2016 CONFIRMED THE VALUE OF EUROPEAN TECH IN A HUGE WAY
- Total European tech deal value more than doubled, from $55B last year to $127B this year, based on nearly 1,000 tech M&A deals across Europe. Surge in value driven by landmark transactions, many initiated by Asian buyers.
- Six $5BN+ “blockbuster deals” account for near $100BN of 2016 exit value (versus five in the last 5 years combined).
- 22 European tech companies now worth more than $5B, (with a combined value of nearly $0.5TN). Europe’s tech unicorns, valued at $1BN+ but still privately held, have far stronger fundamentals than their US counterparts, setting the scene for more “blockbuster” deals in 2017-18.
- Hottest sectors for M&A and investment in 2016 were AI (acquisitions of Swiftkey, Magic Pony), FinTech (financings for Kreditech, Nutmeg) and Gaming (acquisitions of SuperCell, King, Inspired Gaming)
- Tightening US immigration will be a net positive for Europe, consolidating a world-class European talent pool.
European technology has come of age in 2016, according to M&A advisory firm Magister Advisors’ annual review of the European technology M&A and investment landscape. Total M&A deal value has more than doubled in Europe in the last 12 months to $127.2BN, driven by the blockbuster acquisitions of ARM, Supercell and NXP. But there were 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.
A YEAR CHARACTERISED BY TRANSFORMATIONAL DEALS RATHER THAN CONSOLIDATION
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 $100BN this year are NXP’s $39BN sale to Qualcomm, Softbank’s $32BN purchase of the UK’s ARM plc, Tencent’s $9BN acquisition of Nordic gaming company Supercell, Activision’s $6BN purchase of Candy Crush parent King, IHS’ merger with Markit. Just behind these is Danish payment company Nets’ $5BN IPO. More transformational deals will come from the dozens of high-value European companies, underpinned by comparatively strong growth and revenue performance and a climate of innovation in some of the hottest technology sectors.
Victor Basta, partner at Magister Advisors, said: “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.”
‘GROWN-UP’ VS ‘START-UP’ – LARGER EUROPEAN TECH COMPANIES DRIVING GROWTH IN A SPUTTERING EUROPEAN ECONOMY
There are currently around 20 Unicorns in Europe. Five years ago there were fewer than ten. 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. It misses a fundamental point that grown-up private tech companies in Europe are fuelling economic growth in an unprecedented way. 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%+, often much more than that.
Victor Basta said: “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.”
He added: “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.”
“THE GREAT ASIAN TAKEAWAY”
Asian buyers and investors ploughed more than $55BN into Europe in 2016, making a series of strategic landmark acquisitions and investments. Victor Basta said: “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 $9B from one of Asia’s internet giants. And one of the pillars of the mobile revolution, ARM has gone from IPO to a $35BN acquisition by Softbank in under 20 years.”
MARKET SECTORS IN ASCENDANCE AND DECLINE
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% from $2.9B in 2015 to $1.7B in 2016, and the number of category “winners” able to scale successfully is dwindling: witness UK furniture category leader Worldstores’ recent low value sale to Dunelm plc even after scaling past £100m in revenue.
A DISTINCTIVE EUROPEAN TECHNOLOGY CULTURE
Victor Basta said: “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. $1BN+ 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.”
PREDICTIONS FOR 2017
- There will be more landmark deals in the next two years. Highly valued European businesses trade with better fundamentals than is the norm in Silicon Valley. Europe’s technology industry is commercially disciplined and entrepreneurial in part thanks to the greater experience and discernment of VCs.
- Unprofitable larger companies will get sold as fundraising gets harder. Many European companies have funded in the last 2 years only to their next financing, not to profitability. In a weakening fundraising environment, these companies are inherently far less stable than when money is plentiful.
- By the time Brexit is complete it will be a ‘damp squib’ for the European technology sector. Tech is a borderless business by design. It is uniquely capable of operating and competing globally. Tech will be one of Europe’s pillars of growth irrespective of whether a country is in the Eurozone or outside it.