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Europe puts all its techs in one M&A basket

Dealmakers can barely catch their breath amid an M&A boom fuelled by unprecedented demand for digital services and infrastructure. In Europe, the technology, media, and telecom (TMT) sector recorded €125.2 billion worth of deals across 1,828 transactions in the first half of 2021—the busiest first half in a decade. It represents a 73% gain over the corresponding period in 2020 when 1,626 deals worth €72.3 billion were struck, according to Dealogic.

Private equity (PE) and venture capital (VC) houses are piling into the sector while the SPAC renaissance adds further fuel to the fire, spurring deal activity as well as valuations. Sponsors now recognise that tech and telecoms will be central to our post-pandemic lives.

Technology is winning the most invested capital by a long stretch. Europe played host to €89.6 billion in tech deals, more than double the total seen in the first half of 2020. Table-topping deals included the sale of French capital markets software firm Calypso to Thoma Bravo for US$3.75 billion (37.5x the company's 2020 earnings).

Broadridge’s acquisition of Swedish software firm Itiviti for around €2.4 billion (or 24.7x the firm's 2020 EBITDA) also came in at the top of the rankings.

SPACs have also been making their presence known. The largest deal of the period, valued at US$7 billion, was sealed when the cash shell AJAX I agreed to acquire online car platform Cazoo, making it a public company via a de-SPAC merger.

Re-cyclical assets

Such is the appetite for quality assets that PE firms are selling minority stakes rather than making clean exits, and flipping tech portfolio companies from one fund to the next to retain them for longer. For example, Hellman & Friedman switched its Italian ERP software business TeamSystem in January from its seventh fund to its ninth.

Elsewhere, Silverlake is reported to have been exploring moving French ERP software provider Cegid to another of its funds, before the asset received a minority investment from KKR. Coincidentally, KKR-backed B2B software provider Exact also sold a minority stake in the business to Silverlake for an undisclosed sum.

Towers that be

Telecoms transactions have also been coming in thick and fast, with €32.9 billion worth of volume through June—a 23% jump on last year. And it's still very much the season for towercos and other physical assets.

This was epitomised by the sale of Altice’s portfolio of around 10,500 towers, Hivory, to Cellnex for around €6 billion. American Tower’s €7.7 billion acquisition of Telxius’s towers division Orange also sold a 50% stake in its French fibre greenfield project in a deal worth around €2.5 billion.

Similar fibre and towerco deals are in the making. For example, Virgin Media UK’s search for a fibre co-investor is due to kick off by the end of this year. Deutsche Telekom's German fibre sale, meanwhile, has already attracted non-binding offers from Macquarie Infrastructure, Brookfield and Wren House.

Following the IPO of Vantage Towers earlier this year, Vodafone could look to sell the approximately 80% shareholding it retained in the newly floated asset. Similarly, in February, Orange separated out its tower assets as TOTEM, making it ripe for a potential deal in the second half of 2021.

Even so, it will take a miracle for telecoms to supersede tech in the M&A stakes in Europe this year.