The software and IT sectors are heading for a rise in M&A activity as private equity firms look to take advantage of falling values, according to new research.

The report, compiled by banking giant Close Brothers, highlighted that the total value of London-listed software and IT firms bought since March last year was more than £2.6 billion, which represents more than 15 per cent of the total current market capitalisation of this segment.

Close Brothers’ research revealed that one in three public-to-privates last year was backed by private equity firms, with those target companies including Calyx Group, Chelford Group and Computer Software Group.

During the past year the number of IT companies listing in London has fallen by some 10 per cent with the average price-earning ratio multiple for companies valued at less that £100 million down nine times on 2008’s forecast.

Meanwhile, listed IT companies worth more than £250 million are on average trading between 15 and 20 times this years forecast earnings.

"The low multiples we are seeing at the lower end of the sector have created opportunities for speculators and we expect further M&A activity as private equity groups and cash-rich overseas companies take advantage of depressed prices,” said Close Brothers director Paul Lewington.

The bank’s research also showed that the average takeover premium in the IT sector in the past year has been just above 50 per cent. “With chunky premiums like this, it is no surprise that management teams are turning their backs on the public markets,” Lewington added.