M&A deals defy the downturn

The UK and European technology sector defied gravity in the second quarter as merger and acquisition (M&A) activity showed no signs of slowing.

According to merger advisers Regent Associates, 230 UK-based technology firms were acquired in the second quarter, up from 209 in Q1 and 200 in Q2 2007. Fewer than 20 deals were judged to have been triggered by the recent capital gains tax change.

The gloomy economic backdrop showed no sign of hampering activity across Europe either, as 779 firms based in the region sold up during the quarter. This compares with 787 firms in Q1 and 802 in Q2 2007. Deals involving IT services firms, including resellers and distributors, rose two per cent sequentially to 195.

Peter Rowell, executive director of Regent, said technology M&A levels had been insulated from the economic downturn because trade and private equity buyers still have spare cash. “It seems we are almost defying gravity in the technology industry. There are buyers out there and deals to be done,” he said.

“The technology industry is doing okay and there has been no dramatic cut-back in spending. While that remains the case these companies will have cash and will be prepared to spend it on acquisitions.”

Only mega-deals worth more than $10bn (£5.1bn) were affected by the credit crunch, he said, causing the total value of deals to nearly halve year on year to $53.6bn. But private equity interest in the sector remained solid, with private equity-backed deals making up 14 per cent of the total.

Rowell also forecast an increase in deal flow among publicly listed firms worried that their share price no longer reflects their valuation. Some 39 listed technology outfits sold up in Q2, compared with just 26 in Q1. “Quite a few are in a position where they are uncomfortable with their listing, but obviously it is a matter of convincing shareholders. The average premium is 23 per cent, but if buyers are willing to be bolder and offer a higher premium we will see an increase in deal flow,” he said.

Nick Grossman, corporate business development director at reseller 2e2, said: “There is no shortage of opportunities coming across my desk. The sense I get is that IT services companies still need to have the right skills to thrive and it is important to go and acquire these skills.”

But Grossman added that M&A activity would be limited to small and mid-sized deals, due to current constraints over debt funding.

See also:

Consolidation set to intensify in channel

The channel is braced for an intense bout of consolidation after research suggested that more than a quarter of UK resellers are on the brink of financial failure.  27 Jun 2008

Like this story? Spread the news by clicking below:

 del.icio.us     Digg this     reddit!