Five years ago Apple’s share price was $27, it’s now $116 - that’s a compound annual return of over 33%. And it’s not just Apple that’s making headlines. Facebook is far and away the largest social network in the world. It's running neck and neck with YouTube when it comes to data consumption on our smartphones and tablets. In 2014 Facebook generated $12.46 billion in revenue, a 58 percent increase over 2013. Facebook's revenue is huge even without Instagram - over 300 million users to whom it's just starting to advertise - or Whatsapp - which it's not yet seeking to monetise at all. Two years ago, Facebook’s share price was also $27, now it’s $76 – yielding a compelling 68% annual return.
Further, you don’t need to be keeping your eyes on the Dow Jones index to be making money out of technology. Regent Associates have just released their analysis of European technology activity in 2014. They report that 2014 was a record year for TMT (Technology, Media and Telecoms) acquisitions, with 3,469 sector mergers or acquisitions in the year. Total deal value has now returned to the peak levels of 2007.
As confidence slowly returns to global markets, technology is often the first to take advantage. European technology IPO’s almost doubled in 2014 compared to the previous year. And valuations are on the increase, with Regent’s figures showing Price to Sales ratio’s over 1.3 and Price to Profit (EBITDA) at around 9. And closer to home, the UK remains by far the most active buying country in Europe, even spending more money on European companies than the US.
In terms of what buyers are looking for, the quest for intellectual property rather than services is the main driver for mergers and acquisitions. The embedded technology sector, being specialist high tech equipment controlled by one or more processors and associated software, saw the largest growth in activity in 2014 registering a 25% year on year increase.
The FTSE 100 index has grown by an average of 4.9% compound over the last 5 years. The NASDAQ 100 Technology Sector Index averaged 17.0% compound growth over the same period. Past history may be no guide to future behaviour, yet (and this isn’t investment advice) it may shed light on what to look out for.
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