Buying frenzy poised to intensify in the UK

Acquisitions Training and recruitment could lose out in 1999 spree.

The UK market is set to remain a hive of activity for IT mergers and acquisitions during this year.

But far from the trend becoming a concern to the channel, Peter Rowell, chief executive of industry analyst company Regent Associates, claimed it was a sign of buoyancy in the market.

'The increase of acquisitions in the UK is a healthy sign,' Rowell told PC Dealer. 'It says a lot about the level of entrepreneurialism within the industry.'

For some in the channel, however, it will be harder to get a slice of that creativity in 1999, with users realigning their strategies post-2000.

'The level of acquisitions won't slow this year, it will just redistribute,' Rowell claimed. 'In the past couple of years, strategies have been more about doing than thinking, as companies have focused on the year 2000 and euro issues. But I think we'll see a shift at the end of 1999 or in early 2000, with a re-evaluation of higher end systems resulting from companies again starting to concentrate on how to use IT for competitive advantage.'

Consequently, recruitment and contract staff businesses and training organisations could struggle to maintain the prosperity of the past few years. According to research from Regent Associates, mergers and acquisitions in the two sectors increased 89 per cent and 67 per cent respectively from 1997 figures.

But Rowell argued that the trend may change during 1999, especially if there is a downturn in the economy.

'Whenever the economy slows, these companies tend to be the first to feel the effects because recruitment and training are fairly easy budgets to cut,' he added.

And with companies set to become more selective in the systems they choose, it will be services centred around the upcoming implementations that will attract the most investment.

Rowell added: 'The channel has to add more value and to do so, it must become more niche-focused. The better defined the business, the higher the value.'

IT merger and acquisition transactions involving UK companies in 1998 were worth #19.05 billion, an increase of 58 per cent on 1997. For the first time, the UK market bought more companies than it sold off. Of the merger and acquisition activity, 47 per cent of the buyouts occurred in the UK and 44 per cent were sold.

'We have a trading nature here and it is a UK characteristic to grow more quickly through acquisition,' Rowell said. 'But UK buyers are now coming out in a much stronger way, focusing not just on the UK but overseas as well, primarily in the US.'

Of the UK mergers and acquisitions that took place last year, Rowell said companies involved in the telecoms, banking and internet industries attracted the most interest. The software and services sector represented the largest category for UK acquisitions, contributing 289 of the 642 transactions recorded for the year.

But the information services sector, which includes internet service providers and information content companies, grew 51 per cent from 1997 to 112 transactions during 1998.

Even if the economy does experience a slowdown, Rowell expects a similar level of merger and acquisition activity within the IT industry during 1999, with the internet and telecoms industries being the key drivers.

But Rowell warned: 'I hesitate to use the term consolidation because I don't think the overall market size will change. Instead, there will be a concentration, with the big companies getting bigger and the small ones getting smaller.'

EUROPE BUCKS WORLD CHANNEL TREND

Merger and acquisition activity in the European channel increased from 1997 to 1998, defying trends in the rest of the world.

A report from investment bank Broadview International, entitled Technology M&A Report: 1998 Year End, suggested that the total number of transactions in the supporting products and services sector - which includes distribution, leasing, maintenance, integration, repair, supply and multi-support services - increased by three per cent during 1998.

The value of those transactions also increased from $5.5 billion in 1997 to a little more than $6 billion last year.

By comparison, the number of mergers and acquisitions in the sector worldwide decreased from 689 in 1997 to 613 in 1998. The total value of those transactions also fell from $13.8 billion in 1997 to $11.3 billion in 1998, according to the Broadview report.

 INDUSTRY SECTOR OF           1997      1998     % rise/
 ACQUIRED COMPANY                                   fall
 Hardware                       43        35         -19
 Communications                 33        41         +24
 Information services           74       112         +51
 Software and services         237       289         +22
 Applied technology             72        77          +7
 Support services               58        58           -
 Support hardware               15        30        +100
 Total                         532       642         +20