European tech market facing consolidation

IT giants from Asia and the US are likely to spend much of 2005 scrapping over European RFID, VoIP and Web services firms

Europe will become a takeover battlefield this year as IT companies scramble to buy rivals offering hot technologies including VoIP, RFID and Web services.

According to the Technology Insights report by PricewaterhouseCoopers (PwC) Advisory Group, mergers and acquisition activity in the technology industry jumped 23 percent last year, with worldwide deals totalling €155bn (£106bn).

Through increased profitability and improved access to capital, larger software and IT services companies have a growing appetite for acquisitions — and greater financial muscle. At the end of 2004, the 10 largest software and services players had a war chest of some €67bn to spend on new technologies, according to PwC.

Greater availability of broadband has boosted the adoption of VoIP services, and PwC said this will encourage mergers by telecoms operators seeking to secure their position within the broadband access market, as well as a "land grab" of the customer base by VoIP operators.

Lower cost RFID tags have stimulated serious interest in their large-scale use, generating major repercussions, particularly within the logistics and supply chain industry.

"There is a need for software and IT services providers to ensure that they can offer customers RFID functionality and interoperable solutions which will in turn, stimulate investment and acquisitions in this area," PwC said.

It said that the evolving Web services market will create a shift in the market and that IT companies will be actively seeking to acquire Web services skills alongside deep industry knowledge.

Andy Morgan, UK technology leader at PricewaterhouseCoopers Corporate Finance, said: "Mid-market and international characterised technology mergers and acquisitions in 2004. Europe is likely to be the key battleground in 2005 as acquirers from Asia and North America lock horns with the domestic consolidators.

"Few European technology players truly enjoy a global presence, so there is plenty of room for consolidation as companies combine to achieve scale economies."

Greater confidence in the stock market saw 62 technology businesses going public across Europe last year, with 47 technology company IPOs in the UK raising £984m.