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Shazam has been bought by Apple for a reported £300m.
Shazam has been bought by Apple for a reported £300m. Photograph: Thomas White/Reuters
Shazam has been bought by Apple for a reported £300m. Photograph: Thomas White/Reuters

Is the global desire to buy British a bad thing for UK tech firms?

This article is more than 6 years old
Apple’s purchase of Shazam is just the latest big overseas acquisition of a UK tech business, but will it stop us developing our own Facebook?

Apple’s acquisition of music-recognition app Shazam, for a reported $400m (£300m), is just the latest in a string of major acquisitions of British technology companies by overseas suitors.

The purchase is Apple’s biggest since 2014, when it spent $3bn on headphone manufacturer Beats Electronics, and is one of the largest acquisitions this year for the British tech sector. It follows the sale of Imagination Technologies, which makes the graphics processors used in iPhones and iPads, to a Chinese private equity firm for $550m (£412m) in September.

Both purchases pale in comparison to a pair of acquisitions made in 2016, however. Flight comparison site Skyscanner sold itself to Chinese tourism group Ctrip for £1.4bn in November of that year, while shortly after the EU referendum, the chip designer ARM accepted a £24.3bn offer from Japanese group SoftBank.

The ARM deal, announced just weeks after the UK voted to leave the EU, was the second-largest foreign takeover of a UK-listed company ever, behind only ABInBev’s deal to buy SABMiller.

That acquisition also serves as a counter to one popular explanation for the spate of buyouts: that it’s simply a function of the devaluation of the pound following the Brexit vote. Yes, the pound plummeted against the yen after the referendum – but ARM’s share price rose by a corresponding 17%, as the company makes most of its revenue in dollars. That meant that the actual price SoftBank paid for ARM rose in the weeks following the referendum.

More generally, big mergers and acquisitions are often laid in place far too far in advance for the vagaries of the foreign exchange market to affect them, says Paul Hollingsworth, the senior UK economist at Capital Economics. “Whether we’re seeing any sort of Brexit or pound effect, it’s a bit too soon – it’s really going to be a couple of years before any effect appears.”

Sriram Prakash, the lead for innovation M&A at Deloitte, agrees. “First and foremost, in any M&A transaction you buy a company not because it’s cheap, but because it’s good. And then, it might be cheap because of currency devaluations or whatever, and that might add to the speediness [and attractiveness] of the transaction, but the fundamentals are important.”

For British firms, then, it’s all about the fundamentals. Those making the headlines for the size of their valuation aren’t acquired for the revenue they bring in, or the size of their existing customer base, but for their world-leading grasp of basic technologies, says Priya Guha, the general manager of startup accelerator RocketSpace.

Japan’s SoftBank paid £24.3bn for ARM in 2016. Photograph: ARM Holdings/PA

“What it comes down to is the UK strength in deep tech,” Guha says. “The UK still has some of the most amazing academic research coming out of its universities. And that is being commercialised at a rate that much higher than elsewhere in the EU and getting close to what happens in the States.”

“So what that means is you have some of the most groundbreaking new technologies being developed right here in the UK. And yes, of course, that becomes a very appealing target for US companies who need that technology to be able to scale or just own a new direction for their own business.”

Perhaps the poster child for that sort of acquisition is DeepMind, acquired by Google in 2014 for $650m: the company, co-founded by UCL researcher Shane Legg, with Demis Hassabis and Mustafa Suleyman, retains strong links to the London university today.

Even more emblematic of how a strong research background enables Britain to punch above its weight is Twitter’s acquisition in June 2016 of machine learning-based image and video compression firm Magic Pony Technology. The company had just 11 staff at the time, and while its core technology was already wowing investors, it had no revenue, nor a plan of how to get any. Yet it was acquired for $150m and now forms the core of Twitter’s machine-learning project, Cortex.

While such a string of acquisitions certainly represents a massive inward flow of cash to Britain, it could have its downsides. If Britain’s most promising startups always pick guaranteed cash now, over the prospect of a much bigger payoff later, then the nation will never have its own tech giants to rival Apple, Google and Facebook.

Take Snapchat: it could have accepted Facebook’s $3bn offer in 2013, but chose to reject it and try to build something that could become a Facebook competitor, not simply a department within the firm. Even now, after a rocky year following its initial public offering, the company is worth almost $20bn. Is Britain doing itself out of the chance to lead the world?

Guha thinks not. “No one would suggest that DeepMind has lessened its global impact by being part of Google,” she notes. “Despite being part of the bigger Alphabet machine, DeepMind is renowned in its own right across the world.” And, she adds, if there is going to be a UK rival to the US giants, “it was not going to be Shazam. For others in the market, M&A can be a really good outcome.”

Prakash says he is “empathetic to both sides. On one hand, every country needs a strong tech scene, and today Britain’s looks a bit fragile if you note the amount of tech companies in the FTSE 100 and 250. But these companies cater for global markets. To be global you have to be acquired, or see whether you can scale up to that level yourself. If you can’t, what are your options?”

Perhaps those who hope British companies would hold out a bit longer before being acquired should be careful what they wish for. Depending on how Brexit progresses, there is the potential for many of Britain’s strengths, from its world-leading universities to an immigration system that is comparatively open to skilled migrants, to be erased.

“Clearly,” says Hollingsworth, “the pound’s drop makes it a more attractive proposition to buy UK companies, but you have to weigh that against the domestic political uncertainty.”

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