Tech Sector a Bright Spot For M&A

Merger bankers focused on the technology sector are bustling, even as overall M&A volume is running at half last year's pace.

Cash-rich tech giants like Microsoft, Oracle, Hewlett-Packard and eBay are on a buying binge. "Tech bellwethers are stepping up the dealmaking as a slowing economy and market malaise cut valuations," BusinessWeek reports. "In dollar terms, high-tech mergers and acquisitions have surged 132 percent this year through March 25 from the same period a year earlier, according to Thomson Financial." In contrast, the value of all M&A deals is down 51 percent this year, with the sharpest drops in telecom, consumer staples and real estate.

Within technology, the article spotlights consolidation among software and Web businesses. Business software maker Oracle, which bid $8.5 billion for BEA Systems in January, is setting the pace. Hewlett-Packard has joined in. "The consolidation has been vigorous at the top," Marc Benioff, chief executive of Salesforce.com, told BusinessWeek. "This trend will keep the investment bankers busy."

Lack of financing, the main depressant for M&A these days, doesn't affect big technology companies. Loaded with cash and mostly debt-free, they don't need bank credit to do deals. And tech-sector executives are keenly aware of both cheaper values and reduced competition from "financial sponsors" (private equity acquirers) now hamstrung by the credit crunch. While Microsoft made big headlines with its $44.6 billion hostile takeover bid for Yahoo, it's also bought four other companies so far in 2008 and is likely to make still more purchases to beef up its Web search and online advertising businesses, BusinessWeek says. EBay is also on the prowl, expecting to make "eight or nine" acquisitions this year, about twice its usual number, according to eBay mergers chief Lorraine McDonough.

Tech-sector advisory business also benefits from a decline in equity capital markets business. As the shaky stock market puts a damper on initial public offerings, venture capitalists and other early-stage investors are more inclined to seek acquirers for their tech holdings. Jay Adelson, chief executive of Web content-sharing company Digg, told BusinessWeek "acquisition is a much easier exit" than an IPO for many companies of Digg's size or smaller.