U.S. Tech Giants’ Hunt for Targets Leads to U.K. Prey: Real M&A
In a year when technology deals are set to break records, U.K. targets are proving popular.
About $20 billion of deals were struck for British technology companies in the last 12 months, almost double the amount spent a year earlier. U.S. buyers accounted for about half the acquisitions. They included Qualcomm Corp.’s offer for chipmaker CSR Plc and Equinix Inc.’s for Telecity Group Inc. — both set to close soon.
As valuations for American technology companies rise, places such as the U.K. may be home to hidden gems for U.S. buyers looking for a better bargain. A stronger dollar, cheap borrowing rates and a chance to use overseas cash stockpiles without incurring repatriation taxes are also incentives.
“There is a global wave of consolidation happening right now,” said Youssef Essaegh, an analyst at Barclays in London. “Ultimately the biggest players are in the U.S., so they tend to be the ones that buy, and the U.K. has some good assets.”
The U.K. is the third-most popular stop for tech deals after China and the U.S. For American buyers, British targets, many of which grew out of the innovation hubs in London and Cambridge, offer the potential for tax benefits and growth at a cheaper price than their U.S. counterparts.
There are still some attractive targets left, such as network-testing companies Anite Plc and Spirent Communications Plc, said Liberum Capital analyst Eoin Lambe.
Anite and Spirent, each valued at less than $1 billion, create software and equipment that tests mobile networks, infrastructure and devices to improve carriers’ performance and help guide companies’ designs of phones and semiconductors. Both are projected to increase revenue more than 18 percent by 2017 from last year’s levels.
Anite rose 1 percent to 102.75 pence in London trading at 12:32 p.m. The stock had gained 28 percent this year through Friday. Spirent, up 16 percent this year, rose 0.3 percent to 88.25 pence.
Overseas Cash
U.S. companies pay a penalty to bring cash earned overseas back into the country, causing many to leave big piles in foreign bank accounts. While U.S. companies are generally subject to a 35 percent tax on the income they make around the world, they don’t have to pay it until the money comes back into the country.
Companies can also incorporate in the U.K. in so-called inversion deals, which move their headquarters to a country with a cheaper tax rate. That’s what Suwanee, Georgia-based Arris Group did with its $2.1 billion deal in April for Pace Plc, a T.V. set-top box maker from Yorkshire.
Patent Discount
The U.K. also has an additional tax break called the “patent box” which gives a discount to companies that profit from British innovations. That gives U.K. technology companies a lower tax rate in many cases and acquirers a vehicle similar to tax inversions.
“Rather than leave the money in the bank over here, earning no interest, you might as well go and buy technology,” said Robert Lamb, an analyst at Jefferies in London. “Rather than have it do nothing, use it to buy something.”
Equinix, based in Redwood City, California, agreed to buy London-based Telecity Group for about $3.6 billion on May 29. Qualcomm agreed to buy chipmaker CSR for $2.4 billion in October in a deal expected to be completed this summer.
CSR came out of the same Cambridge innovation hub as ARM Plc, the semiconductor designer whose technology is in more than 95 percent of smartphones. CSR’s net income has more than doubled since 2011 as it began selling chips to power the “Internet of Things,” such as Web-connected cars and thermostats that can be controlled with a smartphone.
So far this year there have been more than $95 billion in tech deals announced worldwide. That puts the industry on track to beat the record $147.3 billion in acquisitions in 2007.
“There’s cheap money out there and the interest rates are very low, and I think you want to take advantage of them now before people start hiking up rates,” Jefferies’s Lamb said. The bond between the U.S. and the U.K. “maybe from a cultural and social point of view makes it easier to integrate.”
