Technology companies that fueled more than US$100 billion in acquisitions last year are likely to spend more this year in a race to harness surging demand for cloud computing and security services.
Intel Corp, Hewlett-Packard Co (HP) and International Business Machines Corp led purchases of more than 2,700 companies and still spent only a fraction of the cash piles they accumulated during the recession. The US dollar amount of announced technology deals gained 12 percent, lagging behind a 26 percent jump in worldwide mergers, according to data compiled by Bloomberg.
“I’m bullish” on this year, said Larry Sonsini, chairman and co-founder of Wilson, Sonsini, Goodrich & Rosati, the Palo Alto, California-based law firm that worked with security-software maker McAfee Inc on its US$7.7 billion agreed sale to Intel. “When I look at enterprise clients, I see they are poised to invest in growth on a global basis.”
Buyers aim to capture the US$3.4 trillion in information-technology spending projected by researcher Gartner Inc for this year, a 3.5 percent increase from last year. Cisco Systems Inc and Oracle Corp are among IT providers driving the convergence of services, software and hardware as they compete to become the most relevant to chief technology officers. More companies are moving to cloud computing, allowing them to access information over the Internet from external data centers.
Sonsini’s firm worked on 62 technology acquisitions valued at a total of US$16 billion last year, including the McAfee -takeover — the biggest deal in the industry last year.
From his vantage point in Silicon Valley, Sonsini predicts an increase in many types of tech transactions this year.
“Starting at the bottom of the enterprise ladder, such as venture financing, we will see active investments in important areas such as cloud computing, clean technology, alternative energy, life sciences and Internet,” said Sonsini, whose firm helped take Google Inc and Apple Inc public.
Venture capitalists are also pushing for paydays after a dearth of initial public offerings (IPO) during 2008 and 2009. Worldwide, 94 technology companies held IPOs last year, up from 54 in 2009, according to Bloomberg data.
Groupon Inc, the Internet--coupon service with more than 35 -million users, may be among those going public this year.
The Chicago-based company walked away from a US$6 billion takeover bid from Google last month and will decide this year whether to sell shares in an IPO, a person close to the situation said last month. Groupon has also filed to raise as much as US$950 million from the sale of preferred shares.
“The increase in global tech IPOs in 2010 bodes well for M&A in the industry” this year and beyond, said Drew Guevara, head of West Coast technology investment banking for Morgan Stanley, which advised Groupon together with Allen & Co. “Going public both establishes a company’s market valuation and creates the potential to achieve higher value downstream through a sale.”
Morgan Stanley topped last year’s league table of financial -advisers in the sector with 40 deals worth about US$28 billion, followed by Goldman Sachs Group Inc and JPMorgan Chase & Co. New York-based Morgan Stanley advised McAfee in its sale to Intel, video-storage provider Isilon Systems Inc in its takeover by EMC Corp and ArcSight Inc in its sale to HP.
Speculation about who will be next has already boosted the stocks of the fastest-growing companies. F5 Networks Inc, whose software helps companies manage Internet traffic, more than doubled last year. Riverbed Technology Inc, a provider of equipment to boost networks’ speed, more than tripled. Acme Packet Inc, a maker of devices that help networks transmit phone calls and video, quintupled as investors bet on continued revenue growth and a possible sale.
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