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Tech Industry

Mergers and acquisitions up 25%

Mergers and acquisitions in the information technology, media, and communications industries soared to 4,040 globally, up 25 percent over the previous year.

Let's get together and feel all right.

That was the theme of last year as mergers and acquisitions in the information technology, media, and communications industries soared to 4,040 globally, up 25 percent over the previous year, according to Broadview Associates' 1997 Technology M&A Report.

The value of the deals increased to $242.8 billion, up from $207.2 billion in 1996, the report said.

In North America, M&As increased 31 percent, with the largest flurry of activity taking place in the United States, which accounted for two-thirds of all tech companies acquired during the year.

Public companies sold during the year jumped 57 percent, while the number of public software companies sold soared 83 percent.

Privately owned tech companies increasingly turned to mergers and acquisitions as their preferred strategy for accessing capital and technology, rather than going public. Broadview's survey found that, by a ratio of 8 to 1, tech companies chose to do an M&A, up from a ratio of 4 to 1 in 1996. The study said the major reason for the switch was a desire to avoid the uncertainty of going the IPO route.

Paul Deninger, chairman and CEO of Broadview, said that in recent years tech companies have flooded the market with IPOs, making it tough for any newly public company to get analysts' attention. Without adequate coverage, the stock performance of most of these companies tends to lag.

The Broadview study also revealed that non-tech buyers for tech companies, including financial investors and management-led buyouts, rose 28 percent in 1997. Larger companies often face a "buy it or build it" dilemma, the study said, and sometimes decide that it is more cost effective to buy.

"There are larger, well-capitalized companies that need new technology and must quickly deliver fully integrated solutions to their customers," he said. "Larger merger partners can offer private companies attractive, strategically based value and opportunities for growth without the risk of the IPO market," he said, adding that this makes such deals a win-win situation.

The Broadview study noted, for example, that the past year contributed to a continued trend of telecommunications companies moving toward M&As in their efforts to offer their customers a source for local telephone, cellular, long distance, Internet, and intranet services.

The telecommunications sector recorded the largest M&A transaction in all of corporate history last year--the pending $37 billion acquisition of MCI by WorldCom (WCOM).

3COM (COMS), Ascend (ASND) and Lucent (LU) all made acquisitions to bolster existing product lines in communications hardware in 1997. Other big deals included Compaq's (CPQ) takeover of Tandem Computers and Raytheon's acquisitions of Hughes Electronics' and Texas Instruments' (TXN) defense electronics businesses.