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Article from SFGate.

“Three years from now, the data equivalent of every movie ever made will cross Internet networks every five minutes, according to Cisco Systems predictions. How to manage all that information is what will be driving technology mergers and acquisitions in 2012.

In a bid to transform that torrent into profits, a cash-rich industry is poised to surpass 2011’s almost $200 billion volume of announced mergers and acquisitions. Companies such as Cisco and IBM are searching for deals that will boost their capacity to provide new storage, analytics and security services to enterprise customers.

Big data, mobile and cloud technologies will lead to “bold investments and fateful decisions,” market research firm IDC said in a recent report. The volume of digital information may balloon from 2.7 zettabytes this year – the equivalent of filling 2.7 billion of Apple’s priciest iMacs to capacity – to 8 zettabytes by 2015, according to IDC.

“The speed at which technology innovation moves is such that you can’t miss a step,” said Jon Woodruff, the San Francisco co-head of technology investment banking at Goldman Sachs, the industry’s top adviser on deals last year. “Every tool has to be used for speed and nimbleness sake, and M&A is one of those significant tools.”

Abundant cash and investor pressure to jump-start sales growth will also propel deal-making. Cash levels have expanded 21 percent in the past year to $513 billion, based on holdings of the 35 companies that comprise the Morgan Stanley Technology Index.

Large companies will be leading the charge. Hewlett-Packard, Google and Microsoft led a 36 percent gain in technology deals last year, outpacing a 4.1 percent advance for all M&A worldwide.

In one of the biggest deals last year, HP agreed to buy Autonomy Corp. for $10.3 billion in a bid to build its software business and scale back on its PC manufacturing. Though viewed negatively by some investors, the move will enable Hewlett-Packard to offer database search services and other cloud-related services for business. CEO Meg Whitman said in November that the company doesn’t plan “large M&A” this year, though it may seek small software deals.

Cisco, which has made about 150 acquisitions in its history and has $44.4 billion in cash on the balance sheet, said in November that it will “continue to be aggressive in acquiring technologies.”

Bigger volume

“This year’s technology deal volume could be bigger than last year’s and 2007’s,” said Chet Bozdog, global head of technology investment banking at Bank of America.

Industry takeovers in 2007 reached $264.4 billion, the biggest year since 2000’s record high of $585.2 billion.

“Convergence between hardware, software and services will continue to add products to the same sales chains,” said Bozdog, who is based in Palo Alto.

Cloud computing, which allows companies to access information over the Internet from external data centers, and the shift from desktops to mobile devices, will continue to be “huge multiyear trends,” said Drago Rajkovic, head of technology mergers and acquisitions at JPMorgan Chase.

As part of this trend, SAP, the largest maker of business-management software, agreed to buy SuccessFactors for $3.4 billion in December to create a “cloud powerhouse,” co-CEO Bill McDermott said at the time.

Gaining patents

Google announced in August it would buy Motorola Mobility Holdings for $12.5 billion in its largest acquisition, gaining mobile patents and expanding in hardware. Microsoft purchased Skype Technologies for $8.5 billion in October, the biggest Internet takeover in more than a decade, in an effort to catch Google in online advertising and Apple in mobile software.

While Google and Microsoft paid in cash for their deals, the purchases didn’t put a dent in their funds. Microsoft’s cash and equivalents jumped 41 percent from a year earlier to $51.7 billion, based on its latest filing, while Google increased cash by 28 percent to $45.4 billion.

Apple, which has no debt and the most cash among technology companies at $97.6 billion, said Jan. 24 that it is discussing ways to spend its funds and would consider acquisitions.

“There’s more cash in technology than in any other sector and the low level of debt makes it very easy for companies in the industry to buy growth,” said JPMorgan’s Rajkovic, who is based in San Francisco.

Affordable targets

“As cash piles have increased, some potential targets have become more affordable. Shares of F5 Networks, whose software helps companies manage Internet traffic, lost 18 percent of their value in 2011 even as sales grew 31 percent. Riverbed Technology, a provider of equipment to boost networks’ speed, lost 33 percent while its revenue increased 32 percent. Shares of Acme Packet, a maker of devices that help networks transmit phone calls and video, dropped 42 percent last year while sales jumped 33 percent.

“You will see more M&A than last year, with some very strategic technology companies involved as valuations have become more reasonable,” said Larry Sonsini, who co-founded Wilson, Sonsini, Goodrich & Rosati, the law firm that brought Apple public in 1980.”

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Article from GigaOm.

Fundamental changes in networking and computing are shaking things up in the enterprise IT world. These changes, combined with ubiquitous broadband and new devices like smart phones and tablets, are leading to new business models, new services and shifts in corporate behavior. It’s also leading to a lot of M&A activity as companies jockey for position before the ongoing technology shift settles into the new status quo.

A report out today from Deutsche Bank lays out some of the shifts and names what it believes are the 11 most likely acquirers, calling those companies the Big 11. The bank’s Big 11 are: Apple, Cisco, Dell, EMC, Google, HP, IBM, Intel, Microsoft, Oracle and Qualcomm. They were selected because of their size, their cash balance and their willingness to make strategic acquisitions. The report talks about which companies each might acquire, but it also gives a wealth of data on the companies which comprise the Big 11 that any startup looking for a buyer on the software and infrastructure side might find worthwhile.

