Private equity poised to pounce on IT firms

Published on Monday 12 April 2010 22:19

PRIVATE equity investors are set to pounce on small Scottish IT firms this year as the continuing shortage of bank finance takes its toll on the sector.

Some 85 per cent of firms that invest in the IT sector have predicted they will make acquisitions in the next 12 months, according to a survey published yesterday by accountancy firm Grant Thorton.

Investment opportunities have been created because many IT companies are facing a "liquidity crunch" and have found banks less willing to lend at acceptable terms, the firm said.

During 2009, the firm said there were 21 mergers and acquisitions in the UK's IT sector involving private equity cash, with a total value of about 650 million.

Neil McInnes, Grant Thornton's head of technology in Scotland, said: "

Despite the travails of the economy, most IT businesses have continued to perform robustly but smaller IT firms are finding securing finance more difficult and could be ripe for acquisition."

Polly Purvis, executive director of trade body ScotlandIS, said: "This reinforces the findings of our annual survey of the industry, which highlights continuing growth across the ICT sector.

"Financing M&A activity is a challenge but, for those financiers with available funds, the tech sector is providing some interesting opportunities."

The survey found 89 per cent of private equity houses identified "cloud computing" and software as a service (Saas) as the most attractive investments.

Cloud computing and Saas involve users accessing software kept on remote servers via the internet, rather than having programmes installed on their individual computers.

Tony Lucas, founder of Livingston-based Flexiant, which has cloud pioneered infrastructure software, said: "Saas and cloud computing have really come into their own since the recession and I believe that demand will continue to grow.

"During periods where liquidity is squeezed, Saas and cloud computing can help to ease the strain on companies as there is no long-term commitment and it eliminates capital expenditure."

Donald McLaughlin, director of Cisco Scotland, added: "It's encouraging to see that Scottish technology firms will attract significant investment.

"We need to ensure that small IT firms have the financial support they need to embrace this growth opportunity and show that Scotland's appetite for innovation is as strong as ever."