Tech M&A withstanding economic pressures

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Strong mergers and acquisitions (M&A) activity during 2007 suggests that the IT industry is well positioned to buck current worsening economic trends, according to a new report.

The value of M&A IT deals rose 44 per cent to €127 billion (£100.6 billion) last year, PriceWaterhouseCoopers (PwC) said.

The consultancy's Global Technology M&A Insights report found this rise was accompanied by strong volume growth and a 24 per cent increase in the total number of deals, up to 713 from 577 the previous year.

Andy Morgan, PricewaterhouseCoopers corporate finance partner and technology sector leader said: "It would be surprising if 2007 value levels were repeated in 2008. However the tougher environment will likely provide significant opportunities for those with the financial capacity, strength of commercial rationale and execution skills to deliver."

Overall, PwC found that midsized deals -- between €10 million and €250 million (£8 million and £198 million) - dominated in 2007. There only two more "trophy deals" valued at over €1 billion (£792 million) in 2007, compared to the 17 deals completed in 2006. But software and IT services firms led the way with mega deals, such as Oracle's acquisition of Hyperion, and SAP's acquisition of Business Objects.

Morgan added that investor KKR's successful $1 billion (£500 million) acquisition of UK-based Northgate Information Solutions earlier this year suggested continued private equity interest in the sector.

"We expect to see more technology businesses moving off the market in 2008 - whether through trade acquisition or a public to private transaction - than new entrants seeking market capital to drive growth," he said.

The geographic spread of mergers and acquisitions in 2007 led the PwC report to predict more activity in Asia, particularly with Indian outsourcers moving into the US and Europe.

The weakness of the dollar continues to make Europe look relatively expensive in M&A terms. However, the European domestic market remained strong with deal volumes increasing by 21 per cent.

At the same time, PwC found particularly strong M&A activity within government, financial services and healthcare sectors. Telematics, business intelligence and workflow automation were the most attractive application areas for M&As, with software as a service (SaaS) likely to attract more interest into 2008.

"The hot spots for deal activity over the next twelve months are likely to be around continued cross-border consolidation in vertical market focused software and IT services," added Morgan. "While the pendulum may have shifted towards strategic trade acquirers with cash resources, we expect private equity to remain an active player in the sector into 2009. The drive to be green may also stimulate some interesting technology M&A activity in 2008."

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