By Billy MacInnes
The UK technology sector enjoyed a huge surge in mergers and acquisitions (M&A) in the first half of 2010, but uncertainty over the effects of forthcoming cuts to the public sector could act as a brake on activity for some companies until after the October Spending Review.
According to Clearwater Corporate Finance, there were a total of 96 M&A transactions in the UK technology sector in the first half of 2010, a 71% increase on the same period last year. It also noted a big rise in the number of private equity funded buyouts which accounted for 33% of UK technology transactions.
The report comes a week after Ernst & Young published its Global technology M&A update which stated that deals had increased by a third in the UK technology sector in the second quarter of 2010.
Emma Leathley, senior technology analyst at Clearwater, said the rise in the number of transactions suggested "the worst is behind the UK technology M&A market". Consolidation in the telecoms and infrastructure markets and interest in software providers had helped the gradual recovery of the buyout market.
The flow of deals in the second half was likely to be boosted by strategic and private equity investors "competing for prized assets in the fragmented IT services market".
She warned public sector cuts would "spell widespread pain for the technology sector" and advised companies to hold off from deals until after the October Spending Review. "Whilst the news will not be good for most, the market will have more certainty about what the future will bring and it will be easier for both strategic and private equity investors to make a buying decision," Leathley added.
According to Clearwater Corporate Finance, the average value of technology deals was £45.7m compared to £43.5m in 2009 and there were five transactions over £100m in the first half of this year compared to six in the whole of last year. Half of those buying strategic technology companies in the first half were from the UK compared to 30% from the US.