(MENAFN- Gulf Times) In a year when technology deals are set to break records, UK targets are proving popular.
About $20bn of deals were struck for British technology companies in the last 12 months, almost double the amount spent a year earlier. US buyers accounted for about half the acquisitions. They included Qualcomm Corp's offer for chipmaker CSR Plc and Equinix Inc's for Telecity Group Inc € both set to close soon.
As valuations for American technology companies rise, places such as the UK may be home to hidden gems for US buyers looking for a better bargain. A stronger dollar, cheap borrowing rates and a chance to use overseas cash stockpiles without incurring repatriation taxes are also incentives.
"There is a global wave of consolidation happening right now," said Youssef Essaegh, an analyst at Barclays in London.
"Ultimately the biggest players are in the US, so they tend to be the ones that buy, and the UK has some good assets." The UK is the third-most popular stop for tech deals after China and the US. For American buyers, British targets, many of which grew out of the innovation hubs in London and Cambridge, offer the potential for tax benefits and growth at a cheaper price than their US counterparts.
There are still some attractive targets left, such as network-testing companies Anite Plc and Spirent Communications Plc, said Liberum Capital analyst Eoin Lambe.
Anite and Spirent, each valued at less than $1bn, create software and equipment that tests mobile networks, infrastructure and devices to improve carriers' performance and help guide companies' designs of phones and semiconductors. Both are projected to increase revenue more than 18% by 2017 from last year's levels.
Anite rose 1% to 102.75 pence in London trading at 12:32 pm. The stock had gained 28% this year through Friday. Spirent, up 16% this year, rose 0.3% to 88.25 pence.
US companies pay a penalty to bring cash earned overseas back into the country, causing many to leave big piles in foreign bank accounts. While US companies are generally subject to a 35% tax on the income they make around the world, they don't have to pay it until the money comes back into the country.
Companies can also incorporate in the UK in so-called inversion deals, which move their headquarters to a country with a cheaper tax rate. That's what Suwanee, Georgia-based Arris Group did with its $2.1bn deal in April for Pace, a TV set-top box maker from Yorkshire.
The UK also has an additional tax break called the "patent box" which gives a discount to companies that profit from British innovations. That gives UK technology companies a lower tax rate in many cases and acquirers a vehicle similar to tax inversions.
"Rather than leave the money in the bank over here, earning no interest, you might as well go and buy technology," said Robert Lamb, an analyst at Jefferies in London. "Rather than have it do nothing, use it to buy something." Equinix, based in Redwood City, California, agreed to buy London-based Telecity Group for about $3.6bn on May 29.
Qualcomm agreed to buy chipmaker CSR for $2.4bn in October in a deal expected to be completed this summer.
CSR came out of the same Cambridge innovation hub as ARM Plc, the semiconductor designer whose technology is in more than 95% of smartphones. CSR's net income has more than doubled since 2011 as it began selling chips to power the "Internet of Things," such as Web-connected cars and thermostats that can be controlled with a smartphone. So far this year there have been more than $95bn in tech deals announced worldwide. That puts the industry on track to beat the record $147.3bn in acquisitions in 2007.
"There's cheap money out there and the interest rates are very low, and I think you want to take advantage of them now before people start hiking up rates," Jefferies's Lamb said.
The bond between the US and the UK "maybe from a cultural and social point of view makes it easier to integrate."
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