A recent report by Newbury-based M&A advisers BCMS shows that despite fears of a Brexit-driven slowdown the second quarter of 2016 has seen the greatest number of acquisitions of UK-based software companies ever. This is in line with the fact that the global technology sector as a whole has defied any signs of an economic slowdown.
Oracle’s $9.3 billion acquisition of cloud-computing company Netsuite and Microsoft’s high-profile acquisition of LinkedIn Corp for $28.12b, have pointed the way and pushed the total tech deal values to $311b.
Interest in UK-based software companies remains very high, with foreign investors seeking to capitalise on the relatively weak position of the pound against the dollar. A total of 40 software companies were acquired in the UK in Q2 2016, an increase of one-third on the previous quarter and nearly double the number acquired in Q2 2015 when there were 22 acquisitions.
Some of these have been strategic acquisitions with a rationale that goes far beyond increasing scale. The telecommunications giant Telstar, for example, purchased the small UK health analytics software company Dr Foster for an estimated $40-$50 milion in order to expand its capabilities in the growing area of health information.
In addition, Google has acquired Oxford University spinoffs Dark Blue Labs and Vision Factory in order to help forward its AI vision. This month (September) has seen the announcement of the latest BCMS-led technology deal. This cross-border transaction saw US science safety giant UL (based in Northbrook, Illinois) acquire Nottingham-based regulatory compliance specialist Safeware Quasar.
As Simon Glover of BCMS’ major transactions group, said: “Software technology businesses will often combine a number of key attributes that are attractive to buyers. These include defined intellectual property rights, predictable, recurring revenues, and a diversified, but committed client base.”
At the same time, the deals have not all gone the same way. UK-based Micro Focus, clearly far from deterred by a weak pound, bought the software unit of Hewlett Packard Enterprise in early September for more than $8b.
Within the domestic market, public-sector software specialist Civica is one company that has ramped up its acquisition strategy recently, making no fewer than six acquisitions in the past two years. One of the acquisitions, that of Belfast-based Asidua Holdings, was arguably one of its most transformational to date and served as Civica’s first move into telecommunications services, as well helping to build its digital-services offering. Civica’s most recent acquisition of government digital specialist SFW in July demonstrates that Brexit failed to put a damper on its inorganic expansion plans.
Early indications from BCMS data show interest in software-related businesses is continuing to rise and, as the post-Brexit aftermath continues to die down, there are likely to be further exciting acquisitions of UK-based software businesses over the coming months.