Research

Objectives

This study is based on analyses of public and internal databases and provides the reader with a comprehensive overview of M&A activity in the German IT industry in 2010.

In addition to the relevant market drivers, trends and samples of the transactions closed, the report also gives reliable benchmarks for valuation of German IT firms, thus serving as a point of insight for investors, financiers and owners, as well as consultants and research analysts for the German IT industry

Executive Summary

The strong economic growth over recent years has also produced a sharp rise in M&A activity in the German IT industry. 2010 marked the first year in which more than 500 transactions were concluded in a single year in the German IT sector. This amounts to an increase of 27% over the previous year. With respect to the overall German M&A market, the IT sector has also managed to boost its market share to the point where today, one in four company transactions in Germany can now be attributed to this segment. The increasing interest in the sector on the part of investors is certainly one reason for this development, but another is the increasing pressure to consolidate markets which in some regards are still quite young and dynamic.

Despite the positive economic outlook, the average transaction volume was less than last year. One reason for this development is certainly the increasing number of new start-ups, as a result of the positive economic atmosphere, which prompted an increase in growth financing at lower transaction volumes. On the whole, 2010 increasingly saw 2 types of transactions. One type, as mentioned above, involved numerous financing arrangements for younger firms exhibiting potential. For the other type, a large number of relatively high-volume transactions were concluded because numerous national and especially international investors showed increasing interest in established IT firms with proven business models which have already attained critical mass in terms of employees, technology and turnover.

The number of transactions carried out in Germany fell by 8 per cent compared to the previous year. This figure corresponds to the increasing number of international strategic investors on the German IT market in 2010.

In 2010, financial investors closed fewer IT deals in Germany than strategic buyers. This marks a fundamental shift from previous years. Financial investors are now investing quite heavily in the Internet sector (153 investments in 2010, 103 of which were venture capital investments).

Software companies were another interesting target for financial investors. A total of 66 software companies were financed by investors. Venture capital providers in particular closed numerous investments (38 in 2010).

In 2010, the IT service sector market, which in comparison to other IT subsegments is primarily characterized by solid turnovers, also began consolidating. For 63% of all transactions closed in this sector, IT companies acted as both buyer and seller, and 45% of those were purely IT service providers.

Similarly, strategic undercurrents can also be discerned from the multitude of transactions in the hardware sector.

Basically, we can note that strategic buyers enjoyed very solid returns in the 2010 financial year. With these funds available and the willingness to allocate them, there is currently an active interest in additional opportunities for growth. This is also the reason for the sharp rise in transaction figures in the year 2010.

Methodology

This M&A report is based on an analysis of over 2,200 transactions in the German IT industry since 2004.

The IT industry was divided up into four subsegments: software, hardware, IT services and the Internet. This was followed by an additional excursion into the world of e-commerce. This study focuses on the seller side and encompasses all transactions that targeted a German IT firm. The study includes an analysis of the transaction volumes as well as the buyer’s country of origin and industrial background, with special emphasis on transactions financed by venture capital and private equity.

CatCap’s research department used the following research tools in this study: CapitalIQ (since 2010), Bureau van Dijk, and especially the Markus and Zephyr databases. Majunke, Dow Jones Factiva, deutsche-startups.de and our own statistical records were tapped for this.

If you have any additional questions, please contact:

Michael Moritz
Partner
phone: +49 (0)40 300 836-13
e-mail: michael.moritz@catcap.de

Mark Miller
Partner
phone: +49 (0)40 300 836-11
e-mail: mark.miller@catcap.de