2010 Tech M&As – A Year in Review
2010 was a busy year for Silicon Valley and the high tech sector as M&A activity rebounded after a couple years of relatively stagnant behavior during the economic recession. While the numbers are not significantly different from pre-recession levels, the nature of the deals this year hinted at shifting trends and changes within the high-tech industry itself. Â With cloud computing, mobile, and Internet communications leading the way, 2010 finished strong in the second half of the year with the highest level of deal volume seen in the last two years.
SAN FRANCISCO, CALIFORNIA — After a couple of years of declining merger and acquisition (M&A) activity in the high-tech sector, 2010 signaled a rebound in the market as investments picked up across the board.
As of the third quarter of this year, the sector’s aggregate deal value was more than double the amount closed during the same period in 2009, according to market research firm Dealogic. With 45 tech deals announced in the third quarter, it also represented the highest level of deal activity in the last two years.
While the numbers were not significantly higher than industry-wide observations seen prior to the economic downturn of the last couple years, this year’s deals are indicative of changing trends and operations within the high-tech industry itself. Â Investments in the areas of data storage, mobile technology, and Internet communications led the industry’s growth, and are expected to continue into 2011.
MIGRATION TO “THE CLOUD”
As ideas such as cloud computing, or the migration of data and computing processes from individual servers to the Internet or “the cloud”, takes on more definitive forms, several of the industry’s Â largest players have used the past year to look at potential investments that will strengthen their offerings in this area.
“During the recession, a lot of these companies had to cut back drastically on research and development spending and they didn’t really have a chance to develop new products,” explained an analyst at a major investment banking firm in Palo Alto, California in an interview with Xinhua.
“However, it did give companies a chance to improve and build up cash on their balance sheet,” said the analyst, who asked to be not named.
Just in December, Dell Inc. announced its acquisition of data storage firm Compellent Technologies for 820 million U.S. dollars. This move will allow the PC maker to meet growing demand for faster and more efficient ways of storing and accessing data, particularly in the cloud.
The purchase followed the eventual fall-through of Dell’s attempted acquisition of storage technology firm 3PAR Inc. in September, which instead went to Hewlett-Packard Inc. (HP), in a deal that was ultimately priced at approximately 2.35 billion dollars. The final offering was a roughly 300-percent premium over 3PAR’s pre-bidding war trading value.
HP’s management team hopes that the move will allow the company to strengthen its enterprise services, especially as growing numbers of businesses are looking to develop leaner and more efficient IT processes.
“3PAR has built a reputation for delivering enterprises and cloud computing service providers the ability to do more with less, ” said David Scott, HP’s vice president of the Americas software unit and former 3PAR CEO, in a released statement.
In November, data storage company EMC Corp. also acquired “scale-out NAS (network attached storage)” company Isilon Systems Inc. to expand its external storage capacities. The 2.25-billion- dollar purchase price represented a 29-percent premium on Isilon System’s trading value prior to the announcement.
With increased demand among businesses to move data and processes online, the demand for intensified security measures has also been on the rise. This summer, processing chip giant Intel Corp. announced its intent to acquire network security vendor McAfee Inc. for 7.68 billion dollars, the largest transaction of its kind in the security field.
The U.S. Federal Trade Commission cleared the deal in December, and it is currently awaiting approval from the European Commission.
While the acquisition is meant to strengthen security across all of Intel’s systems, executives at both companies cited growth in the mobile sector as a key driving force. “Connected devices are exploding. As the movement of the new Internet from IPv4 to IPv6 changes, we’re going to trillions of devices over time and security is a really important part of that,” explained David DeWalt, McAfee’s president and CEO, in a video interview released by Intel in August.
The McAfee deal came at the heels of another Intel acquisition aimed at enhancing the company’s mobile offerings. In August, Intel announced its purchase of Infineon’s mobile unit for 1.4 billion dollars.
“Intel feels compelled to build out its mobile product suite, including ARM baseband processors for handsets, smartphones, tablets, and other mobile devices,” explained Craig Berger, an analyst with FBR Capital Markets, in a media interview earlier this year.
Similarly, HP acquired Palm Inc., a smartphone provider and Palm webOS mobile operating system developer for roughly 1.2 billion dollars in April. The deal will allow HP to expand on its relatively small line of mobile devices, which had previously been limited to the iPaq line of products.
On the network end, telecommunications service provider Nokia Siemens Networks acquired Motorola’s telecommunication network business in July for 1.2 billion dollars in hopes of giving the company a way of increasing its global footprint. Prior to the deal, both business units had struggled to gain market share, particularly in the face of the global recession.
With devices such as Apple’s iPad and Windows Phone making their debut, the worldwide mobile market is currently valued at 850 billion dollars, according to technology research firm IDC. The majority of those sales are attributed to the telecommunications space.
Growth in the mobile sector has also been partially responsible for driving increased usage of Internet-based communications tools. As mediums like social media have taken off in 2010, with social networking site Facebook eclipsing Google as the most visited online destination of the year, the industry’s largest players have also taken note.
Overall, Internet search giant Google was the top acquirer this year, making 23 total acquisitions through its third quarter, according to research firm CB Insights. In particular, 20 of the 23 acquisitions focused on the Internet communications sector, with only two deals made in mobile. By industry, CB Insights segmented that three of the deals were in search and three were made in the social space.
Earlier in November, Google also made an attempt to acquire Groupon, a social shopping site, for a reported 6 billion dollars. While Groupon’s management team ultimately declined the offer, the attempted purchase is another sign of Google’s increased interest on focusing on local businesses and advertisers. To date, Groupon has been billed as the fastest growing company in history, with an estimated revenue this year of over 400 million dollars.
Looking forward, investors and industry watchers remain bullish about M&A activity within the space in 2011. According to a recent survey conducted by market research firm AdMedia Partners, the vast majority of respondents expect M&A activity to increase in the coming year.
In particular, most respondents expect growth within the digital media space to be focused around developing analytics and optimization metrics. The survey was based on responses from senior executives in the marketing technology and media sector.
Investors also expect consolidation to continue in the cloud computing space. Larger companies will acquire “cloud vendors that provide cost-effective cloud IT-service solutions that meet the needs of SMBs (small and medium sized businesses) who have limited in-house IT resources and knowledge,” Cascadia Capital, a boutique investment bank, predicted in a report released in November.
Overall, the NASDAQ composite, which is home to primarily tech companies, gained approximately 17 percent in the past year, closing at 2,662.98 at the end of the trading day on Dec. 30.
(for Xinhua News Agency)