The Indiana technology sector is in the midst of a red-hot merger and acquisition cycle, so strong that the number of first-quarter contracts in 2021 is already a total of 2020 and 2019 – and a healthy difference.
According to Accelerated Technological, Individual and Non-Profit Technology Acceleration, 44 technology-related M&A agreements were announced or finalized on September 30 – and only 19 of those agreements were in the third quarter.
By comparison, Indiana and technology companies are fully involved in 33 types of agreements by 2020.
“The market is hot,” said Tim Copp, CEO of Terminus Software Inc. Marketing Marketing. I have never seen anything like it. There are no signs that it is declining. This is certainly unprecedented.
Terminus was founded in Atlanta in 2014 and found Indianapolis in December 2019 when it took over Sigstr. Today, about a quarter of Terminus 300-plus employees are in the company’s Indianapolis office.
Terminus has made three purchases in the last 18 months. Later that summer, Terminus acquired a Boston-based marketing software company, Zylotech.
One of the main reasons for this growth is that big investors have a lot of money and are looking for a place to work.
Cope says: “Right now, there is a lot of money around. “This is a meta factor that drives this.”
In fact, this is leading not only to technology but also to integration and access in all areas of Indiana.
According to analysts Refinitive, US-based target companies have reached $ 2 trillion in the first nine months of this year, the strongest in the nine months of US trade.
Shaw Storms, a recognized public accountant, and Indianapolis-based Agista Storms and Olivier PC partner, said their company does not do much in the technology sector – but has been busy consulting clients on M&A deals since this summer. .
Traditionally, he said, his company could enter into three or four deals at any time. But that amount has tripled to 10 offers at a time. “We’ve seen a lot of activity over the last several months,” he said.
Tax changes are key.
The possibility of tax changes is driving the M&A movement as a whole.
CPA Jarit Loughmiller, director of Carmel-based accounting firm Blue and Company and a senior lecturer at the company’s co-investment bank, a 2,800-capital consultant, said many companies are trying to reach agreements this year to advance possible changes to the federal tax. Law.
“We don’t know for sure what these changes will look like,” Loumler said, but it is widely expected that the tax on capital gains will increase.
If this happens, people who make a profit from the sale of the business will pay extra tax on that profit, he said.
But there are also special reasons for the growth of the tech-sector.
One obvious reason is that the outbreak has accelerated the trend toward digitalisation and online activities, which is good news for software companies.
“Most of us have been affected by this epidemic,” said Connor Bert, president of Lessonly at Seismic. Indianapolis-based education, sales training and training software and services, acquired an unspecified San Diego-based seismic in August.
Advances in the use of digital products have made software companies more attractive to investors, while at the same time the outbreak has made sectors such as travel and retail more attractive, Burt said.
As an investor, he said, “You go where you are naturally fast – and technology has been very active over the last two years.”
Michael Burton, chief executive of Indianapolis-based marketing software company Lev Digital, sees the epidemic as a reason for the growth of M&A.
Levy acquired a new jersey based in New Jersey early last year. Lev In late 2019, he began looking for investors or buyers, Burton said, and at that time saw a healthy M&A market. After a brief hiatus at the beginning of the epidemic, he said he was recovering.
“There is no doubt that the epidemic is accelerating what is happening in 2019,” he said. “It’s a little crazy how much activity is going on.”
High price tags
An increase in prices means an increase in sales prices.
As a rule, purchase prices are based on a specific annual income of the company.
18 months ago, Cop said, a typical assessment for a technology company would be 10 to 12 times the revenue. Now, he says, the number is close to 20.
Indianapolice attorney Jim Birj, partner of Faegre Drinker Biddle and Reath LLP, also added non-tech company reviews. A company that was previously estimated at seven or eight times may now be in the range of 10 to 12.
Tech companies are typically valued more than non-tech companies, Birge said. But with the increase in assessments in all sectors, some investors – especially private equity firms – are becoming more open to investment in the technology sector that they may have previously avoided.
“In the past, personal justice was the only way to stay away from technology,” he said. “I think personal justice is more convenient to get into technology than before, because the price of everything has increased.”
Interest is helping to drive M&A growth.
The epidemic delayed some agreements last year, and now, he said, “mainly two-year agreements are being finalized by 2021.”
Another epidemic related to the Covenant-19 remote sensing trend is that the beaches have lost their dominance as a technology hub, which means buyers can take a closer look at Indianapolis technology companies.
“In the distant first world, geography would be less than ideal to establish and explore. [acquisition] Linden Brown, a senior strategist at the Indianapolis-based cybersecurity firm Pondurans, is based in Washington, DC. “More and more investors are investing in research-related areas.”
New York-based Newlight Partners acquired a majority stake in Pondrans in September 2020. Bond Security, founded by Pondurans Austin, Texas, acquired last June and is actively looking for more targets.
It is a matter of maturity.
Another reason that Indianapolis may be gaining momentum is that the technology market has matured over the years, according to Terminus’ Kopp. He says a small company with one or two employees may not be worth it. But once that company grows, it can become a target.
The Indianapolis technology sector has enough companies to attract attention, Cop said. “The overall health and vitality of the ecosystem has never been stronger.”
Burt provided a similar analysis. He said a company with a recurring revenue of $ 10 million to $ 20 million a year could attract the attention of many investors.
Gary Hinchell, a private investor who specializes in Indianapolis-based investment group September Group LLC strategy and M&A activity, recognizes that the increase in artificial intelligence may be the catalyst for some recent technology acquisitions.
A.D. In February 2020, the group announced the launch of local technology companies Word Systems Inc. And acquired iRecord LLC, now operating as Word Systems. Indianapolis-based Word Systems August continues to acquire Las Vegas-based Everton Technologies Inc.
Artificial intelligence can help users speed up their workflow or become more efficient. For example, Word Systems has developed an AI-driven tool that allows police departments to modify confidential information on faces, board numbers, and other police videos. You can also search for audio recordings for keywords or phrases. Using the technology, Henschel said officers can spend more time in police work and administration.
“If you can help [customers] Save time and money, this is what it sells. ”
And as the use of AI becomes more common, field-based technology companies may become more attractive purchasing targets, Henteshel said. “Many different companies and investors want to be involved in this.”
Booms will not last forever, and observers say various factors will slow down the M&A market.
If new tax laws come into force, sellers will not try to win the last time. And sometimes, the market works in the background of the epidemic. High demand, accelerating inflation or a declining economy can slow down M&A growth.
But no one can predict when that will happen.
“I don’t know, and I’m not sure anyone knows,” said Lessonly’s Burt. “I was amazed at how long it lasted – and if you forced me to bet, they would stay for a while.”