Software Vendors: Tech M&A Activity Poised for Rebound

By Larry Barrett

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After what can only be described as a desolate merger and acquisition landscape throughout most of 2009, a new study conducted by PricewaterhouseCoopers predicts an upswing in both the volume and value of deals this year. And mergers and acquisitions in the high-tech sector will be leading the charge.

According to the US technology M&A insights 2010 study, total closed deals in 2009 fell 53 percent and were valued at just under $36 billion, way down from 2008 when companies completed purchases valued at $77 billion. However, a nice little surge in technology deals in the latter portion of 2009 appears to have given the market some momentum with 85 percent of the value of the $36 billion in mergers and acquisitions last year coming in the final six months.

"Driven by the surge of technology deals completed in the latter half of 2009, PwC expects deal activity to continue apace in 2010, albeit still below the levels seen in 2006-07," the report said.

Anyone lamenting the moribund state of the technology M&A market can't blame Oracle (NASDAQ: ORCL). The software giant continues to continues to make purchase after purchase in its ambitious quest to unseat SAP (NYSE: SAP) as the world's largest business application maker and take on rivals IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and HP (NYSE: HPQ) as it looks to become the world's leading systems provider. Oracle has already made a pair of acquisitions early in 2010 after closing its blockbuster purchase of Sun Microsystems.

IBM also loosened its purse strings in effort to keep pace with Oracle and other cloud-computing providers. It's a trend that PWC expect will continue throughout 2010. "There is much enthusiasm that the IPO market will make a big comeback in 2010," the report's authors wrote. "Add to this the potential return of private equity investors to the negotiating table and the result is improving exit multiples and more satisfied sellers."

The report continued, "With almost $200 billion in cash on hand at the end of the year, they do not lack for dry powder."

Among the sectors most likely to experience intense consolidation in 2010 are cloud computing providers, security vendors, real-time search developers and unified communications. The report found that Internet companies watched their M&A deal volume implode in 2009―down 60 percent as major players largely remained on the sidelines. In 2010, industry titans such as Google (NASDAQ: GOOG), Microsoft and Cisco Systems (NASDAQ: CSCO) will get more aggressive and buy or invest in companies that develop real-time search and location-based applications, the report predicted.

Larry Barrett is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.