The study warns that a combination of stock piling cash, difficult growth, low interest rates and ageing directors has left these 152 companies ripe for acquisition as the sector consolidates, evolves and starts to prosper again.
David Pattison, senior analyst on project, said: “On one hand, 218 cash rich companies have been stockpiling cash and their problem is that the built up cash could give them a real headache. Low interest rates mean this cash will be sitting idle on the balance sheet and not generating a return. It really needs to be put to good use and an acquisition seems an obvious option.”
Some simple findings from the Plimsoll Analysis found that:
Almost 14 % of directors will be over 60 by the end of the year, 218 companies have over £5 million of cash on their balance sheet, 490 firms are still operating as independents, 47 % of organisations did not increase in sales, One in 4 companies are running at a loss and 278 of the 1000 businesses analysed have seen their debts increase.
Pattison continued: “Then on other hand, 152 businesses in the telecommunications services market are showing classic acquisition criteria. They are all declining in financial strength, many have an aging board and are still privately owned. These companies will need the support of their current owners or investment to ensure they have a future and many have acquisition potential. Given the circumstances, it’s quite possible that perhaps some of the directors will be looking to retire or even consider a sale.”
Leading ICT deal makers Knight CF concur with much of what Plimsoll state, but also note that this has always been the case: "The ICT sector is highly fragmented and entrepreneurial which has led to a consistent level of M&A activity over the last decade. This activity has increased as new institutional investors have entered the market. Whilst we don't necessarily see a 'Perfect Storm' brewing, potential changes to capital gains tax could see a stepped increase in vendors looking to exit."