Technology & Software

Smaller deals will continue to be the primary focus for M&A activity in 2009. Deals exceeding $250 million in transaction value will face more investor scrutiny and pose a more serious challenge. The majority of deals will be less than $250 million, with most of those in the lower middle market (less than $100 million).

Large technology firms with cash in hand are ready to buy smaller competitors or complementary businesses at attractive prices. Smaller companies, such as start-ups and cash-starved ventures, are winding down their operations or selling themselves as demand for their products slows and financing remains difficult to obtain.

A PricewaterhouseCoopers survey of industry executives shows some mega deals are likely in 2009. That expectation became reality in April with two big acquisitions. Oracle acquired Sun Microsystems for $7.4 billion and Fidelity National Information Services acquired Metavante Technologies for $3 billion. Those two deals exceeded the first quarter’s total deal value of $8 billion on 625 deals. In the first quarter of 2008, the industry witnessed 835 deals worth $55.2 billion.

While a few mega deals may still occur, the larger expectation is the majority of deals will surface between lesser-known smaller companies that currently take in more revenue than they are worth on the stock market. For example, Rackable, which makes server and storage products for data centers and has a market capitalization of $162 million, acquired Silicon Graphics out of bankruptcy in April for $25 million in cash.

In 2008, M&A activity dropped 17 percent compared to the previous year. Still, smaller transactions worth less than $100 million dominated the technology landscape during the final quarter of 2008. Overall, M&A deals plummeted 40 percent in the final quarter of 2008 as compared to 2007.

As M&A deals are planned, they must meet stakeholder expectations for improving the profitability of the business and meeting the firm’s overall mission. The current macroeconomic climate will not allow a repeat of the 1990s technology bubble when companies acquired businesses at vastly inflated prices and, in some cases, were a poor fit to the firm’s strategic plan.

Sources

• 12^th Annual Global CEO Survey: Technology, PricewaterhouseCoopers.
• Glick, B. (2009, Jan. 15). Technology M&A Another Victim of the Downturn, ITNews.com