The number of technology company mergers and acquisitions is rising again after stuttering in 2009. IT directors will have to be prepared to take stock of what supplier changes mean to them.
According to ICON Corporate Finance the number of global mergers and acquisitions in the IT industry fell 23% last year compared to 2008.
However, M&As accelerated in the second half of 2009. In the US, 17 out of 24 deals worth more than $1bn in 2009 were completed in the second half of the year.
PricewaterhouseCoopers reported that the number of M&As in the UK fell 60% from 66 to 25 last year. The company said recovery is on its way, although it is "less pronounced than in the US".
The increase in mergers and acquisitions can benefit CIOs by making funds available to improve an existing technology or to turn a good idea to one that can appeal to the mass IT market.
Claude Roeltgen, CIO at Luxemburg bank BayernLB, says it is difficult to say whether technology supplier mergers are a good or a bad thing. "But it is something that CIOs must look at very closely when it does happen."
Roeltgen says in the short term mergers and acquisitions create concerns because of uncertainties about the plans for products. "In the long term you need to decide whether the partner is still strategic or not."
Yann L'Huillier, CTO at trading venue Turquoise, says mergers and acquisitions can have a different impact depending on how many suppliers there are in that sector. "If there are a lot of suppliers and it is like a jungle it is a good thing if some merge. But on the other hand, you want competition between suppliers."
When a bigger company buys a niche supplier it can help the technology move forward, says L'Huillier. "When you are in a niche at some point in time you have trouble getting to the next level."
Case Study: Progress Software
Progress Software this month acquired business process management (BPM) software maker Savvion for $49m. Savvion has been established for 15 years and employs 160 people.
The acquisition is an example of how a niche player can further develop technology following acquisition. Progress Software will use its complex event processing software to monitor business events to identify threats and opportunities. It will then feed the information into the acquired BPM system which will model business processes to take advantage of or cope with the events it has detected.
John Bates, CTO at Progress Software, has experience of being acquired and acquiring. He was co-founder of complex event processing software company Aparma, which was acquired by Progress Software in 2005 for £30m. Aparma came out of research carried out by academics, including Bates, at Cambridge University.
"As an independent supplier you reach a point where you think 'if this is going to be one of the leading solutions we need to have a global channel to get it out'," says Bates.
"The global presence of Progress is going to help Savvion. It was the same with Aparma."
The deal is good for CIOs because it gives the technology more stability and the opportunity to be enhanced when a larger company puts its money behind it, he says.
"If you are a CIO you want to technology that solves business problems, but you also want to know that it is backed by a company that is strong and is putting together a suite of products that solve your business needs."
Technology companies are positioning themselves for economic recovery. CIOs must keep a close eye on the companies they work with to ensure their strategies don't take different routes going forward.
Who made the most acquisitions last year?
- Cisco - 14
- IBM - 11
- Capita - 11
- Fujitsu - 9
- Thomson Reuters - 9
- Hitachi - 9
- Oracle - 9
- Microsoft - 7
- NTT Data - 6
- 3i-infotech - 6
- CDC Software - 6
- Google - 6
Source: ICON Corporate Finance
Notable acquisitions in 2009
- Xerox acquired outsourcing provider Affiliated Computer Services (ACS) for $8.7bn.
- Dell bought service provider Perot Systems for $3.9bn.
- Oracle acquired Sun Microsystems for $7.4bn.
- Cisco bid $3.4bn for Tandberg.