Tech Acquisitions Up

Boston Corporate Finance Inc. investment analysts believe the high level of tech merger and acquisition activity will continue this year with deals likely to come in IT services, enterprise software, security and storage.

During the first six months in 2006, the firm recorded 1,993 transactions for IT companies, up 15.6 percent from January through June in the prior year. Analyst at the investment firm estimate there were 3,449 IT M&A transactions last year.

"We'll probably see an increase of about 20 percent this year," Boston Corporate Finance CEO Murray Beach said Thursday. "The number of transactions demonstrates the general health of the industry."

And that outlook for tech appears healthy. The banking firm cited numbers from Capital IQ, a Standard & Poor's division, revealing more than 450 M&A transactions during the second quarter in IT services, enterprise software, security and storage of which 76 disclosed deals totaled more than $14.7 billion.

Boston Corporate Finance also said that in the same quarter companies disclosed 210 M&A deals in the enterprise software space totaling $7.4 billion. Numbers tallied for April through June 2006 indicate the market endured its third busiest M&A quarter since the first quarter in 2000.

And there's little sign the buying spree will let up. "Companies are buying up smaller competitors, especially in the service-oriented architecture and business intelligence sectors, to fill-in products missing in their offerings," Beach said.

There were a few examples this week. IBM Corp. on Wednesday agreed to acquire privately held Webify Solutions, which provides software to build service-oriented architecture (SOA) platforms. Robert LeBlanc, general manager of IBM WebSphere Software, in the conference call with analyst on Wednesday, said Webify's tools and frameworks will integrate into WebSphere product line.

The following day, IBM said it would acquire MRO Software, which specializes in asset management, for $740 million in cash to expand its software business. The Armonk, N.Y., company plans to combine MRO's asset management technology and consulting services with IBM Software and IBM Global Services offerings.

"The infrastructure companies are trying to bulk-up and add everything they want to sell," said Bill Swanton, vice president at AMR Research Inc. "Today's acquisition of MRO Software by IBM is similar to what HP did when it picked up Mercury Interactive."

Hewlett-Packard & Co. in July announced plans to acquire IT management software and services company Mercury Interactive for $4.5 billion. The deal was touted by HP as increasing the size of its software business to more than $2 billion in annual revenue.

Swanton said many of the companies being bought up are looking for an exit strategy to pay off investors and get on with life. Customers win in the long term because they don't need to work with many small companies to put together one large enterprise software strategy.

Another example of a company attempting to round out its service offering comes from Infor. The Alpharetta, Ga., software company continued to consolidate the tech sector by agreeing to acquire Extensity and Systems Union Group, two financial software firms. The move comes as Infor finalized its May purchase of Chicago-based SSA Global Technologies Inc.