Tech firms are set to work harder for funds, says Morag MacKinnon of M&A specialists ansarada. Europe’s tech scene is feeling the brunt of global market volatility, the slowdown in China and fears of a corresponding easing in global economic growth. Financial pressures, the migrant crisis and security fears are also weighing more heavily in Europe than the rest of the world. As a result, investors and venture capitalists are becoming more hesitant with funding and concerns continue over excessive startup valuations recently.
All round, more questions are being asked as startups that once appeared attractive, fold and those seeking investment can expect to have to work harder to obtain capital.
US tech firms issuing debt in the European market may also have to work harder to attract investors after Honeywell upset some bondholders by announcing a plan, since abandoned, to acquire United Technologies Corp and its associated $36 billion in debt, soon after its issuance.
US companies are taking advantage of the continent’s relatively low interest rates, issuing bonds in Europe. So far this year, US corporates have accounted for more than one-third of total bond issuance in euros, according to Dealogic data.
And although Honeywell didn’t break any disclosure rules, the timing of the proposed major acquisition of a rival so soon after a debt issuance riled many investors in Europe’s bond markets. At issue was the fact that on the day Honeywell’s issuance of 4 billion euros in bonds settled last month, media reports that it had been in talks with United Technologies since 2015 were consequently confirmed.
It’s a legal grey area and the declaration of talks around a potential merger is always a tricky call for the companies involved. Chinese investors are also making their presence felt in Europe, as they are globally, driving M&A activity to record levels in the first quarter of 2016. According to Dealogic data, in less than three months this year Chinese companies have agreed to $102 billon in foreign deals, compared with a record $106 billion for the previous 12-month period.
Driving this is the recent stock market rout and a slowing economy. China’s economic growth in 2015 was the slowest in 25 years, prompting companies to seek growth via acquisition and cashed-up investors to look outside for opportunities.
Telco M&A is hotting up
It’s the European telco sector that’s offering the most opportunity for M&A activity in coming months. The leaders of Italy’s Telecom Italia and French phone company Orange said in March that they might look at a potential merger.
And in a deal set to reshape the French telco space - cutting the number of mobile operators from four to three - French billionaire Patrick Drahi is set to pay up to 4 billion euros as part of a deal to carve up a Bouygues Telecom unit.
At the same time, as much as one-fifth of British mobile phone operator Three, a unit of CK Hutchinson, may be on the block so that its Hong Kong tycoon owner Li Ka-shing can use the estimated $1 billion proceeds toward the $15 billion purchase of rival UK operator O2.
That’s a deal that regulators are reviewing because a merger of Three and O2 could be anti-competitive for UK customers. Merger and acquisition activity in Europe’s telcos will please investment bankers desperately seeking advisory fee revenue.
According to Dealogic data, global investment banking revenue is down by more than a third in the first quarter, when compared to the same period last year, and at $12.8 billion, is the lowest quarterly total since the first quarter of 2009, when markets were in the grip of the global financial crisis. And finally this month, France is rapidly catching up with the startup industries of Berlin, London and Tel Aviv, according to a report released by Tech.eu. BlablaCar, the charmingly named French answer to Uber, attracted 182 million euros in venture capital last year.
Meanwhile, Berlin is picking up the pace in the race to be Europe’s leading “smart city.” Cisco and Berlin authorities have signed an MOU to build an mHealth platform, as part of a larger package that sees Cisco investing $500 million in the national Deutschland Digital initiative over the next three years.