PricewaterhouseCoopers research found that the value of UK technology transactions actually increased by almost 10% in 2008 despite the economic situation.
What’s more, UK-inspired deals formed one third of all worldwide transactions. Not all geographies faired quite so well: global volumes decreased by one fifth to 570 completions, down from what the researchers called a “post bubble peak” of 713 in 2007…[click continue reading for more]…
But despite the value increase, deal activity still fell during 2008 with 162 deals (with a UK bidder or target) worth a combined €17.7bn completed, compared with 184 totalling €15.7bn in 2007 — a drop of around 13%.
“Values dropped off more steeply globally as the challenging financing environment and the resultant collapse in the €1 billion-plus “mega-deal” market saw the aggregate value of technology deals down by 27 per cent to €92.7 billion in 2008,” said the researchers.
“The technology sector has held up better than many other industries,” said Andy Morgan, technology sector leader, corporate finance, PricewaterhouseCoopers. “The harsh lessons learned from the bursting of the technology bubble in 2001/02 have left the industry better placed to deal with today’s challenges.”
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, the firm said.
“But the big question is – has the technology deal environment developed some truly defensive attributes, or will the inevitable impact of the downturn on corporate IT budgets hit home in 2009?” asked Morgan.
But the affects of the economy on transactions is only too clear when comparing deals done across each of the four quarters of 2008. One third of deals in terms of volume and value were completed between January and March. The final quarter of the year saw the lowest volume of deal completions in the sector since the depths of the post bubble market in 2002, PwC said.
The same trend was to be found when looking at UK deals in isolation.
PwC also said that mid-market acquisitions far outstripped mega-deals. Only 10 ‘mega-deals’ were completed globally compared with 19 in 2007. But mid-market deals were not so very far off their 2005 and 2006 levels.
“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,” Morgan said.
In the UK, 91% of transaction noise came from the €10m – €250m range, compared with 89% in 2008.
Private equity, as you would perhaps expect, was rather subdued in 2008. Last year 36 global buyouts worth a combined €5.2bn were recorded compared with 80 worth an aggregate €17.4bn in 2007. Again, the UK proved to be more resilient than most and accounted for 19 deals totalling €1.7bn.
“Whilst liquidity will be difficult, there will be deals to be done in 2009,” said Morgan. “Whilst follow on deals for existing portfolio companies are likely to be the order of the day, we expect to see more non-core disposals from larger multinationals and a selective return in public-to-private transactions once public market valuations find more of a level.
“PE houses will look for value,” Morgan said, “while institutional investors continue to prefer the security of cash, and a flight to scale or blue chip assets. The UK’s AiM market may also continue to prove fertile feeding ground for transactions.
“Although global economic conditions are considered to be the worst for decades, technology companies which survived the turmoil of the dot-com crisis of 2001/02 are far better equipped now to weather the toughest of storms,” he said. “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.”
Deals will also take longer to conclude with due diligence requirements becoming ever more onerous, Morgan concluded.