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McGladrey Sees Middle Market M&A Evolving As Technology Holds Its Ground

By Rob Starr, Content Manager

McGladrey recently released a quarterly report analyzing merger and acquisition deal flow, private equity deal flow and IPO activity within several sectors of the economy. It found, among other things, a strong first half of the year for information technology and the B2C sector, and B2B enjoying healthy deal activity despite going through a transitional period.

Milton Marcotte is Transaction Advisory Services Partner at McGladrey (soon to be RSM US). He spoke with recently about the ebb and flow around the IT sector from his office in Chicago and began our conversation by discussing the market level his firm tries to dominate.
“My theme is that the middle market M&A is evolving and changing, and I think we’re seeing a meaningful acceleration in approach and process,” he said. “Twenty years ago there wasn’t that much middle market M&A since private equity wasn’t that involved; since the economic downturn, there has been a lot more efficiency added to the mixture.”

We also talked about the fact the technology sector had a good first half of the year with 386 transactions closing in Q2, while private equity sellers completed 58 sales and five IT companies completed IPOs for a total of $533 million. There was, however, a headwind McGladrey expects

Milton Marcotte

Milton Marcotte

to last well into next year in the form of slowing demand from China. Marcotte sees any continuing problems being fueled on the macro level.
“The point here is that the overall global economy is struggling and that’s at least partially or significantly driven by China. That’s going to put an overall damper on the economy in the U.S.”
The currency exchange rates don’t help matters, according to Marcotte since they make things more expensive. Still, beyond these combined factors that have put a damper on the IT segment, the overall performance for technology M&A remains positive.
Strong Going Forward
“I expect that M&A in technology will be relatively strong going forward,” he says. He went on to say that one of the reasons for the relative stability in the market could be traced back to the recession of 2008.
“For a number of years since the downturn, it has been about performance improvement, cost reduction and seeking additional profitability since growth rates have been flat. Technology has become a very big component of that.”
Marcotte sees the partnership between innovation and technology providing more efficiency and cost savings as time goes on.
“From the organizations that I work with and the deals that I’m involved in, I see more and more technology-influenced changes to the businesses,” he said. “ As an example, we’re doing more technology M&A diligence around the transactions that we’re involved in because our buyers are more interested in what their targets’ platforms are, what their current spend is and what they’ve invested in lately.”

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