July to September 2005 saw 820 acquisition transactions announced, beating the previous highest level of 781 set during Q1 of 2000. The latest quarter was up 12 per cent on the 733 transactions in the second quarter of 2005, and is 32 per cent up on the equivalent period last year.
Commenting on these findings, Peter Rowell, Chairman, Regent Associates said, “The recent period is the latest in an unbroken run of ten quarters, where the number of deals has just been going up and up. Each time we think it cannot go any higher – it does.”
It is not only the volume of acquisitions that continues to rise. The combined value in Q3 2005 was $71.5 billion, up 34 per cent on the $53.5 billion in Q2 2005 and more than double the value achieved in the equivalent period last year. The valuation levels have been helped by some multi billion dollar deals such as VNU’s acquisition of the information services company IMS Health, the merger of the two main British cable operators NTL and Telewest, as well as the ground-breaking acquisition of voice over IP specialist Skype by eBay.
Rowell continued “As exciting as these valuations are, we are a long way from the crazy levels in the late 1990’s, which were based on much hope and hype, and had the inevitable consequences of the crash that the industry has just emerged from. Today’s values are based on careful analysis by buyers of market opportunities, competitive threats and the true worth of the technology and related services”
In contrast, the IPO market has had a faltering start to the year. Despite much talk and strong intentions by many companies to list, there have only been 64 technology IPO’s in the first nine months. By way of comparison, there were 367 such IPO’s in the same period of 2000.
Rowell commented “Acquisition activity is driven primarily by industry executives who are close to the market and can read the positive signals. IPO’s are driven by investors, many of whom can still remember the pain of a few years ago. They still need a lot of convincing that this is a worthwhile investment class.
Q3 2005 Trends Overview
- Private companies represent prime targets – 68 per cent of all transactions are acquisitions of private companies with publicly listed businesses representing just 3 per cent by number. The balance of 29 per cent is made up of the sale of divisions and subsidiaries of larger organisations.
- Venture capital exits – 156 or 7.0 per cent by number and 19 per cent by combined value of all transactions to date in 2005 have been exit transactions by venture capital and buyout investors. This proportion is expected to increase as investors strive to secure returns on the 10-year funds established in the mid to late 1990s.
- Few super deals – so far in 2005 there have been no mega deals ($10bn plus valuations) although there have been 42 transactions in the $1 billion to $10 billion. By way of comparison, in 2000 there were 13 such mega deals.
- Valuations hold steady – Median valuations have been quite stable for the industry as a whole. In Q3 2005, the median price to after tax earnings ratio was 16.51 representing a slight decline from Q2 (which was at 16.69) but up from the beginning of the year when the level was 16.28. The median price to sales ratio, which stands at 1.27, has steadily risen over the year as the overall earnings levels have improved.
Acquisition activity has been growing fastest in Eastern and Central Europe (up 79 per cent on the same period last year). Also witnessing high growth are the Mediterranean countries of Spain, Portugal, Greece and Israel. On the buy-side, the three regions outlined below account for 58 per cent of all deals.
- UK still leads the way – UK and Irish companies together accounted for 28 per cent of all purchases in the first nine months of the year. It maintains the position it has held for over ten years
- Scandinavian dynamism – Within the space of three years, Denmark, Finland, Norway and Sweden have moved from accounting for ten per cent of European deals to 18 per cent today
- USA slows a little – North American companies accounted for 14 per cent by number transactions in the first half of the year. Alarmingly, this dropped to nine per cent in the third quarter
- Content & Media – This sector has maintained its strong growth with 562 transactions in the past nine months compared to 372 in the equivalent period in 2004 – an increase of 51 per cent. For the first time it has become the largest category overtaking Computer Services
- Software – Year on year, software was the second fastest growing sector with 260 acquisitions representing growth of 38 per cent. The entire increase was in applications software (up 49 per cent) whereas systems software acquisitions actually fell
- Telecommunications – The largest quarter on quarter increase was telecommunications equipment sector which jumped 74 per cent, whereas deals in telecommunications services sector have grown quite slowly despite there being clear consolidation drivers in the Internet Service Provider (ISP) and hosting segments.
Rowell concluded, “There appears to be a clear flight to intellectual property rights (IPR) based businesses. Content, electronic media and telecommunications equipment all have high levels of IPR. Larger companies with extensive routes to market are seeking to exceed market growth rates by pushing more product through their channels”
About the European Technology Acquisition Review
For over ten years Regent Associates has tracked all of the announced acquisitions involving European technology companies. Data is drawn from the press, company reports and announcements, investor statements and through direct investigation. The resulting proprietary database is used to produce comprehensive analysis of current market dynamics as a critical ingredient in Regent Associates’ acquisition services to identify targets and anticipate valuation trends.
About Regent Associates
Founded in 1987, Regent Associates is Europe’s leading advisor to organisations in technology industries on all aspects of corporate development including acquisitions, divestments, company sales, financing, valuations and strategic advice. With a successful track record of over 400 completed assignments, Regent’s client base includes many of the world’s best-known technology companies. Through European offices in UK, France, Germany, Italy and Spain, as well as in Israel, India, Australia and the USA, Regent handles assignments ranging from local deals to complex international transactions.