Technology and Software M&A Outlook 2009

Technology & Software industry deals were down in 2009 in both volume and value, a mere one half of 2008. There was a variety of deals that had been announced but not closed within the year, such as Oracle-Sun, Xerox-ACS and Cisco-Tandberg. Ignoring the actual date of the deal, so to speak, the trend in the last year has been on innovation, and that trend is mounting.

In 2009, eighty-four percent of all Mergers and Acquisitions (M&A) activity in the Technology and Software (T&S) industry involved companies valued at $500 million or less. The technology scene has begun shifting to new and different technologies. Rather than attempt to copy the competition, many larger companies are finding that it is more cost-effective to simply purchase an innovating company. This is a trend that was seen a great deal during the dot-com boom and it may be on the rise again.

The major trend includes a relative blurring of the distinction between hardware, software, and services. Cloud computing, and the technology that enables it, is also gaining ground, particularly as companies find ways to integrate cloud computing with other services, such as chatting, email, calendar management, etc. These are areas of technology that present important advancements and avenues. Expect to see an ongoing trend of this type of activity throughout 2010, likely approaching the highs seen in 2006.

As larger companies find ways to strengthen balance sheets and the credit market begins to improve, lower interest rates combined with lower market valuations will enable many companies to make larger purchases than otherwise would have been possible.

Larger companies will also seek to fill out their portfolios of service and product offerings, in part to hedge for the what the next big trend or technology will be. Expect to see increased M&A activity throughout the middle market, particularly on the lower end.

SOURCES: PriceWaterhouseCoopers, Deloitte