$100B+ worth of European tech M&A
As of September 2021, exits of European tech companies via M&A had already exceeded $100B in total value, thereby surpassing 2020 levels and placing 2021 firmly on track to be an all-time record year. In the third quarter alone, the aggregated value of tech M&A activity exceeded $45B, making it the largest Q3 on record. At time of publication, preliminary numbers for Q4 imply at least another $50B in aggregate value. So how did the landscape of European tech acquirers evolve this year? Let's dive in!
💰 VC-backed exits have caught up
The momentum of the European tech flywheel is dependent on building a liquid marketplace to recycle talent and capital. European tech is on track to deliver a record year in terms of the aggregate value of exits via M&A. In the first nine months of 2021 alone, total M&A value involving VC-backed companies has reached $55B, on par with the full year total for 2020 and eclipsing the $46B in exit value of non-VC-backed tech companies. On a cumulative basis since 2017, VC-backed European tech companies have generated in excess of $193B of exit value via M&A.
A sign of Europe’s maturity is that we are now seeing highly liquid scale-up businesses make their own acquisitions, a trend not seen before in Europe. High growth scale-ups are purchasing companies to add IP, talent and consolidate their competition, boosting M&A and exit activity within the ecosystem.
While the outlook is broadly positive, Europe can do more to capitalise on its current leadership position in Europe. UK & EU policy makers can do more to create and foster a favourable listing environment to ensure that European public markets attract the best homegrown businesses to list domestically, rather than on the NASDAQ. Alongside this, open more opportunities for institutional investors in Europe to invest in European innovation. Currently, these investors are missing out on the value-creation that is happening in private markets.
The significant global demand to invest in European companies will only increase as the ecosystem matures and evolves – many of the investors in these businesses are establishing an on-the-ground presence in the region to help with deal-flow.
North American buyers drive the largest share of M&A activity by value
European buyers remain accountable for the majority of tech M&A in the region, driving two thirds of transactions in 2021. Over time, however, the number of European tech companies has grown in both quality and quantity, leading to European buyers' share decreasing at the expense of more active North American buyers. The share of M&A transactions involving North American buyers has increased from 19% in 2017 to 28% in 2021. The deal values also provide an important insight into the boldness of different buyers by region. Though North American buyers were responsible for 28% of M&A deal count, their transactions accounted for 68% of value, up from 33% in 2017, driven by larger ticket acquisitions.
Public US tech companies are most active in M&A
The share of deal value involving public US tech companies stands at 55%, the highest for the past three years. Norton acquired Prague-based Avast in an $8.6B takeover this year, just 3 years after it went public. DoorDash recently announced its acquisition of Finnish-based Wolt for $8.1B. Elsewhere, $1B+ companies have been active in 11% of deal value with some notable acquisitions by Allegro (Czech Republic-based Mall Group) and Klarna (German-based Stocard, UK-based Hero Towers and UK-based PriceRunner). While European tech buyers are most active by deal count, they also tend to be involved in smaller size deals.
M&A exits over $100M for VC-backed tech companies is growing
There is a clear acceleration in the number of M&A transactions of greater than $100M involving VC-backed European tech companies. In the first nine months of 2021, there were 62 exits of this scale and above, at least 1.8x the number of such transactions in any prior year. This is a strong indicator of the growing liquidity in the market.
M&A is a feature not a bug of a healthy ecosystem. There’s a tendency to think European tech companies are selling out too early, too often.
But the reality is that exits have always been core to what makes Silicon Valley the place it is. They already play a significant role here too to ensure that talent and capital can be recycled to help build new generations of companies. It’s easy to forget that PayPal, YouTube, Instagram and many other iconic Silicon Valley companies all achieved greater than 95% of their value growth after having been acquired. The fact that we are seeing record value being captured today via M&A, IPOs, direct listings, PE buyouts and even SPACs is a great sign that Europe has succeeded in building a deeper and more liquid market for both capital and talent.
And taking a growing share of M&A activity in European tech
As a result, VC-backed exits over $100M now represent 12.9% of total deal count, the highest on record. Although the vast majority of exits of VC-backed European tech companies are small in scale, the recycling impact on the tech ecosystem is material as experienced operators are enabled to go on to build their next venture. As we have said previously in this report, M&A is a feature, not a bug, of a healthy, mature tech ecosystem.
Rise of the billion-dollar acquisitions
The top 10 largest acquisitions of VC-backed European tech companies drove an aggregate enterprise value at exit of $19B. The list speaks to the broader trend of more active US public tech buyers, with DoorDash acquiring Finnish-based Wolt, Visa acquiring two European fintechs, Etsy acquiring Depop, and Workday acquiring Peakon.
European corporates less present on deals over $100M
Public US tech companies are driving most of the large dealmaking activity - they are involved in close to 50% of all deals over $1B. Meanwhile, the share of European tech companies is smaller for rounds over $100M. But although European buyers are on average less likely to participate in larger deals, they play an important role in ensuring liquidity at every level of the market.
Selected M&A transactions involving corporate buyers of European tech companies in 2021
Beyond European tech companies, we are also seeing more convergence between legacy industries and tech. Whether it is via smaller, so-called aquihires or larger-scale 'transformational' merger deals, these transactions participate in accelerating the growth and digital transformation of these legacy industries as they become more active participants in building the "next act" for Europe. Below are selected transactions from 2021 that highlight involving established corporate companies and tech startups.
Majority stake acquired by Deutsche Börse
Acquired by Abrdn
Acquired by ThreadUp
Acquired by Siemens
Acquired by Jungheinrich
Private equity has acquired a taste for VC-backed European tech companies
Private equity (PE) is playing a growing role in European tech private markets, and since 2020, the VC and PE islands have started to move closer together. In the past two years, there have been 13 $1B+ acquisitions of European tech companies by private equity buyers, with seven involving a company that previously raised funding from VCs. In 2021, more than half of tech acquisitions were of VC-backed tech companies.
The significant increase in liquidity options for European companies (M&A, PE buyouts, IPOs, SPACs) are a sure sign of Europe’s maturing capital markets.
Acquisition by a foreign company is no longer the only option for founders looking to exit or scale their business. Not only is funding from VCs and growth-stage-focused PEs higher than ever before, but exits from investments have resulted in high returns for investors, driven by mutually beneficial partnerships which has seen many European startups scale rapidly. I’m confident that this is just the beginning - with European capital markets rocketing into 2022, founders have more reasons to stay in Europe and grow their business.