M&A Activity in the ICT Sector - January 2010

Inevitably as we start the year (and decade) we wonder what is in stall for the sector during the forthcoming year. (Not sure many sane people would try to predict where we will be in this sector in a decade – and we are certainly not going to try!)

Let’s start with some good news: according to Forrester, the IT recession is “unofficially over” in Europe and the US. They forecast global spending on IT to increase by 8.1% in 2010 with Western and Central Europe being the strongest performers at 11.2%. This should be good news for those considering an exit in the short or medium turn as current performance is of paramount importance when going to market. Furthermore, as confidence returns it should help underpin a slow but steady rise in M&A activity. Indeed, in a recent report from KPMG they suggest that Technology companies will lead the way in driving forward M&A activity in the coming year due to their relatively strong financial performance (in comparison with other sectors) during 2009. They also report that in the corporate arena, P/E ratios are now 7% higher than last year.

 

Recent M&A Activity

Since our last newsletter, there has been a fair bit of activity in the sector – and significantly more involving UK businesses. This time we look at a selection of those we have tracked and report according to activity.

Telecoms

Clearly in terms of scale, Cisco System’s $2.9bn acquisition of mobile infrastructure supplier Starent Networks stands out from the crowd. Cisco see mobile data traffic more than doubling each year until 2013, thus the interest in this area. Interestingly, Carphone Warehouse have just revised their forecasts upwards after strong demand for smartphones in the UK and US. The increasing popularity of such devices would support Cisco’s contention on mobile data.

One other large Telecoms deal of note was our very own Cable & Wireless’s acquisition of US company Digital Island for $340m. This represents a further move by C&W into business data and Internet services.

If you think deals are only happening between corporates, you would be wrong. By way of example SpiriTel plc recently acquired ADK Communications Ltd for c.£1m and Pinnacle Telecom Group plc bought Solwise Telephony Ltd for c.£0.5m.

Hosting

The fourth largest domain registrar in the UK, Namesco Ltd (owned by Italian company Dada SPA) acquired PoundHost Internet Ltd – a company running 10,000 dedicated and virtual servers and a strong client base in the US.

IT support & Services

Astra 5.0 Ltd (controlled by Inflexion Private Equity Partners LLP) has acquired FDM Group plc for £33.3m cash. FDM is an international IT services company with sales offices in London, New York, Frankfurt, Zurich and Luxembourg which specialises in the provision of outsourced IT solutions predominantly to large blue chip organisations.

365i Technology plc has acquired 7 Global Ltd, a company specialising in fully managed IT services specifically aimed at software vendors and end user organisations that wish to take advantage of Software as a Service (SaaS).

The Capita Group plc has acquired Synetrix (Holdings) Ltd for £75m. Synetrix specialises in the design, development, integration and deployment of converged networks, hosted application solutions, managed security solutions and software platforms.

Security

Richard Beaton, who founded and subsequently sold Tekton to Sage for £21m in 2008 has taken a 15% stake in Deep-Secure. The MBI is being funded by venture capital firm YFM who are also taking a 45% stake in the business.

Social Networking

There is always activity in this sector and the most notable is perhaps Twitter Inc’s acquisition of Mixer Labs which develops geolocation applications. According to Ev Williams (Twitter co-founder), the Mixer Labs team “will be working to combine the contextual relevance of location to tweets.”

Software

A couple of deals involving UK companies worth mentioning. Firstly, Playtech Ltd’s acquisition of Gaming Technology Solutions Ltd, a developer of online gaming software, for £29.4m. Secondly, Trafficmaster plc’s acquisition of US based Fleet Management Solutions Inc for up to £3.7m. FMS are particularly active in the Government and oil and gas sectors.

Others

Finally, we see that four of the high profile names have been busy on the acquisition front:

Apple have acquired Lala (online music streaming) for and estimated $85m and Quattro Wireless (mobile advertising) for $275m.

Microsoft acquired Opalis Software (data centre automation) for an estimated $60m and also bought Sentillion (healthcare software).

Google have acquired two more companies: AppJet Inc (web based word processing) and Teracent (online advertising).

IBM have added the pair of Lombardi (BPM software) and Guardium (database security).