Tech companies more optimistic about mergers and acquisitions

Companies that provide cloud-related technologies will command a premium in the market

Technology leaders believe that the market for mergers and acquisitions (M&A) will pick up over the next 12 months, according to a biannual survey by accounting and consulting firm Deloitte.

The survey looks at technology M&A and capital market trends for 2010-11, and found an increase in optimism from 53 to 60 per cent compared with six months ago.

Only 26 per cent of respondents thought distress-driven deals were a driver of increased M&A activity, down from 40 per cent six months ago. This might indicate that the opportunity to pick up a cheap target may have already passed.

"It is encouraging that M&A optimism has increased, even if some of the premiums paid on a number of well-publicised deals may lead to some prospective acquirers deciding to sit things out," said Conor Cahill, technology corporate finance partner at Deloitte.

The survey showed that cloud-related technologies see high valuations in M&A activity.

"Valuations are expected to increase over the next 12 months as auctions become more competitive," said Cahill.

"The sectors that will attract a premium are those that support and embrace cloud-based solutions. Organisations will look to address the increased interest in cloud-related technologies through their M&A strategy in order to accelerate capability in this area."

Delloite's research looks at how the UK technology M&A market continues to be driven by overseas acquirers, with 90 per cent of respondents indicating they believe that the US will remain the dominant purchaser of UK tech companies.

The survey also points to an increase in interest from Indian and Chinese companies over the next 12 months.

However, it is not all positive, as respondents anticipating an increase in investor appetite to support the floatation of UK technology companies dropped from 33 per cent to 16 per cent.

Further to this, tech leaders' responses regarding whether or not the next 12 months would be a good time to float fell from -20 per cent to -38 per cent.