UK tech, media and telecoms attract investment

The UK technology, media and telecoms sector has this year recorded its highest level of foreign investment since the dotcom boom, according to the latest research.

Between January and August foreign acquirers committed £12.6bn across 132 deals, according to a report by law firm Freshfields Bruckhaus Deringer.

This investment level represents more than three times the average that was spent on technology, media and telecoms companies during 2007 and is much higher than any year between 2001 and 2005.

"In the UK low valuations in the TMT sector have encouraged inward investment and contributed to a mini boom not seen since the days of the dotcom bubble," said Natasha Good, technology, media and telecoms partner at the law firm.

The year 2006 marked an exception because £17.9bn of the £22.5bn invested was spent on just one deal: Telefónica of Spain buying O2.

Many of the largest investments in the sector this year have involved publishing companies, where a total of nine deals worth £9.9bn have already taken place.

These include Thomson Corp's £7.9bn bid for Reuters, which was approved in February, and the sale of Emap's publishing business to Heinrich Bauer for $1.4bn.

As advertising revenues migrate from print media to online, depressed valuations of publishing businesses that are cash flow generative have attracted buyers.

Simon Lapthorne, an analyst at Blue Oar Securities, said: "Publishing businesses are relatively attractive, especially to private equity because they tend to have more visible revenues and be cash generative."

This is in stark contrast to 2000 when the largest foreign investments were made in the wireless industry, which attracted £29bn across six deals.

The US remains the largest investor by far into the UK TMT sector. The spike in foreign investment contrasts sharply with the restrained buying patterns of UK companies seeking to complete TMT acquisitions abroad, which have shrunk to £628m from a high of £159bn in 2000.

"Companies want to be more conservative with their own finances so if they don't have spUare cash they wouldn't want to issue equity at current valuations," said Mr Lapthorne.

"Access to credit is much tougher, and they would want to conserve cash. Companies also expect valuations to fall," Mr Lapthorne added.

Meanwhile, in the first eight months of the year global merger and acquisition activity in TMT has drawn £103bn of investment, but is on course to fall substantially below the levels seen in the past two years amid the turmoil in the credit markets.

In the UK, a private equity consortium led by Providence Equity Partners walked away from a deal with Informa, the publisher of Lloyd's List, in September after the consortium's lending banks were unable to finance an increased bid amid the global financial crisis.

Reed Elsevier is selling its business publishing division but in the current climate a successful deal looks uncertain as valuations have come down.

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