The UK technology sector is disappearing - again. Nearly a fifth of the listed sector, as defined by the FTSE All-share Technology Index, is about to fall into foreign hands. Telecity (TCY) is being bought by Equinix (US:EQIX), CSR by Qualcomm (US:QCOM), Pace (PIC) by Arris (US:ARRS), and Anite (AIE) by Keysight Technologies. Aveva (AVV) will remain London-listed but majority-owned by Schneider Electric following a reverse takeover last month. All of the acquirers, bar Schneider of France, are American.
A fortnight ago I discussed one reason for this takeover wave - US companies can reduce their tax bill be acquiring a European domicile. This is the case in the Pace deal. But there are other reasons. Most important of all, money remains cheap. Corporate confidence is also high, supported by punchy US stock valuations.
In technology, the listed sector is the tip of the iceberg. Venture capital investment in London topped $1bn (£640m) in each of the first and second quarters of 2015 even as funding in the US showed "signs of fatigue", according to a report by data provider CB Insights and KPMG. US venture capitalists may be finding local valuations frothy and seeing value in London.
There is an important difference in investment culture between the two countries. US investors tend to focus on sales growth when appraising technology companies, whereas UK investors are more interested in profits. The result is that some UK companies that are investing heavily in growth may find they can attract more interest across the Atlantic.
A related cultural difference is that European tech entrepreneurs are infamously trigger-happy when it comes to selling up. Shakil Kahn, a venture capitalist and early backer of the music-streaming service Spotify, made a revealing distinction between the two continents in a recent BBC interview when he said that, in his experience, US entrepreneurs tend to talk about "fixing a problem" whereas their European peers say they are trying to "grow a business".
In other words, the sense of mission, vision and idealism that pervaded Facebook's 2012 IPO document, for example, is rare in Europe, making founders more willing to sell for millions rather than wait for the (chance of) billions. This culture rubs off on investors further up the funding chain. Sweden-based Spotify is the exception, a rare European world leader.
Who are we to blame this culture? Investors Chronicle tends to prefer dividends over capital gains, profit over potential, the bird in the hand over the birds in the bush. It is the rational position for individual investors: according to Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School, some 86 per cent of total returns on the UK stock market have come from dividends since 1900. Disruptive technologies have, on the whole, ended up rewarding society rather than investors.
This magazine also tends not to get too teary about foreign takeovers. When I joined, Kraft was in the process of buying Cadbury's. The IC view on that contentious deal amounted to 'take your money and run' because the valuation seemed generous. Just as well we are not sentimental, since the FT Group - publisher of the Investors Chronicle - is now being sold by Pearson (PSON) to Nikkei, a Japanese media company.
However, there does seem to be a genuine problem in the technology sector. With the very honourable exception of Arm - a world leader in microchip technology that accounts for nearly 40 per cent of the FTSE Technology Index - UK tech companies have a habit of selling out soon after they enter the FTSE 250.
Nor is it the case that the listed market is being repopulated by flotations. The CB Insights data show that late-stage mega-deals have been very strong this year. Finding it increasingly easy to raise funds privately, management teams are happy to remain out of the spotlight on pay and quarterly profits that comes with a public listing.
Another revealing trend identified by the data concerns the rise of corporate venture capital. Google's (US:GOOG) move to hive off its internet search business and brand as a mere subsidiary of a corporate umbrella called Alphabet highlights how technology companies are increasingly taking stakes in early-stage businesses as a hedge against the disruption of their core markets.
The listed technology sector in the UK is being depleted by takeovers and only partially replenished by IPOs. For investors, the deals are a useful way of crystallising gains. But they also make it less likely that the UK can produce a flagship technology group that can act as a consolidator cum investor like Google. For the long-term health of the local sector and investment industry, these takeovers cannot be helpful.
