European technology has come of age in 2016, with the total M&A deal value more than doubling in the last 12 months to USD127.2 billion, according to M&A advisory firm Magister Advisors.
This was driven by the blockbuster acquisitions of ARM, Supercell and NXP.
There was also a series of transformational mid-market deals, a significant shift for Europe which has traditionally been a hunting ground for consolidation deals. Unprecedented M&A interest from Asian buyers, together with a strong IPO market for the best European tech businesses, has driven the surge in “blockbuster” deals.
According to the review, the European technology landscape was marked by a series of transformational deals in 2016, reflecting the maturity of Europe in global technology terms.
The six blockbuster deals, with a combined value of nearly USD100 billion this year are NXP’s USD39 billion sale to Qualcomm, Softbank’s USD32 billion purchase of the UK’s ARM plc, Tencent’s USD9 billion acquisition of Nordic gaming company Supercell, Activision’s USD6 billion purchase of Candy Crush parent King, and IHS’ merger with Markit.
Just behind these is Danish payment company Nets’ USD5 billion IPO.
Victor Basta, partner at Magister Advisors, says: “The sheer scale of 2016’s blockbuster acquisitions in Europe demonstrate that this was the year that the European technology industry came of age. The largest acquisitions were transformational platform deals, not consolidation deals, and that is a major shift that sets the scene for more activity in 2017 and beyond.”
There are currently around 20 unicorns in Europe; give years ago there were fewer than 10. Highly valued European businesses typically trade with better fundamentals than is the norm in Silicon Valley. Despite this. most of the “buzz” around European tech focuses on start-ups.
Against the backdrop of anaemic EU growth rates, still a fraction of US growth, the largest 100 private tech companies are achieving growth rates of 20 per cent, but often much more than that.
Basta says: “At a time when the idea of borders invades practically every aspect of economic and political discourse, here is a class of companies that are borderless by design, are competing globally and are underpinning Europe’s economic performance in a way that deserves more attention.
“The exponential growth in value associated with Silicon Valley is no longer confined to the Pacific Time Zone. Entrepreneurs in Europe now have home-grown models of how to create, build, and scale companies of huge value without ever leaving the European continent. 2016 will be looked on as the year the European tech industry truly came of age, poignantly in a year when the whole European experiment has been called into question.”
Asian buyers and investors ploughed more than USD55 billion into Europe in 2016, making a series of strategic landmark acquisitions and investments.
Basta says: “Asian buyers and investors had a transformative effect on the European technology landscape in 2016, spending more than ever before, and there are signs that their appetite will remain strong. We have seen a Nordic company founded barely six years ago, Supercell, attract USD9B from one of Asia’s internet giants. And one of the pillars of the mobile revolution, ARM has gone from IPO to a USD35 billion acquisition by Softbank in under 20 years.”
Three market sectors in the ascendancy in Europe, according to Magister Advisors’ analysis, are payments, analytics software and AI. At the same time the historically active sectors of e-commerce and AdTech are in secular decline.
Total funding for EU e-commerce companies decreased by more than 40 per cent from USD2.9 billion in 2015 to USD1.7 billion in 2016, and the number of category “winners” able to scale successfully is dwindling.
Basta says: “European tech is developing very differently than Silicon Valley. Silicon Valley culture has often been accused of creating a valuation bubble; companies without much revenue being hyped into valuations of hundreds of millions, even billions of dollars. In Europe, there is far more focus on the fundamentals. USD1 billion+ value European private tech companies on average have far more revenue and profit than their US counterparts. European investors are requiring companies to ‘show me the money’ before they are willing to buy shares at high prices. This also makes European companies much more attractive targets for large profit-driven Asian investors and strategic buyers, which we believe is the next wave to come.”