Surge in UK tech M&A activity

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A new report from technology-focused investment bank ICON Corporate Finance saw a 'remarkable' level of M&A activity in businesses focussed on Digital Transformation last year.

The report, which analyses some of the largest and most interesting Hardware Tech deals in 2020, looked at trends in the tech sector and saw M&A activity rally, up 6% in Q4 compared 2019, which had itself been a record year for Tech M&A activity That surge in activity was described as remarkable as it followed a near 50% collapse in activity in the second quarter due to the Covid-19 pandemic..

ICON said that it believes that Digital Transformation across all industry sectors, including tech hardware, will continue to accelerate, driving further M&A activity in 2021, boosted in no small part by appetite from overseas investors - a major force in the 2020 bounce-back. Cross-border deals rose to a record high in 2020, accounting for 48% of all UK deals.

“Normally in economic downturns overseas buyers tend to pull up the draw-bridge and re-focus. However, that was far from the case in 2020,” said Brian Parker, Co-Founder, Head of M&A at ICON Corporate Finance and author of the report.

Alongside the mainstay of buyers from the US, 2020 saw a significant widening of interest in UK tech companies from Australia, Scandinavia and Europe as buyers like Byggfakta (Scandinavia) ELMO (Australia) and MessageBird (Holland) boosted activity. Parkers said it would be interesting to see if this is a trend that continues in 2021.

“There is simply a tsunami of cheap funding looking for a home,” according to Parker. "Many used these funds to plug the hole created by Covid, while others used the funds for M&A. As a result, there were 4,700 global tech M&A deals in 2H20, up 4% YoY. That has also pushed up valuations to frothy levels with two of the largest US deals achieving more than 30x revenues.”

The report identified that private equity acquisitions were one of the key factors behind buoyant tech M&A activity in 2020 and it was likely to continue in the year ahead.

“Total VC/PE backed acquisitions accounted for 23% of all deals in 2020 - similar to 2018 and 2019,” said Parker. “However, with interest rates remaining low and significant funds raised yet to be spent, further M&A activity can be expected. We have seen a wave of PE backed buy-and-build deals in the past few years and that is unlikely to change in 2021.”

Notably, all the most acquisitive UK buyers in 2020 were PE owned. The report looked at ClearCourse Partnership, Juniper Education, Advanced, Access Group, Iris and Civica, among others, who are all looking for new technology in their respective sectors.

The report also identified growing interest, particularly for Cloud-based software businesses, which led to a significant rise in UK tech valuations which in total have climbed towards 20x EBIT. Keysight, Byggfakta, RELX, Elmo, Tracsis and Broadridge, Ideagen and Aptean all paid over 5x revenues for UK targets.

Within the hardware sector, major deals included:

  • Softbank’s proposed sale of ARM to Nvidia in a complex deal for circa £30bn ($40bn).
  • South Korean-listed Hanwha Systems acquired UK antenna maker Phasor Solutions out of administration in June. Phasor Solutions’ proprietary technologies include flat electronically steered antennas for use on aircraft, maritime, trains and military vehicles.
  • Siemens announced the acquisition of UltraSoC Technologies, a provider of instrumentation and analytics solutions.
  • Motorola acquired UK-listed IndigoVision for just under £30m.