According to Freshfields Bruckhaus & Deringer, up until September 2008, the UK technology, media & telecoms (TMT) sector has attracted the second strongest and most widespread M&A investment since the dotcom boom. Only 2006 had higher levels of investment but this was due to the purchase of O2 by Telephonica – a deal that was worth some £17bn. £12.6bn has already been committed by foreign acquirers across 132 deals. A recent example has been the purchase of Messagelabs by Symantec for $700m.

The £12.6bn invested up until September 2008 is over three times the amount spent on TMT companies in the whole of 2007 and much higher than any year between 2001 and 2005. This has been also helped by more realistic valuations of UK TMT companies.

Foreign investment levels in UK TMT market
2000 £47bn
2001 £5.2bn
2002 £758m
2003 £4.1bn
2004 £1.6bn
2005 £3.9bn
2006 £22.5bn (Telephonica acquires O2 for £17bn)
2007 £3.8bn
2008 £12.6bn

Back in 2000 the highest investments, in the TMT market, were made in the wireless industry which attracted £29bn. By comparison, in 2008 the highest investments were in the publishing industry with £9.9bn completed including the acquisitions of Reuters by Thomson Corp for £7.9bn and the sale of Emap to Heinrich Bauer for $1.4bn. By far the biggest nation investor into the UK TMT market is the US.

Natasha Good, TMT partner at Freshfields said “In keeping with the global picture, UK publishing companies have been hotbeds of investment this year followed by operators in the software and computer systems industry. As advertising revenue continues to migrate from print media to online, depressed valuations of publishing companies, that are cash generative, have attracted buyers whilst some players are looking for consolidation opportunities to achieve economies of scale in a changing market.

However, investment levels by UK companies seeking to complete acquisitions abroad has fallen significantly to just £628m from a high of £159bn in 2000. In 2008 the US featured as the most popular country to invest in with £260m worth of investment across 35 deals. Last year India was popular with £6.4bn worth of deals.
Global M&A in the TMT sector for 2008 has unsurprisingly fallen significantly below the levels seen in the last 2 years. This in part has been due to the difficulty in securing financing recently for the sometimes very large transactions in this sector. It is likely that only corporates with strong balance sheets will be able to expand globally through M&A activity.
One large market for technology companies has been to supply banks and regulators with sophisticated trading and compliance software. The fall in volumes of trades and general activity in the finance sector will put pressure on these businesses and may therefore depress values. In addition the development of software by small businesses requires much investment so without the support of the banks innovation may be restricted.

In conclusion, due to the continued need to innovate in the technology arena it is likely that as long as sector valuations remain realistic there will be deal flow throughout 2009. Cash-generative publishing businesses that do not rely heavily on vulnerable sectors for advertising or subscriptions will continue to be attractive. to investors.

Gordon Brown’s promise to make Britain into a strong knowledge based economy is now more important than ever if investment is to be encouraged.

It’s prediction season again; one just has to glance through any financial or business publication for lists of what’s going to be hot or cold in 2008, which shares are going to explode and where to buy or not to buy your next investment property.

As far as I can see, the only sure thing is that there will be a massive shakeout of futurologists.

But on closer inspection, if we limit our assessment to the more sober UK publications, we soon realise that not many have much confidence in the present state of the British economy.

So it was no surprise to learn of the results of a survey of 55 of the country’s leading economists by the Financial Times. Around 90% thought that the nation’s finances are in a poor condition. Over 60% thought that there will be significant falls in house prices this year.
The determining factor will be the availability of credit to banks and businesses, together with the impact of economic conditions in the Americas, Asia and Europe.

Any continued downturn in the UK economy will have a immediate impact on those businesses that have a higher reliance on debt.

Already we are seeing a rise in the number of corporate insolvencies – I predict a five year peak this year, with smaller businesses and the services sector dominating the figures.

Later this month the Business Sale Report will be releasing figures for administrative receiverships for the last quarter of 2007, and early signs are that the credit squeeze has had and will continue to have a sudden and fatal effect on many medium-to-highly geared private businesses.