PAST THE PEAK OF THE PLATEAU

Regent’s Quarterly Analysis of Acquisitions of

European Technology Companies

2nd Aug 2007, Acquisition activity for the second quarter (Q2) 2007 within the European technology sector was down on the previous quarter and is now some 5% off the all time high of 846 transactions reached in Q2 2006, according to the latest findings from Regent Associates’ ‘European Technology Acquisition Review’.

The European Technology Acquisition Review, published by Regent Associates, is a quarterly tracker of M&A activity across 10 European technology industries and provides the only up-to-date and comprehensive indicator of deal flow.

 In the first half of 2007, 1642 deals were announced, which maintained relatively even activity levels over the last two years. However, the decline in Q2 on Q1 2007 suggests that whilst activity has reached a plateau, we might be nearer to the end rather than the beginning.  “Whilst we have no concerns that acquisition activity in the technology sector is about to grind to a halt, the indications are that after two years of stability, we starting to see the beginnings of a gradual slow-down. We are probably just past the peak of the plateau.” Commented Peter Rowell, Chairman of Regent Associates - an investment bank specialising in the technology industry.

 Other indicators that support this shift in market direction include, firstly, the percentage of acquisitions be made by the Private Equity community reached 16% of all deals (an all time high) – meaning a greater decline in trade acquisitions. Second, the percentage of transactions that are divestments from larger groups is edging up from the all time low of 27% last year – demonstrating a level of cautious house-cleaning. Third, the percentage of deals undertaken by American buyers was just 12% - suggesting a slight slowdown in their global ambitions.

 Commenting on these findings, Peter Rowell, Chairman, Regent Associates said, “None of these factors, when taken in isolation are significant. However, when taken together, they suggest there is possibly a window of 12 to 18 months before we can expect an overall slowdown in activity and consequent decline in valuations.”

 ***H1 2005 Trends Overview***

·                     Increase in total deal value – Deal value in H1 2007 has totaled $184 billion. This was well up on $117 billion deal value announced in H2 2006 but behind the $221 billion for the same period last year.

·                     More large-scale deals – H1 2007 saw 29 deals of a $1 billion or more, a level that has not been seen in years. The whole of 2006 saw 48 such deals.

·                     Post-bubble valuation highs – High industry profit levels have caused a new post-bubble high in price/sales ratio at 1.49. The median price/earnings ratio has held steady over recent quarters but has now edged up to 19.8. 

·                     Modest numbers of public company acquisitions –just 5% of all transactions relate to the acquisition of public companies. Buyers sense better value within the private community.

·                     Modest Private Equity exit activity – Private equity exits represented just 150 of the 1642 transactions in the first six months of 2007. With many of the pre-bubble 10-year funds maturing in the next two years, the level is somewhat less than might have been expected.

 ***Country Highlights***

·         Prime movers - Acquisition activity continues to be driven by three regions, UK and Ireland , Scandinavia and North America , accounting for 56% of all acquisitions of European technology companies.

·         German slowdown – After a surge in activity in Q1 2007, acquisitions by German technology companies slowed to represent just 8% of all deals in Q2 2007.

·         UK still leads the way – The UK still leads the way in sheer volume of activity with 389 or 24% of acquisitions completed in H1 2007. In the content and media sector, the UK accounts for 30% of all buyers.

·         Eastern Europe – Whilst representing 8% of the buyers in all industry sectors, Easter European companies accounted for 23% of acquisitions in the telecoms sector.

 ***Industry Highlights***

·         Content & Media – This sector has maintained its strong growth with 464 transactions in the past six months compared to 434 in the equivalent period in 2006 – an increase of 7%

·         Computer Services – Historically this has been the most active sector but it witnessed a quarter on quarter decline in Q2. It is too soon to determine if this is a significant trend or just a quarterly blip.

·         Software – Compared to the heady days of the late 1990’s, the software sector has seen the greatest growth of all. The number of deals is running at three times the level of that period. This consolidation phase is expected to last a while.

·         Telecommunications – This is now a very steady market with few deals that can be classified as real surprises. With 177 acquisitions in H1 2007, most activity is in the consolidating fixed line and Internet Service Provider (ISP) segments.

Rowell commented, “The acquisition activity falls into three broad types:-

·         Consolidation – The areas of the industry that are clearly going through a level of consolidation include product distribution, resellers, systems integrators, system-level software, broadcast and print media as well as the fixed line and ISP hosting activities mentioned above. The business model is simply one of achieving scale and the ability to drive out cost.

·         Transformation – This includes consulting and IT services, information content, enterprise software, vertical industry software and services. The focus here is about buyers extending the range of products and services, often transforming the offering at the same time, e.g. moving licensed software to on-demand software, or extending outsourcing to a full BPO activity.

·         Market Expansion – This process can involve geographic and sector development. A good example is the current demand for consulting organisations that can provide a means of unlocking prospective clients for full service IT suppliers.

Private Equity cuts across all three of these types of acquisition drivers. Although it only represents 16% of the activity in terms of the number of transactions, its influence is far greater.”

 Rowell concluded, “Acquisition activity has a certain equilibrium at present. There are plenty of quality buyers, both trade and private equity. There are many quality companies that are available or are willing to be enticed. There is solid market growth with plenty of cash and a supportive economic environment. The slowdown will take shape when factors such as the economy, interest rates or stock market wobbles contrive to convince buyers to be highly cautious with their investment plans”

 **END**

For further information including full charts and indices or a copy of the European Technology Acquisition Review, please contact:

Samuel Hall

Octopus Communications

+44 (0) 1753 672 755

sam@octopuscomms.net

 About Regent Associates

Founded in 1987, Regent is Europe ’s leading advisor to organisations in technology industries on all aspects of corporate development including acquisitions, divestments, company sales, financing, valuations and strategic advice. With a successful track record of over 400 completed assignments, Regent’s client base includes many of the world’s best-known technology companies. The company handles assignments ranging from local deals to complex international transactions and operates throughout Europe, North America and Asia .

 About the European Technology Acquisition Review

For over 10 years Regent Associates has tracked all of the announced acquisitions involving European technology companies.  Data is drawn from the press, company reports and announcements, investor statements and through direct investigation.  The resulting proprietary database is used to produce comprehensive analysis of current market dynamics as a critical ingredient in Regent’s acquisition services to identify targets and anticipate valuation trends.