A Quick Look at Technology Acquisitions in 2008

Theprogressively softening economy makes good fodder for op-ed columnists, but itdoesn’t seem to be affecting the always-lively mergers and acquisitionsactivity seen in the technology arena. People may not be buying houses anymore,but companies are sure keen on buying each other.

After astrong M&A year in 2007,the first few months of 2008 show that the trend hasn’t abated quite yet. As anexample of the pace of deals, there have been at least 35 mergers andacquisitions for venture capital-based technology companies so far in the pasttwo months, noted Adam Wade, at Dow Jones Financial Information Services.

"Today’smarket is very similar to what we say in 2003 and 2004, when more companieswere acquired, but for lower prices," Wade says.

Notabledeals in the last two months have included: Sun snapping up desktopvirtualization company Innotek; SGI buying Linux Networx, to expandits Linux capability for high-performance computing; and Dell announcing itwill buy MessageOne, which provides managed services for email and businesscontinuity.

"Thelast 12 to 18 months has been torrid," says Charles King, president andprincipal analyst at Pund-IT. "The shifts in corporate tax law under theBush administration have made life profitable for many corporations, and theones doing well have been sitting on a lot of money. And now they want to spendit."

Especiallybig is the announcement from Oracle that it will acquire BEA Systems, for about$8.5 billion, demonstrating Oracle’s long-term interest in middleware.

Althoughthere were a number of sizeable deals in just the first two months of the year,no company achieved quite the level of sound and fury that Microsoftdemonstrated when it announced on February 1st that it was going after Yahoo.

Consideringa potential proxy fight to replace Yahoo board members, Microsoft’s takeover islikely to be decisive and swift, but it differs significantly from thebehemoth’s past deals, notes Rob Helm, an analyst at Directions on Microsoft.

"Thisis really an unusual move for Microsoft, both in terms of size of theacquisition, and the fact that it taps out all the company’s availablecash," he says. "It’s not organized like any other kind of Microsoftdeal."

Alsounusual is the buy itself, he adds. In the past, Microsoft has purchasedsoftware companies like Great Plains, and then attempted to integrate applicationfunctionality from those firms into its larger portfolio. With Yahoo, thecompany is trying to compete with Google, and that could spark other deals inthe coming year surrounding online services.

"Inthe tech world, it’s fairly common to see large acquisitions like IBM and Cognos, for example,"says Helm. "But when a company’s core business is software and it buys anonline services company, that says something about the acquisitions climate.It’s kind of ‘anything goes’ right now."

As if toprove the point, Yahoo made its own acquisition announcement, just a day afterrejecting Microsoft’s initial offer. The company plans to spend $160 million onMaven Networks, a developer of inventory management and reporting tools, and anad engine.

Althoughthe economy may cause slowdowns in some sectors of technology, some analystsbelieve that acquisitions won’t be particularly affected. If anything, thechangeover in U.S. presidents could spark a buyingand merging spree before the year is out, King notes.

"It’sbeen a kind of unspoken thing, but there could be a large effect on M&Aactivity with a new presidential administration," he says, pointing outthat anti-trust actions during the Clinton era were different than duringthe Bush tenure, for example. "Mergers and acquisitions tend to changeaccording to who’s in the White House, and that could make companies think theyhave to close on any new deals before the end of the year."

Inaddition to year-end scurrying, the industry could also see continuedconsolidation in areas like storage, security, middleware, and online services.Storage, in particular, has become so complex that it’s something of a dealmagnet.

"Youdon’t just store information anymore, you have to find ways to manage it, andsecure it, and move it around," says Roger Kay, president of research firmEndpoint Technologies Associates. "That means more companies are enteringthe market with little pieces of the puzzle, and bigger companies are acquiringthem to put their services together."

Recently,the entire industry has seen fewer deals coming from private equity firms thanin the past, which could be beneficial for enterprise application vendors whowouldn’t have to compete with the firms for acquisitions, says Albert Pang, ananalyst at IDC.

Hewlett-Packardis expected to play a more active role in software consolidation, he notes, andalso look for more team-ups in areas like telecom, healthcare, and software asservice vendors. "There are a growing number of mergers and acquisitionsin all software segments," he says. "2008 should be noexception."