by Brenon Daly
As economic growth slows across Western Europe, tech acquirers there are increasingly looking to do deals outside their home market. The 451 Research M&A KnowledgeBase indicates 2019 is on pace for fewest number of ‘local’ deals (with both Western European acquirers and targets) in a half-decade. Based on our data, this year will see one-third fewer Continental transactions than any of the previous three years.
The slump in shopping comes as Western Europe weathers a broad slowdown that the International Monetary Fund recently said would rank the region as the slowest-growing of all the major economic regions around the globe this year. The IMF forecast that European economic activity would increase a scant 1.3% in 2019, half the comparable rate of the US.
We have noted how that has cut the overall tech M&A activity by acquirers based in the once-bustling markets of the UK, Germany and elsewhere. Collectively, Western Europe is the second-biggest regional buyer of tech companies in the world, accounting for roughly one of every four tech acquisitions announced globally each year, according to our data.
What’s more, the decline comes through sharpest in those deals that are closest. Western European acquirers have picked up fellow Western European targets in just 29% of the tech deals they’ve announced so far this year, our M&A KnowledgeBase indicates. That’s down from the five-year average of 32%.
Granted, the shift in shopping locations isn’t huge, but it is significant. Decisions on where to buy can swing hundreds of millions of dollars into and out of a local tech scene. Further, there’s a rather ominous implication about the politically fractured and economically sluggish Western Europe.
If we make the economically rational assumption that M&A dollars get spent where they can generate the highest return, then Western European tech acquirers don’t appear to be finding anything too attractive around home. On both an absolute and relative basis, they are shopping locally less often right now than at any point in the past half-decade. Instead, the M&A strategy for Western European acquirers is taking them more and more on the road.