IBM closes lackluster M&A year with buying spree
The total value for tech merger and acquisition activity reaches $142 billion in 2009; in contrast, the second quarter of 2008 alone saw $173 billion in tech M&A deals.
IBM decided to close 2009 with a bang by, a privately held provider of business process management (BPM) software. Big Blue racked up a number of acquisitions this year including: data discovery software firm , database security firm , security provider , and analytics provider .
Lombardi marks IBM's 90th acquisition since 2003. That's a lot of companies to digest.
With Lombardi, IBM strengthens its presence in BPM by effectively capturing the customers it doesn't already have. IBM currently has more than 5,000 BPM customers in about 30 countries and growing.
According to Lombardi CEO Rod Favaron, the company has about 300 enterprise-level customers with a high percentage shared with IBM. Lombardi has a shockingly impressive customer list, including Allianz Group, Aflac, Barlays Global Investors, Dell, FETAC, Ford Motor, Hasbro, ING Direct, Intel, Maritz Travel, National, Bank of Canada, National Institute of Health, Safety-Kleen, T-Mobile, UCLH, and several governmental agencies.
It's generally been a quiet year for technology merger and acquisition deals with the 2009 value total for tech M&A activity reaching $142 billion, according to recent data from technology investment research firm The 451 Group. To provide context, the second quarter of 2008 alone saw $173 billion in tech M&A deals. The median deal size in 2009 was $40 million, contrasted with a median of $43 million in 2008 and $100 million in 2007.
From January to November 2009 there were only 31 technology transactions valued at $1 billion or more, and The 451 Group reports that all of the high-multiple deals took place in the second half of 2009, resulting in M&A spending running 50 percent higher than in the first two quarters. Notable deals include Dell's purchase of Perot Systems and Cisco Systems' pair of $3 billion acquisitions in October.
Basically, the big companies get bigger while smaller, often niche players act as acquisition feeding grounds dependent on the number customers and/or users they acquire as well as how well they fit into a bigger company's strategy.
For better or worse, this is how tech M&A sector has trended over the last few years. Venture capital pours into companies that often have no chance to go public, and big companies keep a watchful eye, trying to not let start-ups get too big and to ensure they can buy them if there are technical components they need, such as in the case of Lombardi, or when they want to tap into a giant user community, like in the case of VMware's.
Many believe that 2010 will bring acquisitions back into favor, and I tend to agree. There are market segments that have been taking a long time to mature, like tools for service-oriented architecture and hyper-fast growth areas such as cloud computing. There are also a lot of companies that were well-funded in 2007 that will either need to raise more money or put themselves up for sale.
M&A in 2010 will likely be more scatter shot as there are several big companies like NetApp, EMC, BMC, and CA that have gaping holes in their product offerings primarily because of how quickly the market has changed.
RedMonk analyst Michael Cote told me that "it's too tough being a server only business now. The trend is toward complete systems and new theories of operations. To sell into the enterprise, you have to sell big vision and big systems, not just cheap."
To that end, big server vendors will need to offer more complete solutions including software and services, and software vendors will need more strategic partners to address the market segments where they don't have products.