Can European Tech M&A Weather the Brexit Storm?
The UK and the EU might be in the throes of an acrimonious break-up that has sparked uncertainty in the business world and caused market instability, but there is apparently one sector that seems immune to the problems.
According to a report from Silicon Valley investment firm Magister Advisors, the M&A run in the European tech sector looks set to continue for the next one or two years. So, where does Brexit come into this? It is thought that the uncertainty brought about by Brexit may cause larger private technology companies to consider M&A due to the fact that they are facing a slow-growth environment while sitting on a huge aggregate cash pile. This means that they can afford to buy fast-growing earnings and top quality technology wherever they happen to be based in the world, leading to Europe becoming a hotbed for tech M&A activity.
It seems as though the threat of Brexit in the first half of 2016 failed to dampen European tech M&A with deals averaging $72m, closing the gap on the US which averaged $104m for the same period. It was noted in the report that this is one of the closest gaps ever recorded, with the US usually producing close to double the value of European ones.
There are a number of reasons why European tech remains strong in the face of a challenging market and a lot of it comes down to timing. The tech market in the US is firmly established and the cost of developing technology there has become a barrier to doing business. This means that large tech firms are looking to develop their capabilities in areas where costs are lower, such as Europe.
With costs in mind, some of the rapidly growing areas of tech, including artificial intelligence and fin-tech, are just as well-developed in Europe as in the US, coupled with the fact that deals for targets in Europe are done at international, not European, prices.
Of course, Europe is not completely green when it comes to tech, which is another reason why M&A is on the rise. While Europe got into tech comparably later than the US, its successful tech businesses are now reaching a size and value where they are attracting investors.
Illustrating the lack of impact that Brexit has had on European tech M&A recent noteworthy deals have taken place in this arena, namely Softbank committing $30bn to acquire ARM plc, with more deals over the $1bn mark mooted for European segment leaders.
The number of high value exits that are set to take place in the next one to two years will go a long way in fuelling the growth of the European tech sector. This means that Brexit and the uncertainty surrounding it could very well have a positive effect on this exciting sector for years to come.
With experience in a number of key sectors and representation throughout the Americas, Europe, Africa and Asia, Benchmark International can connect you with the right opportunity. To find out more, visit http://www.benchmarkcorporate.com.