Valuation Disparities in the Technology Sector

When assessing a company's value, various factors come into play, and size is one of the most important. Larger companies often enjoy advantages such as broader market reach, stronger financial stability, and easier access to capital, which can influence how they are perceived by investors. In contrast, smaller companies may offer higher growth potential but are generally seen as riskier investments. These dynamics shape the valuation multiples investors apply, reflecting the balance between opportunity and risk associated with the company’s size.

Dealsuite's bi-annual report offers a comprehensive analysis of EBITDA multiples across various sectors. Each year, it specifically highlights the differences in these multiples based on company size, showing that larger companies typically command higher valuations compared to smaller firms.

Research conducted by Aventis, a Poland-based M&A advisory firm, aligns with Dealsuite's findings on IT services valuations within the sector.

IT services companies often achieve higher valuation multiples compared to other industries, driven by the sector's steady growth and the ongoing digital transformation of businesses. The strong demand for technology solutions makes IT services firms particularly attractive acquisition targets, leading to premium prices and elevated valuation multiples in transactions.

Aventis' research, covering both small and larger companies, reported slightly higher valuation multiples compared to Dealsuite's findings. This difference is due to Dealsuite's primary focus on the lower mid-market, where valuation dynamics can vary from those of larger firms.

Aventis, specializing in growing technology companies, launched an IT Services Index earlier this year. This index tracks the global performance of IT firms, offering founders and investors a valuable benchmark to evaluate the sector's sentiment and dynamics. The Aventis IT Services index includes small, medium, and large enterprises. “We believe that in the current environment, investors may anticipate another growth cycle on the horizon, with the potential benefits of AI and cost efficiencies.” Says Filip Drazdou, Associate at Aventis. 

Get in touch with Filip Drazdou from Aventis through Dealsuite here. 
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