European tech M&A soars, says research

2005 saw M&A deal value soar to $272.1bn, compared to just $134.22bn in 2004. Deal quantity also saw a healthy 27% increase from the previous year with 3,053 deals completed compared to 2,405 in 2004.

The European Technology Acquisition Review, published by Regent Associates, is a quarterly tracker of M&A activity across ten European technology industries and provides the only up-to-date indicator on dealflow across European sectors. Quarter on quarter analysis highlights further good news for the European technology investment sector. The final quarter of 2005 witnessed the 11th straight quarterly increase in the number of acquisitions amongst European technology companies and it represents the highest level of deal activity recorded in the 15 year history of the report.

Commenting on these findings, Peter Rowell, chairman, Regent Associates said, 'Whilst at 3,053, the number of deals is well up on the levels experienced in the year 2000 bubble, the combined value at $272bn is just one third of that achieved in 2000. We are seeing a very high level of transactions most of which are based on sensible commercial reality and structured on solid financial parameters. The current wave of transactions is being based on market fundamentals and not technology hype - which was the case in 2000'.

High-tech industry sectors such as systems integrators, product resellers, desktop services and fixed line telecommunication services are showing clear signs of heavy consolidation. The venture capital and private equity industry has again played an important role in the past year in driving activity. Technology investment organisations accounted for 13% of all acquisitions, and in many cases are acting as a lead regarding valuation levels. The number of exits by the investment community however was just 202 or 6.6% of the total of 3,053 deals

Valuations have tended to mirror those seen on many of the public stock markets. Price to sales ratios increased by 17% over the year whereas price to earnings ratios declined by 6%. The reason for the shift is primarily the improved earnings levels within the industry so that whilst headline valuations have been increasing quite steadily they have not quite kept pace with the improved levels of earnings. The median transaction size across the industry was $13.3m or £7.5m.

The UK continues to be the most active country with 744 UK technology companies being acquired in the year. UK companies accounted for 829 acquisitions as buyers. There were important increases in acquisition activity by German companies, up 59% on the year, as the country catches up having emerged more slowly from the recent economic downturn. Eastern Europe saw the number of transactions increase by 71% on 2004. The main catalyst for this appears to be fuelled by the telecommunications sector, where the Eastern and Central European region is the most active on the continent. Acquisitions by US companies increased by a sluggish 5% in the year and from a buy side perspective accounted for just 11% of all transactions

IT services was again the most active sector with 874 transactions in the year up 22% on 2004. However, its number one status is rapidly being approached by the content and media, which recorded 766 deals in the year up 50% on the previous year. Whilst software began the year showing strong acquisition growth it somewhat tailed off towards the end recording just 19% growth on the year overall.

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