Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
magazineTakeover activity could put the spark back into the technology sector
Sharp declines in global technology stocks have sparked consternation among investors on both sides of the pond, yet some analysts are predicting a surge in mergers and acquisition (M&A) activity through the rest of 2018.
US president Donald Trump’s scathing attack on Amazon over the Easter weekend wiped more than $35bn off the internet retail giant’s valuation early this week.
Other big US-based technology companies to see their share prices fall include Facebook, Netflix, and Tesla.
These share price declines have been mirrored by the performance of many of the UK’s largest technology companies.
FTSE 100 software company Micro Focus (MCRO) collapsed last month after getting into integration difficulties with a large acquisition. Its share price has lost a staggering 60% since the start of 2018.
Accounting software firm Sage (SGE) has come under stiff selling pressure, down more than 20% since the end of January.
FTSE 250 cyber security company Sophos (SOPH) has also landed hard, down more than 35% since late January.
Aveva (AVV), the engineering design software provider and the largest UK technology company outside the FTSE 100, is down nearly 9% even after accounting for its recent large cash return.
This matters for all investors because technology companies have grown to dominate global stock markets in terms of weighting, or in other words, their influence on stock markets as a whole.
Numbers crunched by analysts at investment platform provider AJ Bell recently show 10 of the world’s 25 biggest companies are technology businesses, including all of the top five.
M&A AND IPO MARKET TO SURGE AHEAD
While valuations are arguably still high in the tech sector, analysts at stockbroker Peel Hunt believe that M&A activity is set to accelerate through the remainder of 2018.
M&A has picked up over recent months, with Aveva sealing a merger and Worldpay (WPY) being acquired by Vantiv.
On 3 April, Fidessa (FDSA) delayed a meeting to vote on a takeover by Temenos after receiving interest from two other parties.
Peel Hunt believes this could be just the tip of the iceberg with capital expenditure budgets for technology projects rising and industry balance sheets loaded with cash.
‘We think the UK listed tech universe will provide rich pickings to play the [M&A] theme,’ Peel Hunt says. The analysts also anticipate that the technology initial public offering (IPO) market in the UK will ‘roar back’ this year.
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
