European tech sector in M&A boom

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The European technology sector saw a record number of merger and acquisitions bids in the third quarter, outstripping even the levels seen during the peak of the tech bubble in the first quarter of 2000.

According to the latest European Technology Acquisition Review, published by Regent Associates, 820 acquisitions were announced in the three months to the end of September, beating the previous record of 781 in the first quarter of 2000.

“The recent period is the latest in an unbroken run of 10 quarters, where the number of [announced] deals has just been going up and up,” said Peter Rowell, chairman of Regent Associates.

Thanks to a number of multi-billion dollar deals, the value of deals has also increased rapidly. The combined value of announced bids in the third quarter was $71.5bn, more than double the level seen in the same period last year. This is still far off the $486bn cumulative value of deals in the first quarter of 2000, but that included Vodafone’s controversial $172bn acquisition of Mannesmann of Germany.

In contrast, the market for initial public offerings has remained sluggish, with only 64 technology IPOs in the first nine months of the year, compared with 367 in the same period in 2000.

“Acquisition activity is driven primarily by industry executives who are close to the market and can read the positive signals,” said Mr Rowell. “IPOs are driven by investors, many of whom still remember the pain of a few years ago. They need convincing this is a worthwhile investment class.”

Privately held companies were the prime acquisition targets, accounting for 68 per cent of deals. Publicly listed businesses accounted for only 3 per cent of transactions. The remaining 29 per cent of deals were sales of subsidiaries and divisions.

The largest number of deals was in content and media, which has seen a more than 50 per cent rise in transaction activity in the past year, and has for the first time taken over the top spot from computer services. Software and telecoms equipment have also seen strong increases in deal flow.

Contrary to popular perception, US companies are not the most frequent acquirers of European technology companies. They only accounted for 14 per cent of all purchases in the first nine months of the year, while UK and Irish companies accounted for 28 per cent, and Scandinavian companies 18 cent.

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