Acquisitions Heating Up

Oracle's takeover bid for BEA Systems was just the latest example of what is shaping up as a historic stretch of mergers and acquisitions in the technology industry.

Despite a recent slowdown in the credit markets that left private equity companies on the sidelines during the third quarter, M&A analysts still expect 2007 to be a banner year.

"We're very positive on the market right now," said Ward Carter, president of M&A advisory company Corum Group, of Bellevue, Wash. "There was a slight disruption [in the third quarter] because of the credit meltdown, but Q4 will catch up. There's a lot of pent-up demand."

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It could get even hotter, now that Dell CEO Michael Dell indicated Oct. 29 that his company might be ready to go on a buying spree.

M&A activities affect much more than Wall Street speculators: Tech industry history is rich with stories of companies and products orphaned by so-called strategic acquisitions. Customers can find themselves holding discontinued products and IT workers end up with skill sets that suddenly become obsolete.

That is why the current boom, which began three years ago, is worth watching. Investment banking specialist Dealogic said more than $13 trillion worth of M&A deals have been completed since 2004, exceeding the deals made in the tech boom years of 1998 to 2001. This year alone, strategic acquirers have spent more than $156 billion to acquire more than 2,000 IT companies, according to research company The 451 Group.

"There's actually been a pickup already in deals in the fourth quarter," said Tim Miller, an analyst with The 451 Group. "We expect that to continue into 2008."

According to a new survey by The 451 Group, more than 85 percent of corporate development professionals at companies that are buying other businesses say they expect to maintain or increase current-year levels of acquisition activity in the coming 12 months, with half of them expecting to increase M&A spending.

"There's a large wad of companies that need to be sold," Miller said. "So you have the supply, and apparently the demand is there. You're going to see more deals."

Observers differentiate between equity-based deals and so-called strategic deals, where vendors buy other companies to round out product portfolios. While private equity buyouts made up more than half of all technology deals this year in terms of dollar value, primarily on the strength of a handful of large buyouts, strategic deals far outweigh buyouts in terms of the number of deals.

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