The economic impact of Brexit for the UK is yet to be determined, yet a recent report by Magister Advisors concludes tech will be one of Europe’s pillars of growth irrespective of whether a country is in the Eurozone or outside it, as the European technology sector is uniquely capable of operating and competing globally.the European technology sector is uniquely capable of operating and competing globally Click To Tweet
Political turmoil across the Atlantic and the tightening of US immigration, however, will actually represent an opportunity for Europe, allowing the continent to attract key skilled workers and consolidate its growing world-class talent pool. “At a time when the idea of borders invades practically every aspect of economic and political discourse, here is a class of companies that are borderless by design, are competing globally and are underpinning Europe’s economic performance in a way that deserves more attention,” says Victor Basta, Partner at Magister AdvisorsTightening of US immigration will represent an opportunity for the European Tech Sector Click To Tweet
In a year when the whole European experiment has been called into question, the continental technology sector has actually come of come of age. In 2016 sectors such as AI – demonstrated by acquisitions of companies such as Swiftkey and Magic Pony – as well as FinTech and Gaming have attracted unprecedented interes. The report shows that European tech deals more than doubled in 2016, from $55BN to $127BN, totalling nearly1,000 separate tech M&A, many of which were initiated by Asian buyers, who have ploughed more than $55BN into Europe in 2016:
“Asian buyers and investors had a transformative effect on the European technology landscape in 2016, spending more than ever before, and there are signs that their appetite will remain strong. We have seen a Nordic company founded barely six years ago, Supercell, attract $9B 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 by Softbank in under 20 years,” says Basta.
These included six such blockbuster deals of over $5BN accounting for almost $100BN of 2016 exit value. To put this in perspective, we’d only 5 deals of that magnitude in the previous five years combined. That upward trend is set to continue, with 22 European tech companies now valued at over $5BN. That’s a staggering combined value of over $0.5TN.
“The sheer scale of 2016’s blockbuster acquisitions in Europe demonstrates that this was the year that the European technology industry came of age,” confirms Basta. “The largest acquisitions were transformational platform deals, not consolidation deals, and that is a major shift that sets the scene for more activity in 2017 and beyond.”
Mature private tech companies in Europe are fuelling economic growth in an unprecedented way. Europe’s tech unicorns (companies valued at $1BN) are in a much stronger position than their US counterparts, setting the scene for more of those blockbusters deals to happen over the course of 2017-18. Against the backdrop of anaemic EU growth rates, still a fraction of US growth, the largest 100 private tech companies are achieving growth rates of 20%+, often much more than that.
“European tech is developing very differently than Silicon Valley,” Confirms Basta. “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. $1BN+ value European private tech companies on average have far more revenue and profit than their US counterparts. European investors are requiring companies to “show me the money” before they are willing to buy shares at high prices.”
He added: “The exponential growth in value associated with Silicon Valley is no longer confined to the Pacific Time Zone. Entrepreneurs in Europe now have home-grown models of how to create, build, and scale companies of huge value without ever leaving the European continent.”