IT sector acquisition activity drops

But niche investors continue to thrive, according to research

Acquisitions have dropped in value, but deal activity is still going strong

The number of mergers and acquisitions (M&A) taking place in the European technology sector has dropped, but the decline in activity could have been worse, according to research by M&A specialist Regent Associates.

There were 692 acquisitions in the sector during the last quarter, down from the 779 deals announced in the second quarter of 2008, representing a decline of 11 per cent during that period, says the report. But the reduction is more visible in terms of value as the 22 per cent decrease corresponds to $41.7bn compared to $53.4bn in the previous quarter.

But the decline is “less than expected”, says the study, which highlights that despite concerns linked with the economic slowdown, alternative investment classes have experienced an increase. Private equity investors, for example, have accounted for more than 15 per cent of all acquisitions in the third quarter of 2008, up from 14 per cent in the second quarter.

the sectors most affected by the gradual slowing of activity in technology were hardware and equipment, according to the Regent report.

“This is not particularly surprising as in any economic slowdown it is hardware and equipment purchases that are the easiest and first to be cut,” it says, adding that the software industry may suffer in future.

“Reductions in software purchases generally follow some two quarters later with reductions in IT services expenditure following sometime later depending upon the nature of the contracts in place,” says the report.

There has been strong demand for companies active in the internet and web-based services sector, according to Regent. Other areas of interest to investors are product distribution and reseller businesses.