Potential Acquisition Targets

By Reuters  |  Print this article Print

From HP buying 3Com and Palm, to Oracle buying Sun Microsystems to SAP buying Sybase, cash rich technology companies are on a shopping spree to expand into new markets as they prepare for economic recovery. Even Novell has put itself up for sale. And Brocade reportedly investigated the market for its own sale last year. Here's what's behind the trend.

The start of this year has been the strongest in tech M&A since the last big wave of deals in 2003 to 2007. In the first quarter, $68.8 billion worth of high-tech and telecom deals were announced, compared to $19.2 billion a year earlier, according to Thomson Reuters data.

On the eve of the Reuters Global Technology Summit, more deals seem to be on the cards. Tech firms weathered the recession better than most, and are now looking to pick up growth as the recovery accelerates.

Cisco, HP, IBM, Microsoft and Oracle are actively pursuing a large number of potential deals, said Peter Falvey, co-head of Morgan Keegan's technology investment banking group.

There are more conversations among potential merger candidates going on today than there were during the second half of last year, he said.

Wednesday's Sybase deal "is just one transaction that might be a harbinger of what is to come in the second half of the year," Falvey said. "We are expecting a significant uptick in M&A in the second half of 2010."

The key issue is what premium buyers are willing to pay. SAP's deal puts a 56 percent premium on Sybase, higher than recent deals in the sector.

It's not clear if that is setting a new benchmark, or if SAP is overpaying. Bankers say recent premiums look high because tech companies are still trading at historically low valuations despite recent rallies.