Europe’s tech industry is one of 2016’s biggest winners
- Six $5B+ deals already this year, worth nearly $100B, vs. 5 in the last 5 years combined
- We believe this signals that Europe’s tech industry has truly “come of age,” attracting historic amounts of capital
- Europe’s tech unicorns, private companies valued at $1B+, have far stronger fundamentals than US unicorns, suggesting more “blockbuster” deals in 2017-18
- 22 European tech companies (worth half a trillion dollars) are now valued over $5B
- US uncertainty over trade, immigration likely to help Europe’s tech competitiveness
The European technology industry has come of age in 2016, according to a recent Magister analysis. Unprecedented M&A interest from Asian buyers, together with a strong IPO market for the best European tech businesses, has driven a surge in “blockbuster” deals (greater than $5B+ in value).
2016’S EUROPEAN TECH BLOCKBUSTER DEALS
The six blockbuster deals so far this year are Dutch chip vendor NXP’s $45BN sale to Qualcomm, Softbank’s $35BN purchase of the UK’s ARM plc, Tencent’s $9BN acquisition of Nordic gaming company Supercell, Activision’s $6BN purchase of Candy Crush parent company King, Markit’s merger with IHS, and the just announced sale of Skyscanner to Ctrip. Just behind these is Danish payment company Nets’ $5BN IPO a few weeks ago.
Magister Advisors’ analysis has shown that the only other European tech companies achieving these valuations since 2010 have been Skype (2011), Autonomy, famously sold to HP in 2011, Microsoft’s disastrous 2013 purchase of Nokia’s handset business, and Zalando listed in 2014.
In this unprecedented year for European tech, we have seen a Nordic company founded barely six years ago, Supercell, attract $9B of cash from one of Asia’s internet giants. And one of the pillars of the mobile revolution, ARM, has gone from IPO to a $35BN acquisition. Exponential growth in value is now possible anywhere, and European companies can now scale by competing from Europe.
Not only has the quantity of blockbuster deals increased in 2016, the quality has also improved dramatically. Whereas Microsoft’s Nokia mobile purchase, for example, was a distress sale, the acquisitions of ARM, King and NXP are purchases of leadership companies in their field, with huge future strategic potential for their acquirers.
In the end, it is clear the Silicon Valley effect has spread far and wide; entrepreneurs in Europe now have home-grown models of how to create, build, and scale companies of huge value without ever leaving the continent. In 20 years, 2016 will be looked on as the year the European tech industry truly came of age, poignantly in a year when the whole European experiment has been called into question.
FUTURE BLOCKBUSTERS IN THE MAKING
We see the next wave of $5B+ companies already emerging in Europe, underpinned by comparatively strong growth and revenue performance and a climate of innovation in some of the hottest technology sectors. Led by Spotify, Adyen, Delivery Hero, Klarna, Hello Fresh, and Transferwise, a group of other European leaders are developing quickly and will form the next wave of blockbuster deals. In all Europe currently boasts nearly 50 tech unicorns currently.
Silicon Valley culture has often been accused of creating a valuation bubble; companies without much revenue being hyped into valuations of hundreds of millions, even billions of dollars. In Europe, there is far more focus on the fundamentals. $1B+ value European private tech companies on average have far more revenue and profit than their US counterparts. European investors demand it, but it also makes European companies much more attractive targets for large profit-driven Asian investors and strategic buyers, which we believe is the next wave to come.
THE ROLE OF ASIAN INVESTORS
The level of interest from Asian investors has raised some concerns amongst regulators, leading to interventions in deals, notably in Germany, where acquisitions of companies such as Aixtron have hit a local nerve. Victor Basta added: “While governments need to step in and review certain deals, for example involving cybersecurity technology, for nearly all tech sectors high value M&A is a huge endorsement of the skill and patience of Europe’s entrepreneurs, and is to be celebrated not vilified. We believe with immigration being an even bigger issue in the US going forward, more extraordinary tech talent will stay in Europe rather than going west, which can only help increase the future value of the European tech industry.