Friday, 26 October 2007

European Technology Acquisitions in Q3

As most readers know by now, I joined the board of the holding company of M&A specialists Regent Associates earlier this year. But I’ve worked closely with Peter Rowell and the team at Regent for many, many years. I’ve often likened selling your company to putting your children up for adoption. In which case you really have to trust both the people and the expertise of the ‘adoption agency’ you use! I guess that’s why my association with Regent has worked so well over these years and why, indeed, I choose to accept Regent’s invitation to join their Board.

Regent Q3 2007 Review of European Technology Acquisitions

I am delighted to bring HotViews readers an exclusive preview of Regent’s Q3 2007 review of European technology acquisitions. (Just click on the link above to download the pdf document)

In its Q2 review, Regent suggested that M&A activity was ‘past the peak of the plateau’ . So it came to pass with the value of Q3 transactions down from $114.2billion in Q2 to $74.7billion in Q3.

Geographically, the slide in deal flow was most notable in the three most active markets – UK, Scandinavia and North America. Conversely Germany, France and Benelux reported “steadily increasing confidence”.

By industry sector, little has changed. Content and Media still accounts for the most deals. The software consolidation that Hotviews has reported on so often lately, means that software M&A is running at three times the levels recorded in 2000. There has also been a switch away from Systems Integration and vertical solutions providers towards those old ‘bellwethers” IT consultancy, training and recruitment/resourcing. These are sectors which have done quite well recently as results followers will know. ‘Bellwethers’ portend the future. So maybe shareholders are getting out before the weather worsens?

On the other hand, divestments from larger businesses tend to occur in the darkest of days. Back in dark days of 2003 these divestments represented over 50% of deals. In Q3 2007, the proportion was just 25%.

It’s also interesting to note that private equity backed acquisitions have slipped from a high of 16% in Q2 to 13% in Q3.

Valuations have shown a downward shift (average PE now is 17.35) whereas PSR (ratio to sales revenues) has risen slightly to 1.51. This is entirely consistent with the better profits recorded by the sector of late.

The future?

Looking to the future, there are a number of factors which could affect – indeed distort – the M&A scene:

  • most observers are wary about the general economic scene but look to tech as a “safe haven in a gathering storm” .
  • a downturn in the economy could increase divestments by larger businesses
  • private equity has played a significant role in pushing up both prices and activity. Most observers believe they will have difficulty maintaining that in the near time.
  • the latest reforms to CGT could distort the market by bringing forward sales to be completed by April 08. This might increase activity but depress prices. But it is interesting to note that Regent report no evidence of this happening…yet.
  • consolidation will continue at particularly high levels in the software sector.
  • so far consolidation in the IT services sector has been quite modest. Recent activity (eg Steria/Xansa) might well herald a period of increased consolidation activity at the higher end in particular.
  • the rampant growth – almost exuberance – in everything vaguely connected with Web 2.0 will continue to provide M&A excitement .

But, rest assured, there are no indications that M&A activity will ‘fall off a cliff’ as it did post 2000.

Fuller information in the pdf document or contact Peter Rowell on

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