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Analysts predict early upturn this year for tech deals

Tentative revival to follow last year's collapse

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The number of technology company mergers and acquisitions fell by 60% and the value of those deals by 52% last year, according to figures produced by consulting form PricewaterhouseCoopers (PwC).

Though deal-making slumped to levels last seen in 2003, PWC analysts have claimed that UK deals will soon pick up in number and value.

The number of deals in 2009 fell to 25 from 66 in 2008 and the total paid in tech merger deals fell from €6.8 billion to €3.3bn, according to PwC's figures.

PwC partner Andy Morgan said, though, that some initial signs indicate that a gentle recovery in deal-making activity might be on the way.

"Recovery in UK tech M&A appears less pronounced than in the US where mega-deal announcements have provided momentum. However, the right conditions appear to be in place to mean a tipping point into the next stage of the deal cycle and local confidence is starting to return," he said.

Morgan warned, though, that financiers and company owners should temper their expectations.

"Extended transaction timetables are still a feature of the market and successful completions will depend on vendor price expectations. Both buyers and sellers must embrace a new era of realism if deals are to be done," he said.

PwC has produced a report which says that there is likely to be an upturn in activity in early 2010.

"Some technology companies have already signalled their intention to float, notably the UK security software firm Sophos, which has signalled its plans to list on Nasdaq later this year, two years after abandoning plans to list in London because of market volatility," said that report. "However, many of those flagged for IPO may well succumb to the greater certainty which may be offered by the embrace of a strategic trade suitor."

PwC identified five areas of technology business where activity is most likely to happen. These are financial technology; software as a service; healthcare software and services; security technology; and companies which become attractive as firms get involved in the convergence of different digital services.

The report said that €15bn worth of deals were set to take place in the first three months of 2010 across the world. It said, though, that this would only happen if company owners changed their expectations of the prices they will get for their firms to more closely match the expectations of buyers.

European companies last year showed themselves to be disproportionately affected by the global economic downturn. Europe's share of the world's technology deals market fell from 39% in 2008 to 17% in 2009, PwC said.

"We expect activity in Europe to pick up in 2010, as corporate confidence returns and weaker exchange rates make certain European markets look more attractively valued," said the report.

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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