UK Tech M&A Activity Heating Up

The ongoing wave of overseas buyers targeting UK-based tech companies is heating up, with companies looking to put their excess cash piles to use, bulk up on key technology trends, or ramp up exposure in Europe in the hope of an eventual rebound.

So far this year there have been 187 announced U.K. tech targeted M&A deals. While the majority of those (115) have been domestic transactions, foreign acquirers account for a notable 64% of the overall total deal-value.

The recent buyout of Logica by its Canadian rival CGI for £1.7 billion has prompted widespread speculation from the press and sell-side analysts as to which UK tech firm will be next to concede to its cash-rich overseas rival. Those that make the shortlist include Wolfson Microelectronics, Telecity, Sage Group and ARM Holdings.

Chip designer Wolfson, ($337 million market cap), has been rumored as an acquisition target for its expertise in solutions, including audio semiconductors, and boasts Samsung as one of its clients. Given the growing emphasis on audio quality in the smartphone market, the company’s long-term outlook seems promising. But Wolfson hasn’t had an easy time following the loss of its key client Apple in 2008.

On the other hand, carrier-neutral data center operator Telecity ($2.6 billion market cap) is deeply entrenched in a fast-growing segment and seems better positioned to create more value short-term as a standalone. Over the last year, Telecity’s stock has soared 95%. On Monday, it reported a 22% rise in first half revenue to £138 million and a 27% increase in pre-tax profits, fueled by consistent demand for its products and services.

Indeed, the UK tech M&A space has certainly been relatively hot over recent years, with foreign bidders willing to fork out notable premiums for their U.K. prey: the most notable been the $11 billion acquisition of Autonomy by Hewlett-Packard last December.

Stockpiles of cash and the strategic objectives of large corporations are likely to drive continued and increased M&A activity in the technology sector throughout 2012 and into 2013.

Debbie Stephenson

Debbie Stephenson is Communications Manager at Safe Food Production Queensland.