of Covid-19 on valuation levels in the global technology, software and IT-service sectors.
Please install Adobe Acrobat Reader to view PDF content in your browser.

Executive summary of the report:

Technology companies, in particular software companies, have so far preserved value with overall stable valuation multiples. However, given reduced earnings expectations, absolute 1 valuations are c. 10% lower

Main driver for lower market capitalizations and asset valuations are reduced earning expectations. However, as many companies did not yet report on their current trading nor updated their full-year guidance, the degree to which COVID-19 impacts the valuation of the global technology, software and IT services sector cannot yet be predicted

In the mid-term, we expect a further set-back of stock market valuations once more companies report on current-year trading and update their full-year guidance. In particular in comparison with the Global Financial Crisis 2007-2009, there appears to be room for further downward adjustment of valuations

Longer term, liquidity is expected to flow even more strongly into stable, crisis-proof assets, such as mission-critical software companies with a high degree of recurring revenues and strong margins. Given the scarcity of such assets, we may even see increasing valuation multiples for high-quality assets – nevertheless, we still see attractive investment opportunities within the sector

Given multi-months lead times of M&A projects, the effects on the technology M&A market remain to be seen. Currently, deal volumes are at a historic low. Assuming we do not experience a significant increase in bid-ask spreads, M&A markets are likely to rebound quickly. In particular, we expect high investor demand for high-quality assets with highly recurring revenues

Previous Next