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Storage, Grid, Intelligence M&As Boom in Q3

Vendors spent nearly $12.2 billion last quarter to buy technology companies in the third quarter as storage, business intelligence and grid computing sectors rocked with action, according to the latest research from The 451 Group. Going forward, the research firm expects grid computing to lead the next fresh wave of M&As.

The Q3 figure was down some 24 percent from the quarter a year earlier, which saw $16 billion spent on mergers and acquisitions. Moreover, Q3 spending declined 21 percent from Q2, which may hint at a weaker quarter, but The 451 pointed out that this figure is skewed by First Data Corp's $7 billion purchase of Concord EFS, a transaction that sent Q2 M&A spending rocketing skyward.

"Despite a firming in many technology acquirers' stock prices -- normally a key predictor of aggressive acquisition behavior -- buyers remained cautious, spending most of their dollars on mid-market properties and for the most part avoiding multi-billion-dollar deals," The 451 said in its report. "Acquirers valued the average Q3 transaction at $85 million, versus an average of $125 million in the previous quarter, with the median Q3 deal coming in at about $17 million."

But whatever the reasons for the year-over-year or Q2 to Q3 dip folks in the storage, grid computing and utility computing segments had reason to be encouraged by a few blockbuster deals, and several mid-market purchases. A burst of consolidation at the peak of Q3 spurred eightfold growth in M&A spending within the storage and business intelligence software sectors, while the grid computing niche has made about $1 billion in M&As in the last year.

The M&A breakdowns are as follows: companies spent $2.8 billion on Net infrastructure; $2.5 billion on applications software; $2.1 billion on IT services; and $1.9 billion on storage acquisitions. The rest occurred in telecom an miscellaneous IT categories.

In the storage area, acquirers spent eight times more than they spent in the entire first half of the year to acquire 10 storage hardware and software companies. Storage systems giant EMC took the grand prize when it purchased data archiving specialist Legato Systems for $1.3 billion, while Symantec just last week spent $150 million on PowerQuest to greatly bolster storage management technology.

July proved to be the reigning month of business intelligence software action, as acquirers spent about eight times what they shelled out in the first half of the year, spending nearly $1 billion on nine properties. Business Objects moved to acquire Crystal Decisions for $820 million in a blockbuster deal, while Hyperion offered $142m in cash for Brio Software. Actuate followed less than a week later by buying Nimble Technologies.

Although the storage and business intelligence sectors are considered evolving segments, they may have matured a bit owing to the mass consolidation.

The 451 sees the next big raft of purchases coming in the grid computing space, which is rapidly heating up due to the proliferation of utility, or on-demand services that accompany the technology. IBM, HP and Sun Microsystems are the largest systems vendors to descend upon this new space, with EDS, Veritas and Computer Associates throwing their hats into the large ring.

"For example, in the grid computing arena, where all of the major IT suppliers have made serious bets on being able to deliver "on-demand" computing, we expect that in many cases these vendors will turn to alliances or acquisitions to execute against those strategies," The 451 report said.

"The critical factor about Grid computing technologies is whether or not Grids can break out from the scientific and technical world into commercially-oriented enterprises," The 451 Group Chief Analyst John Abbott told GridComputingPlanet*. "High-performance computing users don't mind rolling up their sleeves in order to get something working, and their software tends to be suitable for breaking into discrete pieces that can be executed in parallel. Enterprise users running transaction processing applications have different requirements and prefer off-the-shelf technology that works predictably every time. Grid technology is on the cusp of the transition - but hasn't quite made it yet."

To be sure, the grid and utility computing arena saw three transactions in Q3 and has generated more than $1 billion in M&A activity within the past 12 months, according to a separate report from The 451 Group.

In August, Intel purchased Pallas GmbH while Sun Microsystems nabbed CenterRun for $66 million and Pirus Networks and TerraSpring before that. Earlier in the year, IBM bought Think Dynamics for $48 million.