Takeover fever still rages

A report by The 451 Group, a technology research firm, highlights the takeover frenzy that made 2007 a great year for the investment bankers, and a very insecure one for employees of companies that appeared on the M&A (mergers and acquisitions) radar screen.

Microsoft, Dell, IBM, SAP, and Nokia each made the largest acquisitions in their history last year, while Oracle continued its three-year acquisition spree. Interestingly, nearly all of the biggest deals of the year were cash only, explaining while Wall Street, which doesn’t like stock deals (causes dilution), was generally pretty happy with them.

Drivers included deals to reach new customers, such as Google’s $625 million buy of on-demand e-mail security vendor Postini; moves to next-generation technology, such as the $500 million purchase of XenSource by Citrix; a push into new markets, such as Dell’s landmark purchase of storage vendor EqualLogic; and a move to new business models, illustrated by EMC’s takeover of on-demand vendor Berkeley Data Systems.

Despite the constant stream of takeovers in the enterprise software sector, there is still plenty of cash available — and plenty of tempting targets. Some of the picks made by analysts for The 451 Group include: BMC Software, Citrix Systems, CA, Informatica, Lawson, Novell, Open Text, Progress Software, Quest Software, Symantec, and Tibco Software. “We are not saying these companies will be targets in 2008, just that there are still plenty of large deals that could potentially be done,” the group wrote.

I have trouble picturing either Symantec (too unwieldy unless the Veritas business were spun off) or CA (still too troubled and unfocused) being purchased, but some of the others, particularly Tibco, are intriguing possibilities.

Turning to data protection, the analysts say that potential targets include Diligent Technologies, Sepaton, FalconStor, and even potentially Quantum in the enterprise space; in the midrange market, ExaGrid Systems and Data Domain (though the latter is now richly valued, which is likely impacting the valuations of all the others); and down into the SME/distributed arena, Asigra.

As to online backup, “it’s increasingly clear that any data protection vendor worth its salt needs to have an online component to cater for future demand from existing and emerging customer categories. The consumer market is potentially the most significant of these, as it dawns on the masses that it would be a good idea to have a spare copy of the vast amount of treasured memories and collections they are now accumulating and storing in digital form.” Potential targets include Asigra and Carbonite.

Compliance, driven by Sarbanes-Oxley and HIPPA, is another area that looks ripe for M&A this year. Some of my colleagues at InfoWorld believe that enforcement actions have been rare, but execs that I know take those laws very seriously. (If you’ve had the unfortunate experience of having an adult child or friend in the hospital, you know just how hard it is to get relevant information without a signed release.)

“The concept that the government can tell a business what is important to it is laughable, but forward-thinking enterprises understand that they should use government dictates about protecting information as a reason to reexamine (or examine for the first time) how business gets done and how it can be done more efficiently. This gives rise to an increased reliance on objective enterprise metrics. We believe that companies able to provide those — folks like Agiliance, ClearPoint Metrics, eIQnetworks, ExaProtect, Intellitactics and ArcSight spring to mind — are better suited for acquisition in 2008 than they have been to date,” the analysts wrote.

It’s a long list. Not all, or even the majority, of those companies, are likely to be taken over. But some surely will go down that road, creating opportunities for investors and angst for employees. Happy New Year.

I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net.