Technology businesses better equipped to weather downturn

February 3rd, 2009 by Chris St Cartmail

A new report from PricewaterhouseCoopers (PwC) has highlighted the comparative strength of the UK’s mid-market technology industry, in terms of mergers and acquisitions.

During the current challenging financial environment, technology companies may be better equipped to weather the storm, having learned lessons from their survival of the crisis. Increasingly flexible business models have enabled technology businesses to move more swiftly in response to changing markets across the globe and, with less exposure to high levels of leverage, the impact of the credit crunch on the sector overall has to date been less pronounced than in many other areas of the economy.

As a result of this resilience, 2008 saw the value of deals involving UK technology firms increase by 10%, with the activity accounting for a third of the 570 completed global technology transactions. One particularly notable deal was Symantec’s purchase of Messagelabs for Ł397m.
Despite the 10% increase in domestic transaction value, there were 13% fewer deals. Global aggregate deal value also fell 27% over the year, with a deterioration in the number of ‘mega-deals’ worth EUR1 billion or more.

Only ten mega-deals were completed globally in 2008, compared with 19 the year before. Therefore, mid market deals have been left to help the global economy gain strength. “Deals valued between €10m and €250m account for some 94 per cent of global volumes – a clear illustration that technology M&A remains driven by the midmarket heartbeat,” says Andy Morgan, the technology sector leader at PwC.

Asian investors are increasingly looking to Europe, as opposed to the US for their investment opportunities as off-shoring opportunities are growing faster in the UK. The struggling value of Sterling is also adding to the attraction for overseas investors, as well as speculation that the currency’s strength could recover later this year.

In conclusion, PwC’s report does not make a case for liquidity or credit avenues improving this year, but it claims that M&A activity is to strengthen regardless: “Deal conditions and liquidity are unlikely to improve materially over the next six to nine months although we do anticipate an upturn in M&A activity towards the end of 2009.”