US law firms are cashing in on the boom in activity in the technology sector, with data provided exclusively to Legal Week by Mergermarket showing they are leading their European rivals on both deal count and value.

Trend data from Mergermarket shows activity in the sector has soared over the first half of this year, with technology companies involved in 11.4% of global deal activity in H1 2015, compared with 6.9% in full year 2014. Looking at activity over the three years to June this year, US firms took the lion's share of the mandates – putting in a strong showing in the adviser rankings by value and volume both globally and in Europe.

On a global basis Latham & Watkins leads the pack by deal value over the last three years, advising on 132 deals worth £109.25bn between 2012 and 2015, ahead of US rival Skadden Arps Slate Meagher & Flom, which advised on 101 deals worth £100.1bn. The tally puts Latham in sixth place by volume, with that ranking led by DLA Piper, which advised on 207 deals worth a combined £7.9bn.

DLA also leads the European volume tables, with instructions on 92 deals valued at £2.4bn. Magic circle firms Allen & Overy (A&O) and Freshfields Bruckhaus Deringer take second and third place respectively. Not one UK based firm features in the top 10 European technology advisers by value, with Skadden topping that ranking with roles on 33 deals totalling £41.4bn.

Bob Bishop, DLA Piper's international head of corporate, cites the macro-economic situation as one of the drivers of the current surge in tech deals, saying: "High levels of cash, available debt and CEO confidence are all contributing to a favourable climate for tech M&A."

The strong performance by US law firms reflects the overall activity of US headquartered technology businesses in the last three years: of the top 10 deals announced globally over the period, eight involve US companies. This includes the largest technology deal of both the first half of this year and the last three years: Avago Technologies' May 2015 acquisition of Broadcom Corporation for $37bn (£24bn), which saw Latham advise Avago and Skadden represent Broadcom.

Within Europe, seven of the largest deals over the three year period involve US companies acquiring European businesses, with Finland's Nokia Oyj's £10.4bn bid for France's Alcatel-Lucent the most sizable exception. However US firms also came to the fore on that deal, with Latham and Sullivan & Cromwell among the advisers for the target, and Dittmar & Idrenius providing Finnish advice. Nokia Oyj was advised by Roschier and Skadden.

White & Case London private equity partner Richard Youle argues that US law firms have a natural advantage in the technology sector.
"We advised antivirus software business Avast Software on its sale of a significant minority interest to CVC Capital Partners. The deal included a US financing and one of the first Silicon Valley-style management incentive plans implemented in a European-style private equity investment. European law firms can't do that. If you are not in the US in a credible way you can't do US financing in a credible way, so it follows that tech companies would naturally lean towards US firms like White & Case because we can cover US issues and European issues."

Bishop adds: "You can't focus on technology and not focus on Silicon Valley. That's where a lot of the cash and resources are, and that is where a lot of the current technology and brainpower is."

US outbound investment has been a key driver of the European technology M&A market. Cleary Gottlieb Steen & Hamilton partner Tihir Sarkar says: "A lot of it could be driven by the US and the large tech companies which have a lot of cash overseas which they can't bring back to the US for tax reasons. I think there is clearly an opportunity to spend – companies need to deploy this capital as interest rates aren't good."

A&O partner Edward Barnett also notes the trend, saying: "The US tech businesses need to spend the offshore cash and it is efficient to spend it on M&A – increasingly, there are very attractive and interesting technologies, and very talented individuals in the UK and in Europe." Barnett's A&O colleague Simon Toms cites Google's acquisition of UK-based artificial intelligence start-up DeepMind in 2014 as a good example of US investment in the UK technology sector. A&O represented DeepMind and Cleary acted for Google in that deal, which was valued at approximately £500m.

Europe's growth

Despite the global dominance of US technology companies to date, Europe's role in the technology scene is not to be undervalued.
Software, and in particular financial technology (fintech) software, has been a particular strength of the UK market. Barnett says: "London is the standout market for the financial technology sector. The UK market is ahead of the States and technology developed here is being exported and moved around the world."

"Until recent years the focus of the technology sector has been on Silicon Valley and Israel, but the last few years have seen the emergence of London and New York as secondary technology markets. Other pockets that are starting to display good signs of development in Western Europe are Paris and Berlin. Eastern Europe, Romania and Poland have active tech sectors, so there is a really interesting geographical spread in terms of where the technology hot spots are."

Toms adds: "We have seen a lot of big technology firms focus on becoming embedded in the UK. It is a big market for venture capital for early stage companies, so rather than just seeing mega deals we have seen a high volume and high interest for supporting incubators, accelerators and high growth segments such as fintech and online gaming."

Outpacing the market

Growth in the tech sector over recent years has outpaced the M&A market generally. Accounting for 7.9% of global deals over the three year period, technology was the sixth largest sector, worth £419.2bn between 2012-15.

The global technology M&A market grew 127% over the three year period from £86.9bn in 2012-13 to £197.1bn in 2014-15. This came against a backdrop of a 52% hike in the total volume of deals over the three year period.

And while the number of deals across all sectors in 2014-15 fell marginally from 2013-14 globally and in Europe, the technology sector bucked this trend, growing from 1,858 to 2,006 deals globally and from 567 to 602 in Europe.

Youle comments: "From our perspective, the market is very hot. You have lots of factors coming together – the macro picture – financial sponsors with a lot of money very interested in the sector, Asian and US tech companies with stock as currency, the debt and equity capital markets open and non-traditional companies, such as car manufacturers, competing for tech assets."

Youle explains the attraction of technology companies to potential acquirers, saying: "Tech assets are attractive to financial sponsors, as these tend to be very clean companies compared to businesses with 30 years of history and a lot of legacy issues. From a business risk point of view, tech businesses are relatively clean and predictable businesses to buy."

White & Case advised the banks on a number of the biggest deals over the period, including taking a role for Credit Suisse on Silver Lake Partners and founder Michael Dell's 2013 £12.9bn leveraged buyout of Dell, the second largest deal in the sector since 2012 and at the time the largest LBO since the crisis. The deal also handed roles to firms including Hogan Lovells' US arm, Wachtell Lipton Rosen & Katz for Michael Dell and Simpson Thacher & Bartlett acting for Silver Lake.

Advisers are confident that the growth of the technology sector will continue.

Travers Smith corporate head Spencer Summerfield, who led the team advising set-top box maker Pace on its takeover by US rival Arris – the fourth largest European technology deal of the year to date – confirms: "I think the M&A market in technology is pretty healthy and pretty buoyant at the moment. For the bigger deals it appears to be US buying. At the moment in the US, and to some extent in the UK, there is a feeling we are on the upward curve so it is a good time to buy. There is a feeling that companies, for example in the media sector, need to get into the tech space in order to future proof themselves."

With 2015 to date providing five of the 10 largest technology deals of the last three years, the sector looks likely to continue generating opportunities.