INVESTMENT EXTRA: Which tech star is the next takeover target after ARM Holdings?
The £24billion takeover of ARM Holdings by Japan’s SoftBank may be bad news for Britain’s tech industry but it has got investors very excited about the prospects of other deals in the sector.
Shareholders gave the seal of approval to the acquisition of the Cambridge-based business this week, sparking a flurry of activity among many other technology stocks on the FTSE.
Berkshire-based Micro Focus International’s shares have risen almost 5 per cent over the past month to 1975p, while intellectual property firm Imagination Technologies, which has been struggling, has soared 20 per cent to 247.75p.
Skyrocketing: Tech industry share price growth over one year
With so many leading innovators based in Britain and a weaker pound suddenly making them look much cheaper to buyers overseas, many experts are predicting ARM won’t be the last technology takeover.
Richard Watts, manager of the Old Mutual UK Mid Cap fund, says: ‘There is a huge amount of merger and acquisition activity in this space as both existing and emerging companies look to reshape their businesses and to take advantage of the enormous opportunities which technology and innovation have created.’
Among his favourite technology companies is Paysafe. The firm is involved in financial technology.
It processes transactions and also allows users to set up so-called digital wallets so they can make safe payments online without having to enter their bank or card details.
Watts likes companies which are disrupting their industry by introducing new methods and technologies. He calls it a payments revolution.
He says: ‘Paysafe is growing its revenues and profits extremely quickly, and in an industry which is consolidating it could be a prime acquisition candidate. But Paysafe also has a very strong balance sheet, which means it could pursue acquisition opportunities itself.’
Indeed, only this week the firm announced its purchase of Canadian technology provider Income Access for £22.9million.
Paysafe is the second-largest investment in Watts’s portfolio, accounting for some 6.7 per cent of the £2.1billion fund, which returned 9.5 per cent over the past year.
Jeremy Gleeson, manager of the Axa Framlington Global Technology fund, likes Proofpoint, which makes software for internet and email security
Jeremy Gleeson, manager of the Axa Framlington Global Technology fund, likes Proofpoint, which makes software for internet and email security. It is an increasingly important area for businesses to invest in.
Security breaches and cyber-attacks not only compromise a company’s security and privacy but can lead worried customers to turn away in droves.
Gleeson says: ‘Criminals are getting more sophisticated in the way they launch attacks and traditional methods such as anti-virus software are no longer as effective as they once were.’
He likes Proofpoint because its technology helps firms to detect threats before they get inside a company’s systems. In its last-quarter update, the firm grew its revenues by 42 per cent to £67.7million. Gleeson has 1.9 per cent of his £316million fund, which has returned 32.4 per cent over the past year, in the stock.
He also likes US firm PTC, which makes product life cycle management software – tools which help a manufacturer to design and make its products.
Gleeson says: ‘With products in general becoming more sophisticated, PTC’s tools can help. As manufacturers look to increase the ‘intelligence’ in their products, the ‘internet of things’ (where household items can talk to each other) will be a driver of new business for PTC.’
Tides changing: Richard Watts, manager of the Old Mutual UK Mid Cap fund, likes companies which are disrupting their industry by introducing new methods and technologies
Philip Matthews, manager of the Schroder UK Alpha Plus fund, likes accountancy software firm Sage. Recently under new management, he likes that the company is focused on improving efficiency within its business and trying to improve its level of recurring revenue.
Matthews, who is looking for companies with strong balance sheets and good growth, also likes Fidessa. He says the firm, which makes software used by City traders, has made significant investment in its product and is set to deliver strong revenue growth in coming years.
Some 12 per cent of the £1billion UK Alpha Plus fund is invested in technology-related firms. The fund has returned 10 per cent over the past year.
But savers should not get carried away just because of one technology success story. While more takeovers may be on the horizon, there will be just as many losers as winners in the industry.
Matthews says: ‘While the recent bid for ARM Holdings highlights the attractiveness of UK technology companies, it shouldn’t be treated as a proxy for the sector.
‘This is an industry which includes a wide range of firms and ARM’s business model and market dominance were very unique qualities.’
The comments below have not been moderated.
The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.
We are no longer accepting comments on this article.