Most WorkTech businesses had a difficult trading in the last 18 months, with business spending and hiring remaining subdued across Europe and North America. Still, the first two quarters of the year show a booming M&A market and gradual recovery in VC sentiment. We expect the latter to accelerate in the coming quarters, especially for later-stage financings as investors resume their support for the new wave of leaders in the space. Every quarter seems to be better than the previous one, and Q4 could be the strongest we will have seen in two years.
It has been more than two years since the entire technology sector first had to recon with a precipitous adjustment to sentiment and valuation levels. Public trading multiples contracted by almost 50% in early 2022, and VC funding dried up soon thereafter. WorkTech, however, has shown notable resilience. Valuation levels followed the broader market trend, but M&A activity has been booming, and VC volumes have been recovering steadily in recent quarters.
All this is testament to the robust structural trends underpinning the WorkTech sector. As the way people work changes, and as technological innovation creates opportunities to address major customer pain points, the addressable market for WorkTech vendors, from talent sourcing to workforce management to productivity and skilling, continues to grow.
Still, the reality is that valuation levels are now firmly below their highs. Even looking at public markets, very few businesses trade at above a mid single-digit revenue multiple. This will take several quarters to change. In the context of M&A, this means that shareholder returns should be underpinned by higher revenue and earnings as a counterweight to the current valuation multiple levels. And it makes it even more crucial for businesses to work with specialist M&A advisors that know the sector extremely well and can identify the most motivated buyers.
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