Cavendish Tech Chat | A winter in AIM

Is winter here? Or is winter still coming? Love it or hate it, Guy Fawkes has been burnt, Michael Bublé is about to reappear and the rip off that is Winter Wonderland opens a week today.

While we have become battle-hardened over the last year, the inevitable upswing in the cycle remains aspirational. Our indices are bedraggled: the Cavendish Tech 40 has fallen 33% since the heady days of January 2022 (the beginning of the long decline during which Ideagen delisted at roughly 10x sales). The CavTech Next 50 has fallen 43%. AIM has not frozen, but slid, as part of the cumulative £2bn withdrawn from UK small cap funds.    

Beauty is in the eye of the beholder, however, and where equity multiples fall so far, and UK equity performance is so subpar to the US, bidders invitably pounce. Through our own investigations, we examine the characteristics and bidders of the 51 tech takeouts since 2017 (excluding Sopheon’s proposed takeout) responsible for returning £23.3bn in enterprise value to AIM stakeholders in our Joy of Techs: Looking back to look forward, available to all here. 

In our analysis, we prove (or dispel) general takeout assumptions:  

• Software gains a premium over other tech stocks– TRUE - Software target multiples diverged from non-software targets during COVID and remain at a multiple premium in 2023. Surprisingly, private equity did not necessarily pay a multiple premium for software targets compared to non-private equity backed transactions. 

• Private equity always pays a multiple premium compared with other buyers – FALSE – multiple and price premiums depend on whether the takeout was a platform, bolt-on or trade deal.  

• US bidders are all over UK AIM – FALSE – US bidders transacted on 8 of 17 takeouts during COVID (2020-2022) and on only 3 of 10 takeouts in 2023. While it is true that US-domiciled bidders paid a multiple and price premium compared to UK-domiciled bidders during COVID and transacted on smaller high growth targets, this multiple premium has not translated through to 2023. 

Despite how depressing it is to find that 11 tech companies have been taken off AIM, including Sopheon’s proposed takeout, we use data from the 10 post-COVID transactions to calculate back of the envelope prospective takeout prices Gresham Technologies, ZOO Digital, Eagle Eye, Alfa Financial, Craneware, Mirriad and iomart*. 

There remains plenty of value on the market for both investors and bidders. Inevitably markets will return and our Cavendish Equity Capital Markets tech team, the largest and most experienced on AIM, is well positioned to take advantage of it.

Therfore, the question is when, and how much of the family silver will remain on the market when winter is over…  

Happy Friday