Weak Mergers, Acquisitions Activity at Cisco, Google Reeks of Recession

The 451 Group says mergers and acquisitions declined 40 percent in 2008 from 2007, thanks to the limping U.S. economy. The research company, which looked at high-tech deals in enterprise applications, search engines, Web services, cloud computing, and the mobile and wireless sectors, said to expect more of the same in 2009. Valuation deals will be lower and hostile bids will be higher in a world where the cash-strong will survive.

If you've noticed an acquisition drought among high-tech companies this year, you're spot on.
The financial crisis forged in the putrid real estate market and the woeful Wall Street credit crunch has bled over into the high-tech industry in the last several months, handicapping some companies' merger and acquisition schedules, according to a year-end analysis from The 451 Group's Brenon Daly released Dec. 18.
Daly logged 2,804 deals to the tune of $290 billion in 2008, compared with 3,637 deals totaling $481 billion in 2007.

This 40 percent decline would be a frightening fall-off in any business, but it is especially horrifying in high-tech, where M&As are common practice as larger vendors suck up startups from the long tail. Moreover, there were just 32 high-tech deals worth $1 billion or more in 2008, compared with 80 in 2007.
Networking giant Cisco Systems has announced only four deals in 2008, or one-third as many deals it has been averaging over the past three years. Search engine leader Google, whose stock has plummeted by well over half since December 2007, has made just four buys in 2008 after averaging a deal per month over the past two years.
Dell, which pledged in 2007 to acquire more companies to diversify its waning direct sales computer business, bought only one company in 2008, compared with six in the second half of last year. All this caused Daly to declare:

"After four straight record years, the great bull run of tech M&A is officially over. The cash-rich corporate shoppers and free-spending buyout shops of recent years-which combined to push tech deal making last year to a nearly half-trillion-dollar business-stepped out of the market in 2008. So far this year, M&A spending is running almost 40 percent below where it was last year, with the falloff felt in virtually every sector of technology."

Of course, not every bellwether tucked its head in during the dog days of 2008. Database and applications provider Oracle racked up 11 acquisitions in 2008, the same number of deals it consummated during a more solid 2007. Oracle held to its approach of buying instead of building to make up market share, but Oracle was clearly an exception to the norm in high-tech.
So, what does this portend for the future of high-tech M&A? "Undeniably ominous," is the phrase Daly chose to describe the situation. While the dot-com bubble burst of 2000 was caused in part by the hubris of a lot of green companies that didn't understand the Internet, he said this recession will hurt more, taking two years or longer to resolve.