European acquisitions reach a peak, IPOs stall - Embedded.com

European acquisitions reach a peak, IPOs stall

LONDON — Acquisition activity for the third quarter of 2005 within the European technology sector has broken through the level set in the first quarter 2000 – the peak of the bubble – according to the latest findings from Regent Associates' 'European Technology Acquisition Review'.

The Review is a quarterly tracker of M&A activity across ten European technology industries and provides an indicator on deal flow across European sectors.

July to September 2005 saw 820 acquisition transactions announced, beating the previous highest level of 781 set during Q1 of 2000. The latest quarter was up 12 per cent on the 733 transactions in the second quarter of 2005, and is 32 per cent up on the equivalent period last year.

Peter Rowell, Chairman, Regent Associates said, “The recent period is the latest in an unbroken run of ten quarters,where the number of deals has just been going up and up. Each time we think it cannot go any higher – it does.”

The combined value in Q3 2005 was $71.5 billion, up 34 per cent on the $53.5 billion in Q2 2005 and more than double the value achieved in the equivalent period last year. The valuation levels have been helped by some multi billion dollar deals such as VNU's acquisition of the information services company IMS Health, the merger of the two main British cable operators NTL and Telewest, as well as the acquisition of voice over IP specialist Skype by eBay.

Rowell added, “As exciting as these valuations are, we are a long way from the crazy levels in the late 1990's, which were based on much hope and hype, and had the inevitable consequences of the crash that the industry has just emerged from. Today's values are based on careful analysis by buyers of market opportunities, competitive threats and the true worth of the technology and related services”

In contrast, the IPO market has had a faltering start to the year. Despite much talk and strong intentions by many companies to list, there have only been 64 technology IPO's in the first nine months. By way of comparison, there were 367 such IPO's in the same period of 2000.

Rowell said, “Acquisition activity is driven primarily by industry executives who are close to the market and can read the positive signals. IPO's are driven by investors, many of whom can still remember the pain of a few years ago. They still need a lot of convincing that this is a worthwhile investment class.”

Acquisition activity has been growing fastest in Eastern and Central Europe (up 79 per cent on the same period last year). Also witnessing high growth are the Mediterranean countries of Spain, Portugal, Greece and Israel. On the buy-side, the three regions outlined below account for 58 per cent of all deals.

UK and Irish companies together accounted for 28 per cent of all purchases in the first nine months of theyear, maintaining the position the region has held for over ten years. However within the space of three years, Denmark,Finland, Norway and Sweden have moved from accounting for ten per cent of European deals to 18 per cent today

North American companies accounted for 14 per cent by number transactions in the first half of the year but this dropped to nine per cent in the third quarter.

The largest quarter on quarter increase was telecommunications equipment sector which jumped 74 per cent, whereas dealsin telecommunications services sector have grown quite slowly despite there being clear consolidation drivers in the Internet Service Provider (ISP) and hosting segments.

Rowell concluded, “There appears to be a clear flight to intellectual property rights (IPR) based businesses. Content, electronic media and telecommunications equipment all have high levels of IPR. Larger companies with extensive routes to market are seeking to exceed market growth rates by pushing more product through their channels”

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