Acquisition activity in 2005 breaks records

Growth of consolidation in European IT market beats dot com boom figures

Consolidation in the European technology sector continues to accelerate, with a record number of mergers and acquisitions (M&As) taking place in 2005, according to research published today (Thursday).

Investment bank Regent Associates’ European Technology Acquisition Review says 3,053 technology deals were conducted last year, with a combined value of $272bn (£152bn).

The figure is well up on the number of purchases that took place at the height of the dot com boom in 2000, but represents only a little more than a third of the total value.

‘For the full year, we have had a 27 per cent increase in the number of deals, and a 103 per cent increase in the value of deals over 2004,’ said Peter Rowell, chairman of Regent Associates.

But while the number of initial public offerings (IPOs) remains relatively low by comparison, Rowell says the rising M&A volume is a sign of a healthy technology market.

‘It is not a bubble, this is for real. These deals are based on very solid fundamentals,’ he said.

‘M&A activity is driven by the technology industry, whereas IPOs are driven by investors. The industry feels confident about the market and they are happy to use their good profits to acquire extra growth.’

But the effect of market consolidation on users appears to be less certain.

David Roberts, chief executive of user group the Corporate IT Forum (Tif), says he would expect newer technology companies to be acquired quickly once they prove that their products work. But he says this can have beneficial effects.

‘It isn’t until you get a big organisation behind them that you get good customer service,’ he said. ‘It is the maturation of emerging technology.’

Roberts says there is a chance that predatory acquisitions might reduce choice, but at the same time will offer buyers better after- sales service and a more defined and certain technology roadmap.

‘But if competitors are being acquired so that they are being taken out of the market, that is bad news,’ he said.