In addition to the information on buyers, the report goes on to explain why many deals today are valued at multiples that are so much higher than the potential revenue of the company (HP’s buy of 3PAR is a prime example of this trend):

On the other hand, the multiples paid for these companies go counter to typical expectations for valuations. All of these deals were priced at considerable premiums to forward estimates. The implication is that the larger companies believed that there were strategic benefits far in excess of the smaller companies’ near-term prospects. A common criticism of acquisitions holds that management teams of large companies try to buy revenue and earnings to offset far lower growth rates in their core businesses. This does not appear to be the case with these deals. We see this as confirming our thesis that large companies are looking to buy technology and product synergies. In all of these deals, we see larger companies either significantly building up weak product lines or looking for the ability to bundle new features into existing equipment.

Some of the 50 targets mentioned are:

  • Salesforce.com (s crm )
  • VMware
  • Adobe
  • Citrix
  • Research In Motion
  • Riverbed Technology
  • SAP
  • Atheros
  • Skyworks
  • f5 (sffiv)
  • Juniper

Each are on the list of potential candidates for different reasons associated with improving the quality and speed of delivering web-based applications and services from a cloud-based infrastructure to a multitude of devices. However, there are plenty of startups and private companies that are pioneering new technologies in these areas which are also fair game. The report doesn’t go into the content side of the business where companies like Google, Facebook, Apple, Disney, etc. are fighting for features and services to expand their reach and platforms.

Since we’re living through an enormous period of potential disruption thanks to technology, the giants in the industry find themselves playing a game of musical chairs as they seek the best seat at the table for the future. Startups and larger public companies that will help those giants fill out their offerings before the music stops are under the microscope and perhaps at the top of their valuations.”

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Article from SF Gate.

Oracle Corp. reported profit and revenue that beat analysts’ estimates as sales of database software and Sun Microsystems server computers helped it capitalize on a recovery in information-technology spending.

First-quarter earnings excluding acquisition costs and other expenses were 42 cents per share, Redwood City‘s Oracle said Thursday in a statement. That topped the 37 cent average of projections compiled by Bloomberg.

The world’s second-largest software maker is taking advantage of improvements in corporate spending by offering a wide range of software products it’s assembled through acquisitions. Oracle also gained computer hardware with its $7.3 billion purchase of Sun in January. The hiring of Mark Hurd as co-president this month may help the company manage Sun and expand into new areas of hardware, analysts said.

“Oracle is probably the best indicator in the software space of the overall spending environment in IT right now,” said Yun Kim, an analyst at Gleacher & Co. in Greenwich, Conn., who recommends buying the shares and doesn’t own any himself. Most software projects at companies require database programs, which benefits Oracle, he said.

Oracle rose 4.1 percent to 26.40 in extended trading after closing at $25.36 at 4 p.m. on the Nasdaq Stock Market. The stock has gained 3.4 percent this year.

The company reports sales that include deferred revenue from acquired companies and don’t conform to generally accepted accounting principles. On that basis, sales in the period ended Aug. 31 jumped 50 percent to $7.59 billion. Analysts on average predicted $7.32 billion.

Oracle is the largest seller of database software, second to SAP AG in business applications, and the No. 2 provider of application-connecting middleware after IBM Corp. Its goal for Sun, a money loser at the time of the acquisition, is to contribute $1.5 billion in operating income during its first year in the fold.

The company will unveil “two high-end systems that combine Sun hardware with Oracle software” at next week’s Oracle OpenWorld show in San Francisco, Hurd said in the statement.

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Here is some good news from CIO update.

“After what can only be described as a desolate merger and acquisition landscape throughout most of 2009, a new study conducted by PricewaterhouseCoopers predicts an upswing in both the volume and value of deals this year. And mergers and acquisitions in the high-tech sector will be leading the charge.

According to the US technology M&A insights 2010 study, total closed deals in 2009 fell 53 percent and were valued at just under $36 billion, way down from 2008 when companies completed purchases valued at $77 billion. However, a nice little surge in technology deals in the latter portion of 2009 appears to have given the market some momentum with 85 percent of the value of the $36 billion in mergers and acquisitions last year coming in the final six months.

“Driven by the surge of technology deals completed in the latter half of 2009, PwC expects deal activity to continue apace in 2010, albeit still below the levels seen in 2006-07,” the report said.

Anyone lamenting the moribund state of the technology M&A market can’t blame Oracle (NASDAQ: ORCL). The software giant continues to continues to make purchase after purchase in its ambitious quest to unseat SAP (NYSE: SAP) as the world’s largest business application maker and take on rivals IBM (NYSE: IBM), Microsoft (NASDAQ: MSFT) and HP (NYSE: HPQ) as it looks to become the world’s leading systems provider. Oracle has already made a pair of acquisitions early in 2010 after closing its blockbuster purchase of Sun Microsystems.

IBM also loosened its purse strings in effort to keep pace with Oracle and other cloud-computing providers. It’s a trend that PWC expect will continue throughout 2010. “There is much enthusiasm that the IPO market will make a big comeback in 2010,” the report’s authors wrote. “Add to this the potential return of private equity investors to the negotiating table and the result is improving exit multiples and more satisfied sellers.”

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