Tech M.&A. Shows More Signs of Rebounding

NYT DealBook, April 5, 2010:
The number of technology mergers and acquisitions announced in the first quarter of the year rose to its highest level since the financial crisis first gripped the market, according to the 451 Group, a technology investment research firm.. But the aggregate value of the transactions fell from the previous quarter as there were only a handful of big-ticket deals announced.
Nevertheless, many technology companies are still sitting on the sidelines with large cash reserves, so deal activity could increase as the economy improves.
Deal makers were busy in Silicon Valley last quarter, announcing 841 deals, the highest number since the second quarter of 2007, the 451 Group reports. The makeup of deals varied from a bevy of small bolt on acquisitions to some larger deals with big-name players, including CA, Google, I.B.M. and Oracle. They all announced at least three acquisitions in the just-completed quarter, including, I.B.M.’s acquisition of Initiate Systems and CA’s acquisition of Nimsoft.
But while the quarter saw 12 deals that exceeded $1 billion, the majority of deals were smaller eight- or seven-figure deals. In fact, a third of the deals volume announced originated with just one deal, Bharti Airtel $9 billion acquisition of the Zain Group’s mobile phone businesses in Africa, which skews more into the telecommunications sector rather than the pure-play technology space.
Meanwhile, smaller technology companies continued to rack up deals. The quarter saw purchases from SGI, Unica and Nuance Communications. These three companies have a combined market capitalization of $5.2 billion and more than $600 million of cash on hand, so they still have plenty of money to make further deals in the coming quarters.
In addition to acquisitions, there were also a number of money-losing divestitures from companies attempted to raise cash, like the jettisoning of HotJobs and Zimbra by Yahoo. The 451 Groups says those deals probably returned only about 50 cents on the dollar for Yahoo.
One reason for the weakness came from the lack of private equity money invested in technology deals. Private equity firms invested just $6.6 billion in technology in the first quarter, 451 Group tabulated, which was down about a third from the $9.9 billion invested by those firms in the fourth quarter of 2009.
Despite the drop in private equity interest, there were some signs that private equity firms were willing to take more risks in technology as a consortium of companies including Berkshire Partners, Bain Capital and Advent International teamed up last quarter to put forward a combined $1.1 billion for the Irish electronic education company SkillSoft. It was one of the first private equity deals that broke the $1 billion mark in nearly two and a half years, the 451 Group said.
– Cyrus Sanati
Go to Report from the 451 Group »