By ReutersInformationWeek
Most executives attending the Reuters Global Technology, Media
and Telecoms Summit this week said they expect more mergers and
acquisitions in their sectors, whether that be software, computer
services or network operators.
"I do think valuations are attractive now, and I think we have
advantages in this framework 'cause we have a very healthy balance
sheet, strong cash generation, good cash on hand," said IBM
Chief Financial Officer Mark Loughridge.
"It used to be, 10 years ago, when we made the Lotus
acquisition, it was kind of an opportunistic approach doing M&A.
Now, it is very much an operational aspect of our business."
Even with the pullback in private equity-led leveraged
buyouts, the tech industry has seen no shortage of dealmaking this
year, including Hewlett-Packard's agreement to buy
Electronic Data Systems for an equity value of $13.2
billion.
And the biggest deal in Silicon Valley this year may be yet to
come, with Microsoft and Yahoo still
giving each other backward glances.
Data from Dealogic shows technology companies globally have
announced 1,991 M&A deals in the year to date, a 16 percent
increase from the same period last year. But smaller deals mean
the total value fell to $94 billion from $105 billion.
SWEET SPOT
Reflecting the "small is beautiful" trend, executives from
software makers such as Adobe Systems and McAfee expressed more interest in acquiring specialized
technologies than in big, transformative mergers.
"Expect to see us do more of these small acquisitions," said
Adobe CEO Shantanu Narayen, referring to companies with 10 to 50
employees that could fill technology gaps. "That really is more
the sweet spot of where we're looking."
McAfee CEO Dave DeWalt said he was eyeing acquisitions worth
around $50 million to $350 million.
Information storage company EMC has bought more
than 40 companies for a total of about $8 billion since 2003.
Chief Financial Officer David Goulden said the company would keep
shopping.
"There aren't many who have been as acquisitive on a routine
basis. And we continue to focus generally on small- to mid-size
acquisitions as tuck-ins or line extensions and continue to do
that this year," he said.
In the telecoms business, wireless service provider Virgin
Mobile USA expected more consolidation, particularly
among smaller players.
"Over the long term networks are commodities ... What you need
is more and more scale and more and more cost efficiencies,"
Virgin Mobile USA CEO Dan Schulman said.
FINANCING COMPLICATED
With the Nasdaq still down 14 percent from its 2007
high even after some recovery in the past few months, tech
valuations are relatively low so it's no wonder that companies
with strong cash positions are on the prowl.
In the S&P 500 Index, the technology sector is expected
to have the highest earnings growth of any sector in the second
quarter at 15 percent, according to data from Thomson Reuters.
In Japan, where interest rates remain razor thin, high-tech
glass maker Hoya Corp is eager to put its cash pile of
about $1.5 billion to work and could spend up to $5 billion on
acquisitions over the next few years.
Hoya bought digital camera and endoscope maker Pentax last
year, and CEO Hiroshi Suzuki said if the company did not continue
to make acquisitions in the next couple of years, half of its
balance sheet would turn into cash.
"That's not good. I guess we need to do sizable acquisitions
in the next couple of years," he said. "Anywhere between $1
billion to $5 billion."
But U.S. companies that need to raise debt to fund
acquisitions could have a harder time as banks have turned much
more cautious, executives said.
"So in the past, for example, if a company could make an
acquisition and go to a bank and get a bridge loan to make it
happen, today you may have to go to five or six banks or eight
banks because the banks just don't have the liquidity to do that,
so it's going to be much more complicated," said Hamid Akhavan,
head of Germany's T-Mobile.
Venture capitalists said prudence was the word.
"In this environment it is extremely prudent ... to fully
finance companies that have cash on their balance sheet, to be
conservative, I would say for the next 2 to 2-1/2 years because we
don't know where they're going to head in the next 12 to 18
months," said Navin Chaddha, managing director of Mayfield Fund.
(For summit blog: http://summitnotebook.reuters/)
(For more on the Reuters Global Technology, Media and Telecoms
Summits see
(Additional reporting by Nathan Layne in Tokyo and Georgina
Prodhan in Paris, editing by Phil Berlowitz)
By: Ritsuko Ando
Copyright 2008 Reuters. See original article on InformationWeek
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