Tech, IT and software valuations remain stable – survey

Harriet Matthews
01 May 2020

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According to a survey published by GCA Altium, technology, software and IT companies have generally preserved their value in the midst of the coronavirus crisis, although absolute valuations have fallen by around 10%.

This fall is due to reduced earnings expectations, GCA said in the report. Nevertheless, the survey notes that the impact of the crisis is not yet fully accounted for as many companies have not yet reported on their current trading or have suspended these reports.

Valuations for software companies have remained particularly positive, whereas hardware-focused companies have suffered in the wake of lockdown measures, the study found. IT services have seen the most significant decline in valuation, largely based on the fact that most are project-based. However, GCA expects valuations to return to pre-crisis levels, since many digitalisation projects are business critical.

The survey also tracked the share price development of technology indices and their key peer groups. It noted that vertical software in the areas of healthcare, financial services and in particular travel saw a downturn in performance of 3%, 14% and 41% respectively. Horizontal payment software improved by 21% and cloud infrastructure by 12%.

Based on the study of 103 publicly listed technology and software companies, overall 41% had made no adjustment of their outlook or only a moderate adjustment. Within the more affected sectors of hardware and IT services, however, 21% and 33% respectively of the companies surveyed have suspended their outlook.

The survey also noted a number of corresponding trends in EV/EBITDA multiples within the sector. It noted that "a strong decline in earnings forecasts for the travel sector and a corresponding moderate drop in share prices" have driven up valuations from 12.2x in December to 21.1x at the end of April.

The technology sector is expected to become even more attractive than before as buyers look to stable non-cyclical assets, the report added. GCA expects to see high demand for such companies once the M&A market recovers, the report said.