21 November 2002 Technology companies are being valued higher by their peers than by stock market investors for the first time in more than a decade, according to new research by Regent Associates, the high-tech mergers and acquisitions (M&A) adviser.
Regent claimed this week that market values of UK high-tech companies fell below acquisition values, as judged by price-to-earnings ratios, in the first half of 2002.
“I have not seen this for at least 10 years,” Peter Rowell, Regent’s executive chairman, told hundreds of delegates at the Infoconomist Technology Business Forum in Reading, UK. “Stock market valuations are low – too low. But I’d still rather be in this industry than any other.”
Rowell said the unusual set of circumstances point to possible two trends: that the stock market is grossly under-estimating the true value of technology companies; and that the much sought-after ‘bottom’ of the high-tech downturn may soon be hit.
Acquisition valuations are a more reliable indicator of a company’s value, he said, because high-tech executives are better at judging the prospects of their peers than the financial community, which is often guided by sentiment and short-term factors.
Investors had not always used the classic indicators of profit and loss, recurring revenue, cash flow, brand image and management team, he said – and that was as true in the bubble period as today.
The Regent research found that there were about 800 high-tech acquisitions in Europe in the first half of 2002. M&A activity in the sector peaked at 2,386 in 2000, falling to 2,017 in 2001.
The wide-ranging study also confirmed that flotation activity in Europe collapsed in 2001, falling from a high of 443 initial public offerings in 2000 to just 75 the following year.