The flurry of deals in the US that saw Intel launch a surprise offer for McAfee and then snap up an Infineon wireless unit, and Hewlett-Packard outbid Dell for computer storage company 3Par, is spurring hopes of a rise in deal activity across the pond.
Bankers and analysts say they are preparing for a pick-up in merger and acquisition activity in the UK technology sector as cashed-up companies look for targets.
“What the market needed was some sense of stability before deals started to materialise,” says Paul Guely, managing partner at Arma Partners.
“Given that it may take a decade for the global economy to recover, companies know that they could wait until the next bull market, or just get on with doing deals.”
The figures show a recovery in deals already this year, after a desultory market last year. For the year to date $4.5bn-worth (£2.9bn) of takeovers have been announced in the UK technology sector, according to figures from data provider Dealogic.
This is up on 2009 when just $1.7bn-worth of acquisitions were signed but still falls far short of the 2008 peak of $14bn.
In recent months, the sparks of dealmaking have seen private equity group Apax Partners agree to buy a majority stake in Sophos, an Oxfordshire-based anti-virus software maker, for £197m. The IT services group 2e2 has also completed the £70m acquisition of its rival Morse.
Last week, the Canadian broadcast equipment maker Miranda Technologies bought the UK’s OmniBus Systems, which includes major European broadcasters among its clients, from private equity firm Palamon Capital for C$48.7m (£30.6m).
However, the larger acquisitions such as NTT of Japan’s agreed all-cash deal to buy Dimension Data, which valued the UK-listed IT services group based in South Africa at £2.1bn, have been a rarity.
As the deal momentum grows at home, the expectation is that US groups which hoarded cash during the downturn, private equity firms, and perhaps European companies such as German software giant SAP, will go on the prowl in the UK.
“There’s definitely a lag between the US and Europe, but deals are beginning to come through,” says Mark Fisher, managing director in the technology and investment banking group at Jefferies International. “It’s a great time to sell, particularly given that private equity is back.”
Mr Fisher says that some US companies are looking to take advantage of the value arbitrage between the UK and the US. Others have cash trapped in Europe that they can not repatriate effectively for tax reasons, making a European acquisition a more sensible use of the capital.
Among the possible takeover targets discussed by bankers and analysts in recent weeks are Autonomy, Arm, Sage and Micro Focus, all variously believed to be attractive to either a large US or a European technology player.
The question is, are they credible targets?
Apple, for example, is often named as a possible bidder for Arm Holdings, the UK microchip designer whose chips are used in the iPhone. Other names that have been thrown into the mix as bidders for Arm include Intel, Infineon and Hewlett-Packard.
On the face of it, Arm would seem appealing to a technology heavyweight, given that 95 per cent of all mobile phones carry a chip designed by the company. The group is also growing fast in the business of non-mobile application chips.
But Arm sells its chip intellectual property under a licensing agreement to a range of technology companies, which then manufacture the chips.
Analysts point out that the purchase of the group by any one of its large customers would effectively kill the business its receives from the rivals of that customer.
“Why would a rival take the trouble of buying Arm when they get all of the chip technology far more cheaply under licence,” says one analyst.
Arm, which has not commented on any acquisition rumours, tends to focus on small bolt-on deals itself. It sees considerable growth in its core business of developing chip technology for smartphones such as the iPhone and BlackBerry.
Micro Focus, the software and consultancy provider, which appointed Mike Phillips as its new chief financial officer last week, has also been the subject of market chatter.
The group helps help clients update legacy IT platforms, rather than buy new systems, and customers have included Barclays, HSBC, Boeing and Tesco.
But analysts say that the premium that a private equity group would have to pay to secure Micro Focus would likely put it out of reach for a non-industry bidder, though IBM or SAP might see a strategic fit with the group.
Sage has been cited as another candidate to either buy or be bought. The accounting software group, which recently named Guy Berruyer as its chief executive, has maintained growth through a series of acquisitions in recent years. But it pulled out of the €600m (£497m) auction for TeamSystem in July. The Italian business management software group was eventually sold to HgCapital.
Investors are now looking for strategic changes at Sage, in response to lacklustre growth. The group is expected to update on its strategy after Mr Berruyer officially takes over from Paul Walker in October.
Perhaps the real prize in the UK technology sector is Autonomy. The UK’s largest software group, by market capitalisation, has repeatedly been named as a likely takeover candidate, with both IBM and Oracle seen as possible bidders.
Cambridge-based Autonomy has made no formal statement about any of the market rumours – on the contrary, has made it clear that it wants to be the acquirer.
The group, which last year paid $775m to buy legal software specialist Interwoven, raised £500m in a convertible bond issue in February this year, giving it a warchest of about $1bn available for acquisitions.
Mike Lynch, Autonomy’s chief executive, remains tight-lipped on possible opportunities but has signalled that a deal could be announced in the autumn.
Analysts are expecting a US acquisition of up to $2bn in October, to be announced about the time of Autonomy’s third-quarter results. They suggest that possible targets for Autonomy could include Kofax, a London-listed but Californian-based software provider with a market cap of just over £200m, or IntraLinks, which last month listed on the New York Stock Exchange, and is valued at about $640m. Either way, Autonomy’s planned acquisition remains the most likely deal on the table – for now.