Close Brothers expects further technology sector M&A activity to be driven by US buyers and private equity funds
31 August 2004, London - New research from Close Brothers Corporate Finance reveals that the first half of 2004 saw a 60% increase in the number of mergers and acquisitions in the technology sector when compared to the first six months of 2003. The investment bank noted a dramatic increase in the proportion of European technology firms being taken over by North American companies as well as a continuing interest on the part of private equity funds to seek buyout and acquisition opportunities.
Close Brothers Corporate Finance believes these trends reflect a return to more aggressive corporate activity in the sector, tempered by continued fragility in public market support for technology in Europe and a paucity of natural consolidators within the region.
The most notable trend in technology M&A during the first half of 2004 was a near doubling in activity from North American acquirers who accounted for over one third of all takeovers in the European region. Close Brothers believes that, despite the relative weakness of the dollar, these companies are continuing to exploit a ratings differential that sees NASDAQ listed technology stocks trade at a significant premium to their European counterparts.
Close Brothers also believes that the fragmentation of the European technology industry presents opportunities both for North American companies seeking digestible acquisitions as a means of geographic expansion, and for financial buyers looking to participate in consolidation, often by using an existing investment as an acquisition vehicle.
Despite an upswing in the volume of deals there was no return of the "mega merger" and typical deal values were unchanged year on year. Only 13 deals in the first half of 2004 were valued at over £100 million and the average value was approx. £60m (versus £58m in 2003).
Merger and acquisition activity in the technology sector
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Total transactions
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Deals with an American bidder
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Domestic deals
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Cross-border European deals
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Deals funded by private equity
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January June 2004
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127
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35%
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43%
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18%
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18%
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January June 2003
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79
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18%
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59%
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22%
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20%
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Simon Willis, a Director at Close Brothers Corporate Finance said:
"While investor sentiment in the public markets remains fairly fragile, the gap between the value expectations of buyers and sellers has narrowed, making it easier to get deals done. Despite the brief opening of the European IPO market in 2004 with around a dozen technology companies achieving a public market listing in the first half, there have been ten companies sold for every one that goes the public market route. We expect the abundant supply of debt to finance private equity purchases and the ongoing appetite of US strategic buyers investing in Europe to continue this trend."