Software & IT Services M&A in the UK in Q4 2023

CFI UK (Gambit Corporate Finance) compiled a Software and IT Services (S&ITS) Q423 M&A Market Review, highlighting the S&ITS M&A market’s resilience in the face of a challenging macroeconomic environment.

Overall, transaction volumes in 2023 were 83% above the pre-pandemic levels of 2019.

As highlighted by CFI’s UK S&ITS EV/EBITDA Valuation Index in the report, S&ITS multiples increased to 16.6x in Q423, an increase of 9% on Q323.

The multiple uplift is primarily attributed to heightened optimism regarding the UK economic outlook and a subsequent increase in investor confidence. With the increase in cost of capital in 2023, there has been a noticeable shift in the allocation of private credit in the S&ITS market. Whilst there has been a decrease in the proportion of proceeds dedicated to financing leveraged buyouts, there is now a higher allocation towards funding ‘bolt-on’ M&A.

We expect S&ITS valuation multiples to improve throughout 2024 as inflation softens and interest rates reduce.

Innovative UK companies remain appealing to overseas acquirors, with an 8% increase in transactions in the UK involving US purchasers in Q423. S&ITS business owners should leverage the current ‘window of opportunity’ whilst the tax environment remains favourable, as Capital Gains Tax rules may increase following the anticipated General Election in H224.

Read more about the UK Software & IT Services market in the presentation below.