Private equity leads M&A recovery, report says


The number of UK private equity deals in the technology sector rose by 20 per cent in 2009 compared with 2008, as consolidation fuelled a series of transactions, according to Clearwater Corporate Finance.

The Wire, a half-yearly report on trends in technology mergers and acquisitions (M&A), reported 39 private equity transactions in the sector last year, comprising 23 buyouts and 16 exits. Private equity contributed 29 per cent of the overall frequency of technology deals in the year, an increase of 20 per cent.

The second half of 2009 saw a notable increase in private equity houses exiting technology businesses, as recovering company valuations in the sector prompted sales. There were 13 exits in that period, representing a significant increase on the three completed during the first six months of the year.

Clearwater’s report highlights Lloyds Development Capital’s £115m acquisition of a majority stake in specialist software provider, 1st The Exchange, as the biggest technology deal of the year. The largest exit saw software as a service (SaaS) security specialist, Scan Safe, sold to Cisco by its venture funders in a £112m deal.

Emma Leathley, senior technology analyst at Clearwater, said: “Technology M&A began 2009 against the backdrop of an unprecedented debt market and a ‘wait and see’ sentiment stifling activity. However, technology held up well in comparison to other sectors, supported by the return of private equity as a major force.

“This was thanks in large part to stabilising business valuations resulting in a number of exits, and revenues amongst technology companies faring well despite the economic backdrop, prompting investment activity.”

Carl Houghton, partner and head of technology sector at Clearwater, commented: “Many technology businesses that performed well in 2009 will be viewed as virtually indestructible by private equity acquirers, and are likely to attract significant interest in 2010. Businesses in the telecoms reseller, healthcare IT and IT services sub-sectors are likely to continue to boost private equity deal flow with continued consolidation, while businesses that emerge as leaders in cloud computing will also be highly sought after.

“We envisage several decent-sized mid-market deals in the pipeline that, given an improving economy, should set the scene for a continuation of the positive trends seen in 2009.”