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Tech Merger Meter 2007

January 16, 2008

Tech Merger Meter 2007
December 2007
In the world of tech deals, 2007 was a play in two acts. The first half of the year saw the same frenetic pace of dealmaking as the prior two years. Private-equity firms continued to unveil mega-deals, including the $32.6 billion bid for BCE, the parent of Bell Canada, and the $25.7 billion purchase of wireless carrier Alltel. But the credit market troubles that surfaced in August sucked the easy money out of the market and cooled tech M&A activity in the second half of the year. The turmoil even caused a few deals, such as the buyouts of Harman and Acxiom, to unravel. Shareholders, meanwhile, rejected the Dolan family's $10.6 billion offer to take Cablevision private.

Overall, the value of announced deals, excluding debt, targeting tech and telecom companies edged up 2.8% to $526.78 billion in 2007, according to research firm Dealogic. The number of transactions was flat from a year ago at 5,838.

Strategic buyers continued to be active, especially in the software and Internet sectors. IBM and SAP scooped up rival business-software makers, while Oracle made an unsuccessful run at BEA Systems. Microsoft got online-ad firm aQuantive for $6 billion, but rival Google is waiting for EU approval of its $3.1 billion DoubleClick deal. Another high-profile deal -- the $5 billion merger of satellite-radio rivals Sirius and XM -- is still awaiting U.S. antitrust approval. And, late in the year, Vivendi agreed to merge its videogame unit with Activision.

In this graphic, you can review some of the biggest tech deals of 2007 and what our panel of bankers and M&A advisers expects for 2008.

Research: Marcelo Prince


Here are some technology deals that made headlines in 2007.

*Excludes debt of target company Sources: Dealogic, WSJ Research


The tech M&A market has hit a lull heading into the new year. Most of our experts expect tight credit markets to curb the appetite of private-equity firms and result in fewer giant leveraged buyouts in 2008. Yet, our group still sees activity among corporate buyers and ample opportunities for further tech consolidation. The panel was divided on whether deal prices will remain robust or get squeezed.

Ken Marlin, managing partner and founder of Marlin & Associates, a boutique M&A firm, says there continues to be strong interest amid both strategic buyers and private-equity in smaller tech deals. "We are not seeing any slowdown," he says, and expect "transactions under $1 billion will continue at about same level as 2007, which was a pretty healthy pace."

David Parker, head of the tech M&A group at Piper Jaffray, says there has been a "deflation of financial sponsor activity" but he expects deals among strategic players to continue "unabated" in 2008. He predicts software will "continue to be an extremely active sector." He also expects to see more European and Asian firms taking advantage of the weak U.S. dollar to buy their U.S. counterparts.

Stephen Fraidin, an M&A lawyer at Kirkland & Ellis, says market conditions in 2008 will continue to favor strategic buyers over private-equity firms. Without easy leveraged lending, he says, "the pendulum is swinging back now to strategic buyers." He also thinks activist investors will have a harder time convincing boards to break up companies or put them on the auction block.

Greg Peterson, a partner in Pricewaterhouse-Coopers' transaction-services practice, says tech and telecom dealmaking will continue to be driven by customer preferences. Businesses want to deal with fewer vendors and "the consumer now wants a single wire coming into their home with everything," he says. He expects more telecom and software consolidation. While deal multiples have "crept up, it is not as crazy as it was in 2000."

Paul Deninger, vice chairman of Jefferies & Co., says there continues to be "enormous interest" in the software and Internet sectors. "Those two markets are seeing the most activity," he says. While the role of private equity in tech will remain subdued early in 2008, he expects strategic buyers will return in the first quarter as the stock market jitters ease and CEOs "feel more confident and comfortable again."

Copyright © 2007 Dow Jones & Company, Inc. All Rights Reserved
Marlin & Associates

Founded in 2002, Marlin & Associates is a boutique investment banking and strategic consulting firm focused on providing highly strategic and specialized, transaction-related services to U.S. and international middle-market firms engaged in technology, information, on-line media and business-services. The firm is based in New York City with a Washington, DC office.

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