Valuation Rethink for Technology Bankers

Financial News, November 19, 2001 | Go to article overview
Save to active project

Valuation Rethink for Technology Bankers

Byline: Janine Brewis

Technology mergers and acquisitions bankers are gradually getting some of their confidence back, even though vast swathes of their peers have been made redundant in recent months. They are doing so by adopting a back-to-basics approach.

Most technology bankers will readily admit that many of the valuation methods used in the glory days of 1999 and 2000 were misguided. Bankers refer to the "hockey-stick effect", where a company's finances look terrible now, but are projected to improve markedly once a deal is done, which shows up like a hockey stick shape on a graph.

Ben Tompkins, a managing director at Broadview, the IT, communications and media adviser, laughingly recalls the time a company attempted to value itself based on the number of engineers it had, which bore little or no relevance to its financial standing.

"Now we are going back to basics, back to earnings ratios or price to Ebitda. Before, people came up with all sorts of valuations," he says.

A recent example of a technology deal going back to basics is Scientific-Atlanta of the US agreeing to acquire Euronext-listed BarcoNet for E173m ($154.5m), which represented a 136% premium to BarcoNet's share price.

Jonathan Stankler, responsible for multimedia technology within Dresdner Kleinwort Wasserstein's European technology group, worked for BarcoNet on its takeover. He agrees that TMT deals are now being put together more wisely.

"Although the Barconet exit premium was high, the valuation metrics adopted were based on sound fundamental analysis of prospects, cost and revenue synergies and the opportunity to leverage additional business through a strong European customer base. Clearly, there is no evidence that we are seeing a return to the valuation methodologies witnessed at the height of the technology boom," Stankler said.

Ben Thorne, European head of technology at DrKW, expects to see other deals similar to the Scientific-Atlanta/BarcoNet one: "Over the next six to 12 months we are likely to see an acceleration in the number of transactions in the digital TV space.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Valuation Rethink for Technology Bankers


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?