'Objective measurement' of ICT company value questioned

This type of analysis does not take into account the competency of those involved in a company, say attendees

US investment expert Ken Bender insisted he needed two hours for his NZX seminar talk — he was offered an hour and the parties settled on an hour-and-a-half with lunch in-between to give everyone a breather.

Bender, who is managing director of US-based Software Equity Group, showered attendees with a blizzard of graphs and charts, to show how companies could be valued with confidence to display their worth to potential investors.

His trust in objective measurement and ratios was evident but attracted scepticism from some attendees, who said this type of analysis did not take into account the competency of those involved in a company, their past performance or the quality of a company’s products. Bender did make some comments on these issues, but, as consultant Nitish Verma said afterwards, the distinct impression given was of two belief systems clashing.

Bender emphasised that when it comes to evaluating an ICT company’s worth it is important to look at the fortunes of the sector it serves.

US merger and acquisition activity, by dollar value, is “robust” in the software market, he said. But this needs to be seen in the context of a generally higher level of such activity over all market sectors.

Vertically-focused companies which are involved in developing applications for particular industries, such as manufacturing, health, retail and telecommunications, account for the largest (35%) proportion of merger and acquisition activity in the software market.

An analysis of the median valuation of companies acquired this year and late last year seems to indicate that messaging and conferencing companies are valued particularly highly, or perhaps that the companies acquired in this sector, during this period, just happen to be highly valued.

But market indices do show ICT stocks moving ahead of the general market, with particularly encouraging growth being seen in the internet sector.

When Bender did look beyond ratios and trends, it was to consider the effects of broad political and economic factors on the fortunes of particular economic sectors.

For example, the US health sector is likely to remain depressed because of “Hillary-phobia” — the fear that Hillary Clinton may become president, given the sector sees her health administration record as being disappointing, he said.

However, a depressed sector does make it easier to pick out the stellar performers — for example, the US’ AthenaHealth — when they’re set against an indifferent background, said Bender.

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