By Jason Purcell, CEO and Co-founder of FirstCapital,
2016 was a record year for European tech M&A. The total value of deals was $107bn, a 39% increase on 2015, across 944 deals, up 3.7% in volume. This activity was despite a highly uncertain political backdrop with both the UK’s vote for Brexit as well as the election of President Trump in the US.
Geographically US corporates were very active acquirers of European tech companies in 2016, spending over $50bn across 202 deals in 2016, compared to $34bn across 109 deals in 2015. The Qualcomm acquisition of semiconductor company NXP for $47bn accounted for much of the disclosed value. Other notable deals included Verizon acquiring Fleetmatics (SaaS fleet tracking) for $2.4bn and CA acquiring Automic (business automation software) for $638m. Meanwhile we continued to see high levels of activity from the Big 5 (Google, Amazon, Facebook, Microsoft and Apple) with a total of 11 acquisitions in Europe in 2016.
But it is not just the US corporates, private equity funds from North America were also major players in European tech buyouts. Notable deals included Advent and Bain Capital acquiring SETEFI (payments software) for $1.2bn in May 2016 and Silver Lake acquiring Cegid Software (business management software) for $481m in April 2016.
In 2016 we also saw the Asian buyers finally becoming a major force in European tech M&A. Asian buyers acquired 11 companies for a total disclosed value of $40.2bn. The biggest of these was from Softbank, which took advantage of post Brexit uncertainty to acquire semiconductor company ARM for $31.6bn. Chinese internet powerhouse, Tencent, acquired mobile gaming company Supercell for $8.6bn and Chinese travel company Ctrip spent $1.7bn on metasearch company Skyscanner.
European corporates continue to account for the majority of deals by volume with 431 deals worth $8.5bn. We have also seen the emergence of a new category of buyer for tech companies, as non-tech incumbents buy tech companies to help to them innovate and digitize. For example, Royal Mail, one of the world’s oldest companies, acquired SaaS e-commerce company NetDespatch to respond to the threat from Amazon.
So what is driving this activity? Clearly there is lots of cash available for deals with record levels of cash sitting on the balance sheets of major tech companies and with private equity firms. This weight of money is a very important factor, however, we believe that there is a much broader trend at play. The European tech ecosystem has changed dramatically in the last five years. Europe has a deep base of technical talent with five of the world’s top ten computer science institutions in Europe. In terms of talent, Stack Overflow estimates that there are 4.7m professional developers in Europe compared to 4.1m in the US. London, Paris and Berlin combined have a larger population of professional developers than Silicon Valley. There is also a deep pool of capital available to finance the best companies, and an increasingly ambitious and experienced set of entrepreneurs prepared to build global businesses.
We are particularly excited by the outlook for deep tech where Europe has some amazing talent. Over 1,000 deep tech companies have been founded in Europe since 2014, only narrowly behind the US. Europe is a recognized leader in areas such as artificial intelligence and we expect to see more deals following a number of AI acquisitions in 2016 by big US acquirers, such as Twitter buying MagicPony for $150m, Apple acquiring VocalIQ, Microsoft acquiring SwiftKey $250m and eBay buying Expertmaker.
We expect 2017 to continue to be a very strong year for tech M&A in Europe. These are exciting times in the strengthening European tech ecosystem, and cash rich corporates and investors are actively scouring the continent for the great growth companies.