DTE Corporate Finance Discuss the Many Challenges Faced Within the TMT Sector
25th May 2022, 3:14 pm
Due to the effect of the Covid-19 pandemic on the global economy, many Managed Service Providers (MSPs) had to rapidly adapt to the changing needs of their clients.
As the UK entered prolonged periods of lockdowns, there was an immediate shift to a workforce, now operating from their own homes, and the requirements for MSPs to support the new needs of their clients.
The monumental demand in mid-2020 for IT hardware and software, as companies adapted to the new challenges of no longer being office based, at a time when global supplies of laptops and other IT hardware were rapidly dwindling, was a major challenge for many MSPs.
The challenges caused by the pandemic, and the solutions found by many MSPs, highlighted further the importance of a strong working relationship with its client base to allow them to continue with minimal disruption. This presented the providers with new opportunities to expand their offering during these unprecedented times.
As we are now emerging from the other side of the worst effects of the pandemic, the TMT sector must continue to adapt to the ‘new normal’ and consider the following:
- Retaining client numbers and keeping churn at low levels
- Reorganising to supply a greater product offering to their client
- Carefully monitoring liquidity for any potential increases in client bad debt levels
- Being alert to any potential acquisition opportunities in the market
At DTE Corporate Finance we have worked with several MSPs who have bounced back even stronger from the pandemic. They are now in an acquisitive mood to capitalise further on their gains and to be successful, as the economy continues to adapt to a new normal hybrid way of working.
In recent months, we have seen keen interest both from trade buyers and private equity investors, eager to take advantage of a buoyant market.
Valuation multiples have always had significant range in the sector. However, companies will see EBITDA (earnings before interest, taxes, depreciation, and amortization) multiples at the higher end of the range if they are able to show the following:
- High levels of recurring revenue underpinned by long-term contracts
- High level of cross-selling opportunities
- Ability to provide high margin one-off project work
- Low client churn
- Large, increasing client base
- Robustness to Covid-19 and other macroeconomic events
There is now an increased demand for MSPs to provide a full product offering, which will also help to drive valuations.
At DTE Corporate Finance we have extensive experience in carrying out a full range of Due Diligence, Lead Advisory and Business Valuations across the TMT sector for a variety of purposes.
To discuss your business requirements, please contact us on 0161 819 1910.
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