The total volume of technology mergers and acquisitions (M&A) deals involving UK targets or acquirers increased by 25 per cent in the first half of 2010 (H1) to 96 transactions, compared with 77 in the second half of 2009, as further consolidation and private equity investment boosted the sector buyout market, according to data from The Wire – the half-yearly report on trends in technology M&A from Clearwater Corporate Finance (“Clearwater”). The total number of deals for H1 2010 also saw a notable 71 per cent increase on the same period in 2009, when 56 transactions were completed.


There were five transactions over £100m in H1 2010 in the UK, comparing favourably to six during the whole of 2009. However, the figure for H1 2010 is still someway behind the 15 deals over £100m recorded during the whole of 2008.

The average value for technology deals with a disclosed consideration in H1 2010 was £45.7m, representing a five per cent increase on the £43.5m average value for 2009. Furthermore, 50 per cent of buyers of strategic technology companies in H1 2010 hailed form the UK, while 30 per cent were US-based.

Emma Leathley, Senior Technology Analyst at Clearwater, said: “The sharp rise in the number of transactions in H1 2010 suggests that the worst is behind the UK technology M&A market. Ongoing consolidation in the telecoms and infrastructure markets and continued interest in software providers has supported the gradual recovery of the buyout market. In addition, strategic and private equity investors alike are competing for prized assets in the fragmented IT services market, which is also likely boost deal flow in H2 2010.

“Despite an attractive pound, overseas bidders became nervous about doing deals in such an unpredictable market during 2009. However, there has been a return to normalcy in terms of the split of jurisdictions in the market as conditions have stabilised, and we expect overseas buyers to play an increasingly central role in UK technology M&A over the coming months.”

Private equity

H1 2010 also saw a notable increase in private equity activity in the sector, with 36 private equity deals making up 33 per cent of UK technology transactions. Figures for private equity backed buyouts in H1 2010 increased by 56 per cent compared with H2 2009, up from 16 deals to 25. In addition, there were 11 private equity exits in H1 2010, 36 per cent of which resulted in secondary buyouts, including HSBC Private Equity’s sale of engineering software provider, Amtech, to Primary Capital in a £35m deal, and TA Associates’ sale of security software business, Sophos, to Apax Partners for £563m – the largest technology transaction during H1 2010.

Carl Houghton, Partner and Head of the Technology Sector Team at Clearwater, commented: “Private equity has undoubtedly returned as a buyer in the technology sector as available capital, and the opening of this pool of investors, alongside stabilising company valuations, is encouraging technology vendors to consider exits.

“In addition, the momentum behind secondary buyouts is likely to build in H2 2010, as private equity houses look to recycle their assets, especially while public markets remain resistant to new issues.”

Public sector IT 

Taking into account the technology industry’s reliance on the public sector for lucrative contracts, planned government cuts in public sector ICT projects will impact M&A in the sector, according to Clearwater. At present, the government’s outlay on technology stands at £16.6bn, with the sector picking up 4.2 per cent of total government spend, according to The state of the UK technology sector report from Intellect.

Emma Leathley said: “Public sector cuts will spell widespread pain for the technology sector. However, those with strong and innovative product offerings and efficient operations can make headway against providers that became entrenched during the previous government’s term, which used nine suppliers to deliver 60 per cent of its ICT projects. In addition, the coalition government’s long-term objective to deliver the fastest broadband of any country in the world will present opportunities for a range of businesses in the sector.

“Our advice to any public sector focused business considering a transaction in 2010 is to wait and see what the October Spending Review brings before kicking off any process in earnest. 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.”