Regent Associates Ltd’s yearly look at the market shows the total value of acquisitions in the UK information technology sector up 95% at UKP3,860m. The last quarter of 1993 was the busiest the Richmond, Surrey research company has ever seen. Though a few big transactions in the communications sector pushed the total skyward, the buyers were really out in force in the software and services sector. Here total acquisitions reached UKP1,825m, up 74% from 1992. Part of this gain can be attributed to the buyers’ willingness to pay more for their prey. The ratio between purchase price and earnings reached a four-year high – 16, compared with 13 in 1992. Though this 23% increase neatly matches the average growth in the stock market, Peter Rowell, the research company’s managing director suggests that the causes are quite different.
Fluctuated
Where the cost of acquisitions generally, have fluctuated over the years, the price growth in software acquisitions has been steady, and reflect, more accurately, the longer term strategic value of target companies to their buyers rather than the short term performance assessment on the part of the City, he says. Software value added resellers were the most popular focus of attention with 42 being snapped-up: the goal of most acquisitions is to increase the customer base, and the reseller’s often close relationship with its customers make for an attractive choice. Overall Rowell believes that the flurry of interest at the end of the year was encouraged by improved financial fortunes at some traditional buyers who, as a result, have restarted their strategic development programmes. Other popular targets were organisations that apply technologies to specific industries, such as avionics, security or instrumentation. A the dip in valuations in the communications sector is all the more surprising, given the price increases in other areas, and the fact that communications appeared to be last year’s trendy purchase. Price-earnings E valuations were a mere 15 in 1993, against 24 the year before. And the figures are skewed by some big deals from US communications giants, doing a rethink and selling off businesses acquired in the last four of five years – and the raw figures suggest that they sold them rather cheaply. The biggest of these was Alcatel NV’s acquisition of STC Submarine Systems from Northern Telecom Ltd for UKP600m and Cox Cable’s UKP200m acquisition Southwestern Bell Corp’s UK cable operations. Reuters Holdings Plc was the biggest buyer in the information supply sector with a total of eight acquisitions. The only company to beat Reuters was the small Edinburgh oil company Pittencrieff Plc, whose US arm, as reported in Computergram thoughout last year, went shopping for a total of nine US specialised mobile radio operators.
