M&A deals starting to feel effects of the pinch

But UK and European channel consolidation activity remains healthy

M&A activity: The number of merger deals involving European IT firms has plummeted during 2008

The credit crunch has finally taken its toll on merger and acquisition (M &A) activity in the European technology sector, according to merger advisor Regent Associates.

Regent said the number of deals involving European technology firms fell 11 per cent between the second quarter and Q3 to 692 ­ the biggest sequential drop for several years.

Deals concluded in the UK ­ which is seen as a lead indicator for the rest of Europe ­ sank from 230 to 190.
However, Regent executive director Peter Rowell said Q3 had not been the cataclysm some had predicted.

“There are still deals being done and we are not about to fall off the edge of the cliff. There is a good supply of sellers and a lot of buyers out there with cash, both in the trade and private equity,” he said.

Regent’s data also revealed the channel is bucking the downward trend seen in the wider IT market. Rowell said 144 UK and European IT distributors and dealers sold up in the first nine months of 2008, compared to 162 in 2007.

“Deals are happening at a rate of 45 per month. It is one of the most active sectors on a comparative basis,” said Rowell.
“This is primarily due to consolidation. Margins are thin, so whether you are a dealer or distributor you will benefit from scale.”

Private equity (PE) activity in the technology sector also held steady, with PE houses bankrolling 15 per cent of deals during the quarter ­ compared with 14 per cent in Q2.

“Small and mid-sized deals are happening as before,” Rowell added.

Graham Jones, UK managing director of Integralis, said: “There is a lot of consolidation that still has to happen in the channel. There is going to be a shake-up and people will see this as an opportunity to put two struggling companies together, cut costs and try to get some savings.”