Technology M&A markets show recovery

Technology M&A markets show recovery

The European market for technology acquisitions staged a comeback in 2004 following a three-year downturn in activity, according to research from UK corporate finance house Regent Associates.

The total number of deals recorded last year rose to 2,405, beating the dotcom bubble year of 2000 and representing a 69% increase on 2003. The combined value of transactions rose strongly by 36% to $134.22 billion, still way short of the $764bn seen in 2000.

Peter Rowell, chairman, Regent Associates says: "Unlike the year 2000, the current activity is built on solid foundations with carefully thought out strategic and financial metrics. Buyers know what they are buying and sellers know why they are selling."

With share prices still languishing, cash has emerged as the preferred means of funding M&A transactions.

Says Rowell: "There is plenty of cash around at present. The top ten US technology companies currently have available cash in excess of $150bn whilst the European venture capital industry is reportedly sitting on some €39bn. If the market will not deliver strong organic growth then the rapidly improving cash positions of many leading suppliers will be used to fuel growth by acquisition."

The recovery appears to be spotty, however. Data collected by Cobalt Corporate Finance for technology transactions over £1m in the UK and Ireland shows a fourth consecutive fall in transaction numbers to a new low of 100 deals. Total deal values were nonetheless 27% up on 2003 at £496m as the average deal size increased substantially over the year.

The most active investors during 2004 were 3i (17 deals) and Scottish Equity Partners (10 deals), says Cobalt. Other active investors that were noted during the period include Cross Atlantic Partners, Doughty Hanson Venture Partners, Benchmark and Accel.

Paddy MccGwire, Cobalt's managing director comments: "Many VC investors are in fund raising mode themselves, which generates increased selectivity as more focus is placed on the precise composition of the portfolio and need for exits, as performance/track record will be under scrutiny."

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