Mergers and acquisitions (M&As) reached an all-time high in the technology sector last year as businesses attempted to boost growth and remain competitive.
Investment bank Regent Associates will publish its European Technology Acquisition Review today (Thursday), which shows a 24 per cent increase in M&A activity in 2006 compared with 2005.
There were 3,295 purchases in Europe last year valued at $337bn (£221.6bn), up from 3,053 deals worth $272bn (£179bn) the previous year. UK firms conducted 27 per cent of acquisitions.
Regent Associates chairman Peter Rowell says the industry is buoyant, but acquisition rates are unlikely to increase any further in 2007.
‘Organic growth rates dropped to five per cent in recent years, so M&As are a way of bumping up those levels to maintain previous rates of growth,’ he said.
‘We have reached a peak in M&As that is fine because the increase was becoming unsustainable and sooner or later the market would overheat and crash.’
Present M&A activity levels directly relate to the proliferation of IT firms set up around 2000, says Gartner analyst Mark Raskino.
‘It would not make sense for smaller firms to remain independent,’ he said. ‘Eventually their best option is to sell out, so we see a sort of market correction.’
But Ollie Ross, head of research at user group The Corporate IT Forum, says consolidation can restrict choice for IT buyers. ‘To a certain extent you can lose control of which supplier you are dealing with, and that can be unsettling,’ she said.
‘On the other hand a solidification of large framework agreements can enable clearer and larger relationships.’
Tom Wills-Sandford, deputy director general at trade body Intellect, says suppliers need as wide a reach as possible.
‘There has been a realisation that if you are not global you are not part of the industry,’ he said.
Storage vendor EMC has made more than 30 acquisitions valued at a total of $10bn (£5.08bn) in the past four years, including its $2.1bn (£1.06bn) purchase of RSA Security last June.
Nigel Ghent, EMC’s UK marketing manager, says the acquiring company must maintain its research and development activities, and not solely rely on acquisitions to boost growth.
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