Technology sector mergers and acquisitions (M&As) increased 26% globally and more than doubled in the UK in the first quarter of 2010 compared with Q1 2009.
Bigger tech companies are snapping up smaller ones in a bid to take advantage of discounted prices and plug gaps in their offerings at the same time.
This means businesses can look forward to greater choice and can expect to meet more needs while dealing with fewer suppliers.
Innovation is vital to post-recession growth as technology continues to evolve at an ever-increasing speed, say analysts.
The steady increase in M&As is mainly in the form of small, strategic deals, according to a report by Ernst & Young.
This trend was particularly strong in the European software sector, where M&As were up 70% overall and 173% in application software in Q1 2010 compared with the previous year, according to TechMarketView.
Mobility remains the primary disruptive technology driver, the report says, but M&As have moved from infrastructure to applications and content, which accounted for 6% of the 628 deals announced in the first quarter of 2010.
This was followed by social networking and healthcare systems at around 5.7% each, and cloud computing and clean energy at around 3.8% each.
Fast responders win
"Change means that companies need to react very fast," says Richard Holway, chairman of research company TechMarketView.
But developing new products to meet changed demand takes both time to market and involves risk, so it is much better to buy strategically to fill holes in the portfolio, he says.
Sage, Microsoft, Google and the like have bought literally hundreds of companies to fill strategic or geographic gaps in their portfolios, says Holway.
"Much better to buy small but often than the one big acquisition that busts the company," he says.
The trend is illustrated by the fact that while the number of deals increased from 822 in Q4 2009 to 841 in Q1 2010, the total value fell from $55bn to just $31bn.
Big fish bite
Many of the big buyers have been busier than ever, with Google, CA, IBM and Oracle all announcing at least three acquisitions in the first quarter of 2010, according to a report by The 451 Group.
The number of acquisitions in the tech sector around the world jumped to 841 in the first three months of 2010, compared with only 663 in the same period in 2009, the report says.
The increase is even bigger for the UK, where the number of acquisitions announced in the tech sector shot up to 32 compared with only 14 the year before, according to the Ernst & Young report.
"The UK continues to be a hotbed of technology innovation," says Neil Hutt M&A technology partner at Ernst & Young.
With innovation driving so much recent M&A activity, it is hardly surprising to see that the UK is currently leading the way in terms volume of technology acquisition deals, he says.
Long term, this should translate into better quality products and services, with greater choice and more competitive prices beneficial to businesses, says Bola Rotibi, principle analyst at MWD Advisors.
But, she says, M&As often take a while to deliver as integration is completed, and it all ultimately depends on why particular M&As are made. Not all such deals will necessarily translate into benefits for the market.
This whole issue of M&As also touches on the jobs market, so it may not be good for employment opportunities in the UK if small local firms are being acquired by bigger companies based elsewhere, says Rotibi.
The fact that there is all this M&A activity, she says, does indicate that the UK tech sector is strong and could offer growth potential for the UK economy.
The UK technology sector was second only to its US counterpart in the number of M&As in the first quarter of 2010, according to Ernst & Young.
The UK has risen from fifth position in Q1 2009 to second place in Q1 2010, followed by China, Canada, France, Japan and Germany.
The first quarter of 2010 indicates that M&A activity in the tech sector will continue to grow, says Joe Steger, global technology transaction advisory services leader at Ernst & Young.
"Leading technology companies have significant reserves that provide the financial flexibility that readies them to do deals," he says.