The 411 from 451: M&As Tally $75B in Q1 2005
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Companies spent a record $75 billion in acquiring rivals or other vendors to fill holes in their portfolio in the first quarter of 2005, according to The 451 Group.
Acquirers snapped up 604 enterprises in the period, led by 48 purchases from private equity firms. Twenty-two of these deals have the potential value to top $23 billion, said The 451 in a research summary.
This spending trend was exemplified earlier this week when Silver Lake Partners spearheaded a cadre of investment firms in offering $11.3 billion for high-tech services provider SunGard.
Carlyle Group notched $5.6 billion in spending, behind Silver Lake, and reportedly has $10 billion set aside for buys in 2005 and beyond, The 451 Group said.
This is a reassuring sign for the high-tech industry. The sector watched in horror as funding and spending from companies, whose goals are to buy and sell businesses, dried up in the economic downturn from 2000 to 2002.
Telecommunications and software continue to be hot sectors for poaching rivals. Telcos accounted for 57 percent of the total mergers spending but only 18 percent of the total transactions.
The 451 Group said five telecommunications deals in the first quarter topped $1 billion, led by SBC's acquisition of AT&T for $15 billion.
The research firm said it expects the Verizon and Qwest battle for MCI to pace M&A activity for the telecommunications sector in the next quarter.
Not all of the deals are strategic, or are a move to be aggressively on the offensive the way Oracle's play for PeopleSoft appeared. In fact, Oracle's recent $670 million bid for Retek was an example of a defensive maneuver to protect its customer base from German applications giant SAP.
Going forward, The 451 Group stayed on message with its belief that the storage sector will continue to be a major target for mergers in 2005.
The 451 said the emergence of virtualization and of information lifecycle management provides offensive opportunities for new acquisitions and the expansion into new markets.
Wielding ILM as a way to preserve information better, storage vendors such as EMC, IBM and HP are finding new revenue opportunities with the emergence of federal regulations demanding record retention.
"Some of the technology companies that are involved in these areas will be interested in acquiring pure technology plays that will fill immediate platform gaps, preventing competitive companies from gaining access to the technology," the research firm said. "Others will see customer acquisition opportunities, as well as the ability to up sell existing technology."