Tech acquisitions boom

Acquisition activity for the first half of 2004 within the technology sector reached levels not seen since the height of the dot-com boom in 2000, according to new research.

Even when compared with 2003, the first half of 2004 saw a massive increase in acquisition activity with the actual number of transactions increasing by 68 percent to a total of 1,118 deals, compared to 665 in 2003, said acquisition advisor Regent Associates in its report, European Technology Acquisition Review.

Although the number of European tech deals increased from 513 in Q1 to 605 in Q2, Regent Associates expects the pace to slow in the second half of the year. While the UK remains the largest and most active market for buyers, acquisitions in the UK -- which is ahead of the European economic cycle -- eased by 3 percent for Q2 compared to Q1 2004, a trend that the rest of Europe is expected to follow.

The electronic media and content sector saw the largest increase in activity, with 229 transactions in the first half of 2004 compared to 93 in the equivalent 2003 period, an increase of 146 percent. But computer services was the most active sector overall, with 334 transactions.

"With persistent pressure on pricing and continued rationalisation of IT buying patterns, most M&A is happening in the mid-market, where smaller players are attempting to build scale and to buy in critical expertise," said Francois Dauriat of analyst firm Ovum. The hottest segments are recruitment and resourcing (up 283 percent) and vertical solution providers (up 169 percent).

Dauriat noted we have not seen any large, strategic deals in the first half of the year, except the acquisition of Triaton, the IT division of Thyssen, by HP. "This will change," said Dauriat. "As outsourcing builds momentum on the continent, large US players will want acquisitions to strengthen their capabilities in European geographies."

Although tipped by many as the primary focus for consolidation, the software sector appears to have bucked industry predictions with only 15 additional acquisitions compared to 2003, representing a relatively sluggish growth rate of 14 percent, said Regent Associates.

Dauriat noted that while the headlines have tended to feature Microsoft, SAP, Oracle and PeopleSoft, none of these deals actually got done, and the pressure is more likely to be on the small companies. "The small players face a big squeeze," she said. "End users have been less inclined to buy from smaller outfits, and financial markets are less receptive to IPOs."

Meanwhile, the absence of any must-have technology means that the big players feel less need to buy smaller players, as they did in the late 1990s, added Dauriat. "They can get what they need from partnering -- rather than buying -- smaller guys. As the saying goes: 'Why buy the cow when you're getting the milk for free?'"