A constant flood of positive earnings results from players such as Apple and Intel would convince anybody that the technology sector has returned to the vibrancy of the mid-to-late Nineties. Look a little closer, however, and you will see that for every bit of good news, there’s still a shadow of gloom affecting the most established companies. As we went to press Nokia disappointed the markets and saw its stock tumble following revelations of slipping sales.
Our own Iona Technologies is continuing to see a gradual slide in revenues as it struggles with less-than-expected demand for its Artix product range. The company is relying upon its traditional Corba middleware family to keep it on the straight and narrow. “In the past quarter, enterprise IT buyers have been more cautious than anticipated in their adoption of innovative technologies, including our web services integration product Artix,” conceded Iona CEO Chris Horne.
To get a better perspective on how the technology sector locally is faring, a very good indicator is the tech firms’ merger and acquisition (M&A) activity level.
According to Ion Equity’s quarterly M&A Tracker, M&A activity in the Irish marketplace in the second quarter of this year rose by nearly €500m to €2.6bn, compared to the second quarter of 2003 in terms of the total value of all disclosed transactions. A significant portion of the activity went to both CRH and Kerry Group as well as the acquisition of the Savoy hotel group by Quinlan Private in a deal worth €1.1bn. The value of the various deals broke the €2.5bn barrier for the first time in over 15 months.
The IT and telecoms sector accounted for approximately 13pc of the overall deal volume during the second quarter and only 5pc of the overall deal value at €124.4m.
M&A activity in the tech sector was dominated by the €108m sale of Eontec to Siebel Systems in April. Other prominent tech deals included Sage’s acquisition of Denver Manufacturing for €1m in April and its acquisition of Service Software Accounting Package in May for an undisclosed sum; Top Security’s acquisition of Systemhouse Technology for €7m in May; ID Data’s acquisition of Cardbase Technologies for €3.42m in June; and Plasmon’s acquisition of Raidtec Holdings for €5m in April.
Another interesting acquisition that was filed under financial services in the M&A Tracker Survey was US Bankcorp subsidiary Nova Info’s acquisition of Bank of Ireland’s EuroConex Technologies in April for €40m.
“In terms of the number of deals, the most active sectors were food, industrial, IT/telecoms and leisure/travel – the latter mostly involving the sale or acquisition of hotels,” said Neil O’Leary, chief executive of Ion Equity in his review of M&A activity in Ireland during the second quarter. “As with the bigger deals, most of the buyers were Irish, and in the case of smaller deals the main driver is either consolidation in the Irish market or the opportunistic acquisition of overseas assets in the UK.
“In the technology sector, the sale of Eontec to Siebel for the very strong price of €108m suggested to some that the days of rich return from the technology sector are back. But the Eontec deal is likely to be the exception rather than the rule in the short term as there is only a handful of interesting technology companies worth significant money in Ireland today.
“Looking ahead, although most of the underlying economic indicators are good, and financial buyers are finally getting a run for their money from corporate buyers, there is by no means a consensus that we have fair sailing in the medium term,” he noted.
Another way of gauging the current health of the indigenous industry is the amount of capital being generated. Last month’s Digital Ireland revealed that investment is up. According to Shay Garvey of the Irish Venture Capital Association, in 2003 the venture capital industry invested €255m in 187 companies, compared with €105m in 2002. However, a large proportion of this – some €175m (70pc) – went into management buyouts of such players as Alphyra and Riverdeep.
The true bedrock of raising money locally is still done through state intervention in the form of EI. Partnership funds between Enterprise Ireland (EI) and the private sector invested in 71 ventures to the tune of €32.7m. The agency claims that the level of investment indicates that venture capitalists are once again keen to invest in new projects and are more positive about existing portfolios.
The amount was marginally higher than the €31.8m invested in 2001 and €29.3m invested in 2001. EI said that while the number of investments was higher than in previous years, the average value per investment was lower.
According to EI’s 2003 report on its Seed and Venture Capital Programme, some 15 different funds are fully operational, with start-ups attracting some 39pc of its investment, approximately €12.8m.
Early-stage companies attracted 38pc of the agency’s investment, some €12.4m. Companies in the regions accounted for one third of the total of €93.8m invested since 2001.
Software accounted for 71pc of the total amount invested since 2001, while life sciences accounted for almost 10pc of the total invested.
Pat Maher, executive director of EI, commented: “Market conditions are improving for technology companies. Venture capitalists are making more investments and as technology markets continue to recover, the investment community appetite for investment will increase.
“This year over three quarters of the companies attracting investments were start-ups and early-stage companies. As these ambitious companies develop products and markets, they will be well positioned to attract follow-on investment. There are substantial funds available both in Ireland and overseas for the right projects. I look forward to the continuation of the important role of the Partnership Funds with EI in this revival,” he concluded.
By John Kennedy