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The Chinese acquirer: Why the dragon need not be feared

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Could now be the right time to sell for UK technology businesses?

The past year has seen the news awash with examples of prominent UK tech start-ups falling into the hands of foreign buyers. Microsoft purchased Swiftkey for $250m, ARM Holdings was sold to SoftBank for a record £24.3bn, and Google paid a reported £400m for DeepMind. All three of these deals were to help the companies gain expertise in new, disruptive areas of technology: artificial intelligence; internet of things and big data.

Last week, we saw the largest-ever deal involving a travel technology company. Edinburgh-based Skyscanner was bought by Ctrip, the latest in a string of acquisitions for the Chinese travel company, and the largest acquisition to date in Scotland by a Chinese-based company. The three Manchester University graduates who founded the company, together with their families, are set to make a windfall of around £400m from the sale of a business they founded just 15 years ago.

Chinese investment into western technology businesses has snowballed in recent years, with the number of European or North American businesses acquired by China increasing by a staggering 185% between 2011 and 2015. Furthermore, while the larger deals are grabbing the headlines, the rationale for many Chinese deals – acquiring knowledge and expertise in fast growth technology sectors – means small, innovation-led businesses are hot property.

Anecdotally, many owners of tech businesses feel reluctant to sell to a Chinese company, as it is commonly perceived that selling to a Chinese buyer may result in the history, brand and even the workforce being lost. In the majority of deals however, the opposite turns out to be true – the Chinese value the management teams of western businesses, and the intelligence and innovation of technical staff. Acquiring IP without the expertise behind it is futile. Indeed, the announcement of the Skyscanner acquisition last week is the textbook example of this: the company will retain its brand, its Scottish offices and all its 500 staff.

Chinese companies are no longer looking at UK businesses purely as intellectual property banks. Potential targets are well considered and researched, and acquisitions will be made as part of long-term, strategic growth plans. Furthermore, with the pound remaining at a historic low compared to other currencies, UK assets are being viewed even more favourably by foreign buyers. This is something we are noting here at BCMS, with Chinese companies increasingly registering an interest in buying UK-based companies. In the last five years alone, we have seen 269 Chinese companies register an active interest in buying a specific UK-based company from BCMS.

As we move towards 2017, it could be exactly the right time to sell a technology company at a valuation favourable to both parties.

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Posted Dec 2016
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