27th January 2005, The level of technology acquisitions is at an all time high, according to regent to the latest findings from Regent Associates' 'European Technology Acquisition Review' report.
European acquisitions of technology companies have finally struck back following a three year downturn, surging last year to 2,405 deals, a massive 69% increase on 2003 and still beating the "dotcom bubble year" of 2000.
With total deal value exceeding $134 billion, acquisition activity across Europe certainly appears alive and well. Whilst the market may not be experiencing the large increases in technology expenditure that were evident before 2000, vendors clearly feel confident enough about the future to instigate such robust acquisition activity.
The European Technology Acquisition Review, published by Regent Associates, is a quarterly tracker of M&A activity across 10 European technology industries and provides the only up-to-date indicator on deal flow across European sectors.
Peter Rowell, Chairman, Regent Associates said, "2004 was a very active acquisition market for technology companies. However, unlike the year 2000, the current activity is built on solid foundations with carefully thought out strategic and financial metrics. Buyers know what they are buying and sellers know why they are selling."
***2004 Trends Overview***
Return to form in deal value - 2004 saw the combined value of transactions rise strongly by 36% to $134.22 billion. Despite being somewhat short of the $764bn seen in 2000, it is up substantially from the $98.54bn of 2003
No 'super' deal - One key difference between 2004 and 2000 is the lack of the huge deal. 2000 saw 13 deals with values in excess of $10 billion (1 deal in 2004) and 56 deals between $1bn- $10bn (17 deals in 2004)
Market 'ripe' for successful exits - The increase in private companies that are up for sale is a strong indication that the market is returning to some semblance of normality. Numbers more than doubled in 2004 as management, shareholders and venture capitalists realised that the conditions for successful exits are the best they have been for over three years
Cash becomes king - Analysis of the means by which acquisitions were made indicates that many public companies consider their stock to be undervalued, which has caused cash to become the preferred acquisition resource.
Rowell commented "There is plenty of cash around at present. The top ten US technology companies currently have available cash in excess of $150bn whilst the European venture capital industry is reportedly sitting on some â¬39bn. If the market will not deliver strong organic growth then the rapidly improving cash positions of many leading suppliers will be used to fuel growth by acquisition."
UK is deal 'front-runner' - The UK is the most active market accounting for 27% of all transactions in 2004, 225 more than 2003. Other strong deal hubs were the Scandinavian region (18%), France (10%) and then Germany (9%)
Eastern Europe opens up - These 'developing' countries have become the focus of attention for many well established companies in 2004. Deal activity more than doubles compared to 2000 with 167 transactions in 2004
Content & Media and Applied Technology - Deals double: These sectors achieved the greatest growth in demand in 2004, both more than doubling in activity with 133% and 132% growth respectively. Content and Media has long been predicted as the fuel to fulfil the long-term ambitions of the Internet and with 512 deals completed in 2004, confidence is high. 2004 also saw Applied Technology mark the end of a three year slump with 183 deals completed compared to 79 in 2003 and 137 in 2000
IT Services sector - End of the down turn: 2004 saw 719 deals completed in this sector, 63% up from 2003 and only 146 less than 2000. Additionally significant transaction growth was evident in the two areas that always indicate the end of a down market - recruitment and resourcing companies. Deals were up a staggering 173% on 2003, providing clear evidence that the industry is hiring again
Software Sector - Vertical focus: The Software sector witnessed a total of 287 deals in 2004, a tremendous increase from 163 seen in 2000 and 223 in 2003. Furthermore the acquisitions of suppliers with a distinct vertical focus increased by 154% on last. This reveals that users, having undertaken the necessary replacements and upgrades in infrastructure, are starting to think about new vertical applications to improve overall efficiency and market competitiveness
***2005 and beyond***
Looking ahead, there is every indication that 2005 will be even more active than the past year. Rowell predicted:
"Acquisitions are a fundamental part of this fast moving industry and all of the ingredients are in place for a busy year - a supportive economy, buyers that are seeking growth and plenty of cash. Add to that the high number of private companies, many of them venture capital backed, that are seeking an exit, and we have a perfect balance of drivers on both sides of the acquisition equation,"