Top IT Trends for 2011

Cascadia Capital LLC is a Seattle-based independent investment bank founded in 2000. They recently announced their top information technology predictions for 2011, based on insights from their work with private and public growth companies.

The six trends are:

  1. Increased competition between growth equity and strategic acquirers
  2. M&A, not IPOs, drive shareholder liquidity
  3. Web content management, analytics, marketing automation and customer
    relationship management (CRM) convergence
  4. SMB adoption of cloud services will drive consolidation of cloud vendors
  5. HIPPA compliance drives M&A for healthcare IT sector
  6. Technology enabled services companies become acquisition targets

Do you agree with their predictions? What would you add?

Acquisition Activity? Up, According to Corum’s Nat Burgess

Corum Group is a leading provider of merger and acquisition services to software and information technology companies. Because of their heavy involvement in  M&A, they are an excellent source of data about high tech transactions. Their president Nat Burgess was recently interviewed on CNBC about the current level of acquisition activity.

Exit Strategy Update 04/22/2010

WSJ: Tech Firms Bulk Up With Debt
“The decision to take on debt breaks from tradition in tech, where companies have typically preferred to raise money by selling stock. Debt has become a more attractive fundraising option largely because interest rates are low. The shift comes as mergers and acquisitions are reshaping the industry, with a handful of tech giants that have huge cash hoards—such as Cisco Systems Inc. and Hewlett-Packard Co.—snapping up firms. Now smaller tech companies are hoping that adding debt will allow them to get in the buying game.”

Virtual Intelligence Briefing: AOL dumps $850M Bebo acquisition – Why big M&A rarely works
“Don’t pay product valuations for feature companies – It is a good strategy to acquire small companies to gain super star employees, cool new features, and access to new market segments. But, the acquiring company needs the discipline to only pay a valuation commensurate with a “feature” not a “product”. Don’t add lots of valuation for synergies that probably won’t happen, or for revenue streams that may not materialize.”

WSJ: Eating Into Apple’s Cash Pile
“With a market cap of around five times book, Apple could choose to use its stock for large-scale acquisitions. But as its market value is around $220 billion, this would need to be a very large-scale acquisition indeed. To give some perspective—and not to propose these companies as targets—U.S. software giant Oracle Corp. has a market cap of around $130 billion, while European leader SAP AG is valued around $60 billion.”

MercuryNews: Palmisano Needs ‘Bold Strokes’ to Sustain IBM Growth
“Under Palmisano, IBM has spent $25 billion buying companies. Compare that with at least $42 billion for Oracle and Hewlett-Packard’s $45 billion. IBM’s share price had risen 31 percent in the Palmisano era, versus 53 percent for Oracle and 165 percent for Hewlett-Packard.”

Acquisition Market Outlook

The timing of an exit is naturally influenced by overall activity levels in the market, and today’s market outlook for acquisitions is mixed. The pace of merger and acquisition activity has slowed down somewhat, but the picture is far from bleak. Large strategic companies continue to grow through acquisition. Private equity investors still have capital and are looking for opportunities to put it to work. Owners of private companies are looking for timely exit strategies, and prices are still strong for high-quality assets.

While there were several high-profile deals in 2008, the volume of software acquisitions M&A transactions decreased from the previous year. Fewer large-scale transactions occurred, while middle-market deals were more prevalent.

M&A Market Dynamics

Valuations were generally steady. EBITDA values in 2008 were down less than 2% year over year, and 2008’s median EBITDA multiple remained higher than 2006. Buyers still seem willing to pay solid prices for attractive acquisitions.

What are the characteristics of software industry acquisition activity thus far in 2009?

M&A Market Dynamics - First Half

Overall transaction volume dropped 10% from the same period in 2008, and aggregate transaction value dropped 27%. On the other hand, large companies like Oracle and IBM remained very active, and most people I talk to expect the acquisition market to rebound somewhat in the middle of 2010.

BerkeryNoyes provides merger and acquisition services for middle market companies. Each year they publish reports on trends in acquisitions for key industries. Most of the research for today’s post was drawn from information on their site, which is included in the 20/20 Outlook blogroll.