[1]

There was further evidence of an upturn in UK M&A activity after figures from Ernst & Young showed a boom in the number of deals in the UK technology sector in Q2 2010.

There was further evidence of an upturn in mergers and acquisitions activity in the UK after figures from Ernst & Young showed that the number of M&A corporate deals in the UK technology sector in the second quarter of this year grew by one third in comparison to the same period in 2009.

The most recent quarterly Global technology M&A update report issued by Big Four firm Ernst & Young showed that 40 deals were closed April to June in 2010 in comparison to just 30 deals for the same period in 2009, and 32 deals closed in Q1 2010.

The results firmly position the UK as having the most acquisitive technology sector in Europe for both Q1 and Q2 this year – ranking it second only to the US globally for both quarters. The UK has risen globally from 3th position in Q2 2009 to 2nd position Q2 2010 in term of technology sector M&A deals closed.

The findings also highlight a shift away from purely domestic M&A deals in the UK towards more cross-border transactions. Of the 40 UK’s M&A technology deals closed in Q2, half were international M&A’s in comparison to just one third of M&A deals which took place in Q2 in 2009 and one third which took place in Q1 2010.

Neil Hutt Ernst & Young UK Technology Transactions Partner said the findings showed that for most businesses M&A was very much back on the agenda. “There appears to be a healthy mix of inbound investment and UK businesses looking for inorganic growth. Even though big-ticket deals returned in the second quarter, we also saw a variety of companies, large and small, continuing to execute many small strategic transactions.”

Hutt says the main drivers in M&A activity across the sector are the rapid pace of technological change, driven by the global shift to a “smart” economy; the increasing mobilisation of business, and the blurring of sector and industry boundaries.

Although the number of global technology M&A deals was flat in Q2 2010 compared to the previous quarter, at 628 deals, it follows four consecutive quarters of accelerating growth in deal numbers from the bottom of Q1 2009 and a year-over-year increase in deal volume of 43%.

Total announced deal value increased by 32% year on year $30.8 billion, a 154% rise on Q1 2010. The seven deals rising above US$1 billion in Q2’10 compares with only two deals above US$1 billion in Q1’10, and seven each in Q3’09 and Q4’09.

"Leading technology companies are sitting on a lot of cash. The aggregate value of cash, short-term and long-term investments of the top 10 technology companies has grown 30% year-over-year to US$258 billion. With cash reserves of this magnitude, these companies still have the financial flexibility to focus on building revenues through organic growth and M&A. They are well-positioned to execute on attractive deals when the timing is right," Hutt added.

Meanwhile, E&Y’s upbeat analysis is reiterated in a report from consultancy firm Clearwater Corporate Finance, which found that the number of UK technology companies involved in mergers and acquisitions in the first half of 2010 rose by 25 per cent compared with the last six months of 2009.

Clearwater’s report The Wire [2] said that 96 transactions took place in the first six months of 2010, five of which were worth over £100m compared with six in the whole of 2009. The average value of technology deals rose by five per cent to £45.7m, while 50 per cent of buyers of technology companies were from the UK and 30 per cent from the US.

The figures from 2010 are also ahead of those from 2008 at the same period when market confidence was normal, underlining the strength of the returning growth, according to Clearwater. The consultancy does not expect to see any dramatic drop off in this trend, but warned that public sector cuts and the government spending review in October could have an impact on growth.

Top 10 most acquisitive country technology sectors

1.   US
2.   UK
3.   China
4.   Japan
5.   France
6.   Canada
7.   Australia
8.   Germany
9.   India
10. Netherlands

Source: Ernst & Young