Microsoft, Google: buyers. Yahoo, Netflix: buyees?

By David Goldman, staff writer

NEW YORK ( -- High-profile tech mergers have been ramping up, with big names like IBM and Google getting deals done this year.

So far, there have been 1,281 deals totaling $71.3 billion announced in tech and telecom this year, according to The 451 Group's M&A KnowledgeBase. That's up 47% from this time last year.

Just Monday, IBM agreed to buy AT&T's software and services unit Sterling Commerce for $1.4 billion. And last week, Google's $750 million acquisition of AdMob was approved. Two other notable deals include SAP's $5.8 billion acquisition of Sybase and Symantec's $1.3 billion purchase of Verisign's security services unit.

The increased activity is partly being driven by stellar first-quarter earnings reports and an improved economic outlook.

But interestingly, the fallout from the European debt crisis is also helping. Increased uncertainty about the pace of the recovery has prompted some companies to look for acquisitions to maintain their customer base. Many tech companies figure if they can't make their own pie bigger, they'll just go out and buy their neighbor's pie.

The big ones have plenty to spend: The 10 largest tech firms by market capitalization have about $200 billion of cash on hand combined.

That's a lot of money to throw around. Here's a look at the likely bidders and biddees.

Looking for deals

Experts agree that the software space will be the most active this year.

Application and enterprise software, which offer solutions for corporations, are less mature than hardware, so they have more room to grow. That makes software companies a good pick for tech firms looking to expand their sources of revenue, according to Brenon Daly, analyst at 451 Group. SAP's purchase of Sybase is a good recent example.

Oracle (ORCL, Fortune 500), IBM (IBM, Fortune 500), and Microsoft (MSFT, Fortune 500) are all constantly making acquisitions, and recently the majority of those purchases have been application and enterprise software companies. Analysts expect that trend to continue, as established software giants like Oracle and Microsoft try to hold onto their customer bases, and IBM and SAP try to take customers away from competitors.

Hewlett-Packard (HPQ, Fortune 500), which has lately focused on building up its networking capabilities, could potentially go after an enterprise software company as well, said Murray Beach, managing director of TM Capital. But HP has recently been acquisition-happy with its purchases of 3Com and Palm, so some think that HP may hang tight for a while.

Google (GOOG, Fortune 500), which makes about one acquisition a month, is also looking to increase its enterprise software presence with its Google Apps suite. The search giant recently improved Google Docs to better compete with Microsoft Office -- which will also soon be available online -- and the Apps suite will be a continued focus for Google, according to Don More, partner at investment bank Updata, which specializes in tech M&A deals.

Though software may make up the majority of the deals this year, analysts say Disney (DIS, Fortune 500), Comcast, AT&T, AOL (AOL) and Yahoo are among some media companies looking for content deals. As forecasts point to an increase in paid articles and video online, media companies want to get a jump on that trend.

Meanwhile, don't count out Cisco (CSCO, Fortune 500), Juniper (JNPR) and other networking companies that have always looked for growth opportunities through acquisitions, said Crawford Del Prete, analyst at IDC.

Ripe for picking

Analysts agree that the majority of deals will be for smaller software companies that aren't necessarily household names. BMC (BMC) and Quest Software (QSFT), which have all been rumored takeover targets for a while, are the names that a number of experts said as possible takeovers by the IBM / Microsoft / Oracle / SAP (SAP) bunch.

For Internet companies, it's just a matter of time before one of the location-based services like Gowalla and Foursquare get bought by a Google, Facebook or Twitter, some analysts said. More also cited Salesforce (CRM), a cloud-based customer relations management company as a likely target for Google or (AMZN, Fortune 500).

The biggest names being talked about could be on media companies' wish lists.

Netflix (NFLX), which has been rumored to be a target for Amazon for about five years, may be starting to look particularly attractive to AT&T (T, Fortune 500) or Comcast (CMCSA, Fortune 500). Yahoo, the largest online content provider, was also mentioned as a possible takeover target.

Though Netflix's stock price is running high, its soaring customer base and growing share of streaming video downloads would make the company an attractive asset. Netflix would be a good match for existing content providers that are looking to compete with Hulu and YouTube.

Yahoo (YHOO, Fortune 500) would be expensive, but for a company like AT&T that makes $1 billion a month, and offers little of its own content, Yahoo could be a good play, according to More. AT&T had been rumored to be a potential suitor for Yahoo several years ago, but those rumors have died down.

A spokeswoman for Yahoo would only say, "We are proud to be the largest online media company and continue to invest in delivering high quality content and experiences to users and advertisers."

A spokesman for BMC noted that a potential acquisition of the company was a frequent source of media interest, but would not confirm or deny any merger talks with other companies.

Spokesmen for Quest, Salesforce and Netflix did not immediately respond to requests for comment. To top of page

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