After a glacially slow start to 2009 in the mergers and acquisitions market, tech companies started buying again in the second half of the year and analysts expect the resurgence in takeover activity to continue in 2010.
Tech M&A activity in the United States hit lows of $3.1 billion in the first quarter and $2.3 billion in the second quarter of this year, as measured by value of closed deals. Those numbers were a far cry from the $13.8 billion posted in the second quarter of 2008 and the $44.6 billion in the third quarter of 2008, according to a report by PricewaterhouseCoopers.
But the industry is starting to rebound with $9.8 billion worth of closed deals in the third quarter of 2009. Future M&A activity is always hard to predict, but the trends are going in the right direction, analysts say.
"If you look at the first two quarters of the year it was almost at decade lows, which is pretty meaningful if you consider what else happened this decade" with the dot-com bubble bursting, says Rob Fisher, leader of PwC's tech M&A services group. "What we saw was basically the deal volumes doubled in Q3 compared to Q2 and actually basically doubled the year to date stats. Given the announcements we've seen over the last few months it's our expectation we will see another doubling."
Billion dollar deals made a comeback in the third quarter of this year with announcements such as Xerox's $6.5 billion purchase of Affiliated Computer Services and Dell's planned acquisition of Perot Systems for $3.9 billion.
Dell's acquisition of Perot closed in the fourth quarter and Xerox-ACS is still pending and so they are not included in the third quarter figure. Another pending deal that could boost the stats is Oracle's $7.4 billion purchase of Sun, which is being reviewed by European regulators.
A shortage of M&A activity as well as a slowdown in the IPO market has made it difficult for new technology companies to secure venture capital funding, because investors are wary of putting money into new companies when they haven't received liquidity on prior investments. Michael Fitzgerald, founder and managing general partner of Commonwealth Capital Ventures, has predicted that the venture capital industry will continue to shrink dramatically over the next three to five years.
But as long as the stock market doesn't crash again, the tech industry should see healthy levels of acquisitions and IPOs in 2010, says Robert Armstrong, a financial analyst and senior columnist at Dow Jones Investment Banker.
"There's been a pretty torrid pace of tech deals in the second half of 2009," Armstrong says. "Even if the stock market can just bumble along where it is, I think M&A will continue apace."