This article originally ran on June 4, 2003 and was updated June 6.
NEW YORK (CNN/Money) -- Is tech merger mania here to stay?
First came PeopleSoft's acquisition of J.D. Edwards on Monday and the announcement on Wednesday of Palm and Handspring's intent to merge. Friday morning, of course, was the biggie: Oracle's $5.1 billion offer to acquire PeopleSoft.
The pace of consolidation has accelerated as tech stocks have continued to climb. Since March 11, the Nasdaq's low point, there have been several interesting, if not exactly landscape-shaping deals.
In April, credit card transactions processing titan First Data announced that it would buy ATM processing company Concord EFS for $7 billion. (Both companies are among a handful of techs that are actually up since March of 2000. For more about these bear-proof techs, click here.)
Last month, Barry Diller's USA Interactive announced it was buying online financial services company Lending Tree for about $730 million. Also in May, chip company Zoran agreed to buy another semiconductor firm, Oak Technology, for $360 million.
Slowly but surely, tech companies are starting to rediscover the urge to merge. Arnie Berman, tech strategist for Soundview Technology Group, said that more deals are likely this year as long as tech stocks continue to perform well.
"When stock prices are rising, companies have conviction about stability in the near-term and are more willing to take on the risk of acquiring something," Berman said.
The pickup in mergers is a stark contrast to what's going on in the IPO market. Very few tech companies have filed to go public since March, despite the surge in tech stocks. Berman said that a big reason is that there are still too many companies chasing too little business.
With that in mind, Berman expects more consolidation in the software sector.
"In the midst of the mania there were a whole lot of companies that went public that were just pure plays on the willingness of businesses to throw money at new projects," said Berman. "Now that a lot of these companies have had difficult times, it makes sense that there would be consolidation."
| More about tech M&A
|
|
|
|
|
Pip Coburn, global tech strategist with UBS Warburg, also thinks that there will be more consolidation in tech. But he thinks that deals are likely to take place at a steady pace over the next five to six years and will not happen in a huge spurt. "There is not a huge spark for consolidation just yet."
Coburn said that the industries that will likely experience the most consolidation are semiconductors, hardware, and telecom equipment because there is a lot of overcapacity.
To be sure, neither expects many blockbuster deals along the lines of say, Hewlett-Packard buying Compaq last year or AOL's merger with Time Warner in 2001. (AOL Time Warner is the parent of CNN/Money.)
And even if major tech firms like Microsoft or Cisco Systems, which have been fairly acquisitive during the past few years, continue to scoop up smaller rivals, it's unlikely that they will pay huge takeover premiums.
Still, investors have been hoping to see a reduction of the number of tech companies for two key reasons. As industries consolidate, it decreases the need for bitter price wars, which hurt profits. Aggressive pricing has been a major problem in the chip and hardware sectors, for example.
An increase in merger activity also would be welcomed because it could help sustain the tech stock rally as investors speculate on more deals. To that end, shares of Research in Motion (RIMM: Research, Estimates), a rival to Palm and Handspring in the handheld market, rose more than 7 percent on Wednesday.
|
