Technology Insights reports that 94% of all technology M&A in 2006 were between €10m and €500m, demonstrating that away from the headlines technology M&A is very much a mid-market affair.
Andy Morgan, technology sector leader at PricewaterhouseCoopers LLP corporate finance, has warned that there are challenges ahead for mid-market companies:
“Technology in Europe is primarily a mid-market affair. One of the key challenges facing executives in this strategic battleground is whether to be big or be niche. When companies reach a valuation of €100 million they become much more strategically attractive, and need to decide whether they want to really invest to drive growth – probably through acquisition - or focus on an exit strategy.
“In reality, M&A activity in the heartland of the mid-market (€100-250m deals) has been the one area of consistent growth in the technology sector over the past four years. The return of strategic trade acquirers to the market over the last 18 months has made the temptation of a healthy exit valuation almost irresistible for many shareholders.”
Key findings of the report include:
Has the technology M&A market peaked?
Despite a marked decline in the last quarter of 2006, the strategic drivers of deal activity still remain. Mega deals continue to be a feature within the technology sector with 18 €1bn-plus deals in 2006 (14 in 2005). Alcatel’s €11.1bn acquisition of Lucent Technologies topped 2005’s largest deal, the private equity-led acquisition of Sungard Data Systems by €2.4bn. PricewaterhouseCoopers expects strong M&A performance to continue at least through the first half of 2007, driven by the weight of available private equity funds, and a continued strong corporate appetite for both infill and transformational deals.
Private equity interest increases in the UK
While private equity played another strong hand globally in the technology sector in 2006, the increasingly aggressive approach of strategic trade acquirers is posing real competition to the private equity houses. The UK experience was different with the private equity market rediscovering its appetite for software and IT services – attracted by the cash generation potential of emerging business models and the buy and build opportunities. Four of the top six acquisitions of UK technology companies were leveraged deals in 2006, a stark contrast to 2005 when the UK private equity industry failed to score a single top ten deal.