Feeding the Giants – 09/24/10

SEP 24

It’s official. The recession is over and has been for some time. According to the folks who track this at the National Bureau of Economic Research (NBER), the recession ended in June 2009. While most folks on main street may not have heard this news yet, a few of the global software master brands have been busy delivering the good news to a fairly large group of software shareholders over the last 16 months in the form of aggressive acquisitions.

Among the corporate development groups at IBM, HP, Microsoft, Oracle, SAP, and Cisco, a total of 57 deals have been transacted since the recession ended. Throw in Intel, EMC, Google, and Dell – all of whom are active in targeting software acquisitions – and the total deal count passes 100!

Software is not only hot, but it’s a market that is consolidating quickly. There is clearly an active race to shore up enterprise spend on software and related IT technologies. With hundreds of billions in cash lying around corporate balance sheets of the largest master brands, the fevered pace of software acquisitions will continue.

Just look at Oracle’s statements within the last couple weeks. In explaining why they hired Mark Hurd, Oracle Co-president Safra Catz stated “… we need people experienced in operating a $100 billion business”. Hurd ran the largest technology company in the world at just about $125 billion in annual sales. For Oracle to almost quadruple in size to hit the revenue target Catz mentions, the company will have to step-up its already aggressive acquisition pace.

So the race is on. The tech giants will continue their acquisition spree with sights set on filling portfolio gaps and entering net-new areas. With literally thousands of software vendors, the landscape is on one hand a target rich environment. However, in considering sale, size, solution uniqueness, profitability, architectural and cultural fit and a host of other factors that go into acquisition decisions, the universe of highly attractive targets which are large enough to move the needle for these behemoths is limited. Aggressive competitive bidding will become the norm.

Case in point is the much publicized bidding war between Dell and HP for 3Par which saw the acquisition price more than double from $1.13 billion to $2.4 billion in a matter of a few days. While 3Par may seem an anomaly and extreme case, competitive bidding is a fairly common occurrence, especially for the best assets in the market.

Even though the recession does not feel over for the folks on Main Street, the corporate development groups in some of the largest master brands have never been busier. Oracle, HP, IBM, and others mentioned will continue to target best properties in the race to round out their stacks and become the dominant players in enterprise IT.

Have a great week!

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Scott Donahue