UK tech sector holds its own despite downturn

Fast line: UK M&A deals bucked the trend in 2008

The value of M&A deals within the UK technology sector has increased by 10 per cent despite a drop in the number of deals taking place globally.

In fact, UK-inspired deals accounted for a third of all deals that took place globally in 2008, PricewaterhouseCoopers (PwC) claimed.

Deal activity in the UK fell to 162, but the value of those deals increased to €17.7bn (£16.5bn) in 2008, compared with 184 deals worth €15.7bn in 2007. Values fell more sharply globally with technology deals dropping by 27 per cent to €92.7bn in 2008.

Andy Morgan, technology sector leader, corporate finance at PwC, said: “The technology sector has held up better than many other industries. The harsh lessons learned from the bursting of the technology bubble in 2001/02 have left the industry better placed to deal with today’s challenges.”

PwC said that increasingly flexible business models have enabled technology firms to move more swiftly in response to changing markets across the globe and the impact of the credit crunch on the sector overall has been less pronounced than in other areas of the economy.

“But the big question is, has the technology deal environment developed some truly defensive attributes, or will the inevitable impact of the downturn on corporate IT budgets hit home in 2009?” Morgan added.

Mega deals have been in relatively short supply – 10 completed globally compared with 19 in 2007 – but the mid-market continued to fuel the global technology M&A market, with similar levels to 2005 and 2006.

Morgan said: “Deals valued between €10m and €250m account for some 94 per cent of global volumes – a clear illustration that technology M&A remains driven by the mid-market heartbeat.”

Private equity investors have also remained quiet, PwC claimed, with 26 global buyouts in the sector worth a combined €5.3bn recorded in 2008, compared with 80 PE deals with €17.4bn in 2007. Again the UK stood out with 19 deals worth €1.7bn in 2008.

Morgan added: “While liquidity will be difficult, there will be deals to be done in 2009. Follow-on deals for existing portfolio companies are likely to be the order of the day, we expect to see more non-core disposals from larger multinationals and a selective return in public-to-private transactions once public market valuations find more of a level.

“PE houses will look for value while institutional investors continue to prefer the security of cash, and a flight to scale or blue chip assets. The UK’s AIM market may also continue to prove fertile feeding ground for transactions.”