Merger & acquisition (M&A) activity could be set to intensify in the technology sector, as companies seek to diversify into burgeoning areas of technology and capitalise on low valuations in the sector, something which could bring relief to beleagured investors in companies such as Pace and Logica.
According to a report by PricewaterhouseCoopers (PwC) on tech sector M&A, strategic trade buyers will primarily be focusing on key growth areas within the sector such as cyber security, financial technology, smartphones, intellectual property and big data (when large pools of data are converted into valuable pools of commercial information).
Panmure Gordon technology analyst George O'Connor believes the sector is ripe for more activity: "Given the pressure of being able to tap into growth streams, retiring baby boomers or chief executives and founders, a demanding IPO environment, new application types and delivery models, coupled with a cash-rich sector - M&A should do well in 2012."
Moreover, the sector's valuation has come under pressure from cuts in IT spending forecasts and falling European GDP. At present, the sector average PE is about 15.5 times - against a long-term average of 17.3 times. Mr O'Connor believes the sector will do well in 2012, with most companies expected to report in-line numbers for the fourth quarter of 2011, and upgrades expected for 2012 forecasts.
|Company||Current share price (p)||Share price change in 1 year (%)||PE|
Source: FT.com, Bloomberg
Companies that are trading on low multiples and offer new IP, recurring revenue streams, a strong foothold in certain regions or product niches look optimally primed for takeover. Our top targets in 2012 are