Even as the economic clouds have darkened during 2008, the information technology (IT) industry has continued to demonstrate a remarkable appetite for growth.
The latest review of M&A across the world’s largest IT companies over the earlier part of the year by M&A’s sister publication Information Age portrays an industry shift, as IT companies seek to arm themselves against the recession with new technologies and by expanding their market reach.
The research, undertaken in association with business advisory services firm Vantis, highlights how companies spent US$46.6 billion (£31.8 billion) closing the top 50 publicly disclosed deals in the first half of this year alone. And the spread in value of those deals was vast – from Hewlett-Packard’s table-topping $13.9 billion acquisition of IT services giant EDS to Blackbaud’s $46 million consolidation in the fundraising software niche.
As a measure of who was most active up to the mid-year point, only two companies stood out with three appearances apiece in the top 50 table: IT systems, software and services giant IBM and storage, security and document software company EMC. There were, however, others who showed continued hunger for expansion into new markets or to grow their share of existing activities, including Symantec, Microsoft, HP, Capita and BT.
Behind such moves were some revealing trends that highlight changing geographical buying patterns and the most desired technology targets. The vast majority of buyers were US-headquartered, with 33 of the top 50 deals initiated in the States. Trailing that by some margin, but still noteworthy, was the UK, where six of the largest transactions were launched. While that might not have been a big departure from previous years, there was one country whose M&A dealmaking represents a new phenomenon: Indian companies, with three top 50 deals in the first half of 2008 alone, were the third most active, indicating significant changes in the outsourcing sector, as India’s IT services giants seek to grow their footprint beyond national boundaries.
The location of acquisition targets should raise a few eyebrows. While 20 of the top 50 deals involved a US-based target – almost exclusively US companies buying their rivals – it was a different picture in the UK.
In the survey period, of the 17 UK companies acquired, only four were internal transactions. As that suggests, the UK has become well established as a hothouse for technology development. But the shareholders in those companies see the most likely and palatable exit as coming from acquisition rather than initial public offering.
The pattern of acquisitions, up to the middle of the year, had a singular theme – of the top 50 acquisitions, 12 were in the booming area of information management. That broad slice of the industry, which covers all aspects of how organisations gather, store, analyse and present their information, saw SAP and IBM buy their way into business intelligence software with the buy-out of France’s Business Objects and Canada’s Cognos, respectively, Microsoft obtain a presence in enterprise search software with its purchase of Norway’s FAST, and Sun Microsystems spend almost $1 billion to gain control of the open source database management sector with the acquisition of Sweden’s MySQL. These 12 deals amounted to a spend of $15.5 billion on information management.
While the IT industry spans a vast number of technologies, tellingly, all but a handful of the other top 50 acquisitions fell into four distinct categories. Almost ten per cent of the top 50 was in the area of IT services, where EDS’s acquisition by HP towered above all.
Eight deals fell into the communications, networking and mobile segment; there were six deals in systems and storage management software; and just slightly fewer than that in business applications and applications infrastructure.
There are some names that might have been expected to show up more frequently, based on the number of deals that they have closed. But the size of the industry’s most acquisitive giants means they do not regard some of their smaller purchases as “material” – even when these might be $50 million-plus transactions.
Oracle is a case in point. While it may appear just once in the table, it has a practice of glossing over its smaller acquisition costs: “Our acquisitions [other than BEA Systems] were not significant individually or in the aggregate.”
However, in the period from March to August, for example, those “not-significant” deals amounted to a total cash spend of $407 million.
The pace of the high-tech M&A market has only now started to slow as the recession has hit. Scores of large deals were signed in the third quarter: in security software, McAfee’s $465 million takeover of Secure Computing, Symantec’s swallowing of MessageLabs and Sophos’s acquisition of Utimaco.
There are also the beginnings of credit crunch-inspired M&As: Tata Consultancy Services’ swift absorption of Citigroup’s global IT services unit in India; the buy-out of US insurance software company SEEQ by Polaris Software Labs (also of India); and Fujitsu’s move to take control of the 50 per cent it didn’t own in Fujitsu Siemens Computers.
In coming months, as balance sheets come under pressure, rampant consolidation evident across most of the industry’s sectors is sure to accelerate. Many tech companies will be keen to sell off non-core assets, creating rich pickings for the strong as distressed technology companies come up for auction.
Deals were either announced or completed in the first half of 2008
Companies included derive the majority of their revenues in the information technology sector, offering products to business.
Companies focused on consumer products or low-level components are not included.
Currencies are converted to US dollars at exchange rates averaged over the six month period 31 January to 30 June 2008
M&A currency conversion at the following rates: £1 = $1.97650 €1= $1.54249 1 Norwegian Krone = $0.19399 1 Singapore dollar = $0.72088 1 Indian rupee = $0.02459 1 South African rand = $0.131
THE FULL REPORT
This is an extract from a comprehensive new research document undertaken by Information Age in association with business advisory group Vantis, on the M&A strategies and financial performances of the IT industry’s top 200 companies.