Merger level exceeds dot com peak

It's official: acquisition activity in the European technology industry exceeded levels at the peak of the dot com era in 2000.

Some 2,405 deals were announced last year, a mere 19 more than the 2,386 transactions conducted in 2000, but 69 per cent up on 2003, according to new figures from investment bank Regent Associates.

'We thought it wouldn't happen again, or at least not so soon,' said Regent Associates chairman Peter Rowell.

'The market may not be witnessing the large increases in technology expenditure that were seen in the years prior to 2000, but the vendors clearly feel confident enough about the future,' he said.

A desire by technology firms to either expand into new high-growth sectors or extend their presence across Europe appears to be fuelling the growth of the acquisition market.

Gareth Healy, assistant director at investment bank Close Brothers Corporate Finance (CBCF), says the level of demand reflects the impact of the two bad years preceding this.

'As the shoots of growth start to emerge, it appears that well-financed US buyers are picking up firms that have survived the downturn. Our research shows that as much as 33 per cent of the buyers originate in the US.'

Healy says the surge in acquisitions reflect the higher levels of available liquidity, which will help to inject some much needed confidence into the market.

'It's great to see this level of liquidity in the market again, as it gives people a sense of optimism and encourages them to make investments and take on more risk.'

Bundeep Singh Rangar, co-founder of venture capital firm Ariadne Capital, says the rise in technology valuations in the fourth quarter of 2004 reflected the 23 per cent rise in Nasdaq.

The stock rally also made it easier for listed companies to use stock as an acquisition currency, which indicates a higher level of confidence in the market and faith in future equity value of technology stocks.'

'In 2005, we'd expect to see a continued rise in technology stocks valuations and M&A deals involving fast growing Asian companies such as Lenovo and Tata Consultancy Services. Also, look for new trends involving WiMAX, VoIP, Lamp (open source) and RFID.'